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(September 26, 2005) The market is buzzing with brand-spanking new referral companies. Everyone's got a slant. Everyone has a spin.

In a concise article called What's wrong with employee referral programs, Peter Weddle describes a short list of the improvements required to turn a good idea into a competitive weapon. After citing the reasons people use them (mostly, ease of sourcing / closing as we mentioned last week passive candidates are easier to recruit and this method generates them), Weddle says:

The problem with this rationale is that the potential of employee referral programs, at least in terms of the delivery of quality talent, is seldom fully realized. In fact, the candidates identified by employees are generally the people they know best, not necessarily those who would be best for a specific opening. Said another way, employee referral programs often become the employment equivalent of a "family and friends" exercise.

These programs may increase retention, which is the metric often used to justify the "quality" of candidates sourced from employee referral programs, but it does not axiomatically lead to high levels of on-the-job performance. When we were waging a War for Any Talent, during the late, unlamented dot.com bubble, this get-a-round-peg-in-a-round-hole approach to recruiting may have sufficed. In today's War for the Best Talent, however, it will not. In that competition, the only strategy that will propel an organization to victory is sourcing and retaining top performers.

So, how should employee referral programs change? In my view, they must shift from a de facto program for family and friends to an explicit program of talent scouting. In other words, organizations should ask their employees to refer the best people in their field, even if they don't know them personally, and then reward those employees when the top performers are identified as a fit for a specific opening in the organization and subsequently recruited and successfully hired.
(Career Journal, Peter Weddle, What's wrong with employee referral programs)

With that, Weddle relegates employee referral programs to where they probably belong: a small component of a good sourcing toolkit. Referral programs are problematic and tend to limit a company's ability to navigate. They produce a monoculture of "more like we already have". They simply do not work if the workforce is savvy and aware of the cash value of their network.

The negatives do not seem to be slowing the flow of tool makers or online sites for internal referral programs. This week, we're going to look at the pros, cons, negatives and positives of employee referral programs and the companies who are bringing them to market.

Here are the players we know about. They each provide some aspect of off the shelf referral recruiting tools. By the end of the week, it could easily double. The companies all have different mental maps of the universe, business models, market strategies and implementation quality.

Lots of companies and organizations have an internally generated (or private label) online referral program. Healthcare operations are particularly aggressive with advertising and reward fees. Here are a couple of examples::

Associations, trade groups and other shared interest organizations also have them:

And then there's search firm automation:

Our list is obviously incomplete. It would be interesting to see a real vertical search open up in this area. Meanwhile, the state of the art is that lots of companies have referral programs, most are still internal and not really part of their online offerings, and, most are used less than optimally. We'll try to shed a little light on the subject.

The VirtualHandshake Vendor Wiki has a great list of some of the players in business social networking. Some form of referral recruiting will emerge in most of them.

Don't forget to check out the blogs on bert.

- John Sumser

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