Make it a high priority for all. Filling positions with internal candidates encourages career growth, professional development and cross training of employees. It's a big morale boost if your employees perceive that they have growth potential within the company. They will be less likely to leave the company. Avoid doing this too often or your employees will loose confidence in the fairness and effectiveness of the internal transfer system and they will perceive favoritism, a big demotivator.
Employee Referrals are the best source of external candidates.
There's a strong motivation for employees to refer good candidates lest they feel responsible for referring someone who turns out to be a poor performer. Also, employees tend to know others in the same field, either through professional associations, or by having worked with them at previous companies. To encourage referrals, a large majority of companies pay bonuses to employees who refer candidates who are eventually hired. Employee referral programs work best when employees are enthusiastic about their work and their employer. College Campuses are another very popular recruitment source.