Internal job postings are a really important part of the hiring process. They don’t always provide the best candidate but having interest from internal candidates for a new role is great. You want to have the kind of work culture where people feel good about moving forward and are willing to putting up their hand.
There can be awkward moments too. There is always a candidate who is totally under qualified. And the one that you want to apply doesn’t.
Treat all internal applicants with great respect. This is one of the best examples of internal customer experience. How they feel about the interview process will have a significant impact on the rest of their time with your organization no matter what the outcome. 
Even if someone is not at the level to be considered a realistic candidate, spend some time with them. Listen to their objectives and why they are interested in the role. This is a rare opportunity to have this kind of candid conversation.
Chances are they already know they are not qualified. They were really just looking for a chance to talk with you when it was not a work situation or a performance review. Talk with them openly about what they need to do to get ready for a role like this. Give them some guidance on laying out a plan and help them understand the resources are available to them through the company. You’d be shocked at how many people are not aware of what programs are available to them.
When you have your eye on someone and they don’t come forward, you can reach out to them directly to see if they will talk with you about the role. They may be under the impression that they are not qualified or they may not have realized the process was underway. Make sure you let them know that you will keep it confidential if they’d prefer. They may be nervous about even whispering about something new because of their relationship with their manager. Be aware and be sensitive.
Make sure that you provide timely feedback for these candidates just as you would for external ones. Again, this is a true representation of your internal brand. A positive career conversation for internal candidates is a win for the company and a win for the employee.
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