Promote from Within or Hire From Outside?

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promoteOne of the dilemmas that is faced by recruiters, HR and line managers alike is whether to promote personnel from within or to go hire from outside to fill a position. On some occasions, this decision is easy: either there is a clear pipeline of candidates who have been groomed to perfection to take up the new position or the internal job posting yielded not one noteworthy application.

But, of course many decisions to promote versus hire occupy that grey area and subsequent decisions are not so clear cut. It may be that you have internal candidates who are good but not sparkling, but who may be a force in the future versus an external highly competitive talent market containing candidates who ‘may’ be able to hit the ground running and deliver a more instant return.

Negative press for external hires

There hasn’t been a huge amount of research on the subject of  internal versus external hires, but in March of this year a new study by Matthew Bidwell from the University of Pennslyvania’s Wharton Business School shed some light on this area. His findings were striking; he discovered that external recruits tend to be paid 18% to 20% more than internal employees doing the same job, however, they receive lower performance scores in their first two years of the job. The negative press for external hires doesn’t stop there, the research also revealed that external hires were 61% more likely to be fired or laid off from their role and 21% more likely than internal hires in similar to voluntarily resign.

Recruiters beware – all that glitters is not gold

The survey also pointed that external hires are usually more qualified and experienced than internal workers, but this didn’t mean that they necessarily performed better, in a new company environment. It seems that many of the skills and experiences that you may find on a resume are context dependent, and while internal workers may have less skills/experience, their firm specific skills are likely to translate into better performance.

Newcomers may struggle to integrate and achieve their former glory

While external candidates introduce new approaches, new ideas and a fresh perspective, recruiters should be aware of how hard it is for employees to integrate into new businesses and maintain the performance standards they may have shown in the past. This view is promoted by another study by Harvard Business School which looked at what happened to star investment analysts when they changed companies. They discovered that in most cases, those who switched firms suffered an immediate and terminal decline in performance, and it suggested that their success was built largely on their former firm’s resources, networks and colleagues.

Promote from within can increase staff retention

There is an abundance of research on the market which shows us that lack of career advancement opportunities is one of the main reasons that desirable, high potential employees leave a business. In fact, a Blessingwhite survey found that 29% of 3,300 workers surveys cited lack of career opportunities as the key factor that would make them think about leaving.

So, clearly a company that has a genuine commitment to: equal opportunities, access to all, and promoting from within will generate more career advancement opportunities and be an environment that more effectively retains top talent. It will also help a business to attract top talent too.

Promoting within is cheaper and faster

Promoting from within is usually faster and cheaper than recruiting externally as there are no intermediary recruiting costs.

We are not hanging external hiring out to dry

Of course, external hiring has a crucial function to play in the talent management strategy of the business. For example, businesses could not grow without external hiring! Also, businesses are able to rapidly tool up for new projects and to address dramatic shifts in the market thanks to new hiring. Additionally, companies can introduce new skills, techniques and thought processes into the business that can ultimately make the business more efficient. On top of this, an external hiring strategy can be used to shift the entire culture of a business. Take Jeff’s Immelt at GE who in 2001 hired 5000 engineers and 5000 sales people between 2001 and 2003 to help drive a culture of innovation.

In conclusion, the point is that promotion from within has a clear role to play in the growth and proliferation of a business, but that over the past 30 years, businesses have been placing perhaps too much emphasis on external hiring. Smart businesses that are looking for higher performance and higher staff retention will be looking to maximize the use of internal promotion within their talent management strategy.

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Kazim Ladimeji is a Chartered Member of the Chartered Institute of Personnel and Development, and has been a practicing HR professional for 14 years. Kazim is the Director of The Career Cafe: a resource for start-ups, small business and job seekers.