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Hiring Externally or Promoting from Within, Which Is Better?

Posted by Chris Fields

externally hiring vs promotion

It’s one of the oldest discussions in the history of work, and we are not exaggerating. If you research “Promoting versus Hiring,” you’ll get millions of results, many of them simply defining the words “promotion” and “hiring.” For the sake of this article, we’re going to assume you already know the definition of the words. We are going to discuss the much deeper effects on an organization and its employees of hiring externally versus promoting from within.

The hiring decision can be one of the costliest ones for any company to make. Choosing the wrong person can lead your company down the drain, but hiring the right person can help you attain greater success. Jim Collin’s book Good to Great is a staple of Human Resource curriculums across the country. Some folks think the book is outdated. However, one of the defining and most memorable chapters, titled “First Who…Then What,” is where the phrase “Get the right people on the bus,” comes from, and it’s still widely used and practiced in HR today.

We all know how important hiring decisions are, and have seen major companies like YAHOO! make questionable choices that have not worked out so well. To illustrate the point, here is an article called “The Worst CEOs of 2015” featuring companies like Sears, Walmart, HP Enterprises, Whole Foods, and Sprint. Internally at these companies, and in many more like them who hire outside for results, there was someone who was overlooked. But consider this: after General Motors had its airbag scandal, the CEO was replaced by an internal candidate—from HR, no less—Mary Barra. She was named CEO and has turned the company around and brought it back to respectability.

Matthew Bidwell, an associate professor at the Wharton School of Business, has done extensive research on promoting versus hiring, and has found some interesting statistics. Bidwell analyzed seven years of employee data from 2003-2009 for more than 5,300 employees, with the following results.

External hires:

  1. Make more money than internal promotions.
  2. Are 61% more likely to be fired.
  3. Tend to have more education and overall experience than internal promotions.
  4. Need more time to get onboard and ramp up (which slows team productivity).
  5. Tend to raise the pay for the internal team. (Source)

Internal promotions:

  1. Boost morale and engagement (employee happiness).
  2. Keep corporate knowledge in-house.
  3. Cost much less than external hiring.
  4. Increase company retention.

Surprisingly, with all of the benefits of hiring internally, most companies are still more likely to hire externally. According to an article on SHRM.org (the Society for Human Resource Management), the average number of positions filled by external candidates (in companies with about 600 employees) in 2013 was 66, and the average number filled by internal promotions was 26. (Source)

Although the data suggests that promoting from within is better than hiring externally, this is not always the case. Sometimes a company needs a change of leadership and an influx of new ideas. Also, hiring external candidates may promote more internal competition, since it lets employees know that entitlement will not drive the company forward, so things like tenure and seniority won’t be enough to qualify someone for a promotion.

There are dangers when hiring from within as well. For instance, if someone is promoted from within who is not recognized as a qualified candidate, it can have the same damaging effects on company culture, morale, retention, and employee happiness as hiring someone from the outside. We should also note that favoritism is another problem often associated with internal hiring, one we’ve discussed here as well.

Succession planning is often overlooked in the hiring-versus-promoting discussion. Companies should create recruitment strategies that not only address the immediate need to fill a position but also look to develop employees to fill future positions as they become available. When companies fail to plan for future growth and development, succession hiring through promoting fails. But if done properly, succession planning can help keep employees focused on new opportunities, corporate happiness, and engagement, which greatly increases retention and can minimize the need for external hiring.

As most of us in HR know, there is no one-size-fits-all strategy. You should assess the situation, determine your current and future needs, vet all candidates (both internal and external), consider the risks, and then make the best decision you can for your company.

How does your company handle this question? Do you tend to favor one approach over the other?

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Quality of Hire metrics can help you make better hiring decisions and improve the performance of your staff overall. Developing metrics that accurately track applicant skills and employee productivity will help you implement standards and processes that best meet your company's unique needs. It's the first step to building the best possible staff for your company.

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About Chris Fields

Author

Chris Fields is an HR professional and expert resume writer with more than 13 years of experience as a former practitioner and current HR consultant. He is the curator of two websites: CostofWork.com and ResumeCrusade.com, and contributes HR-focused content to many others, including PerformanceICreate.com, eSkill.com and SmartRecruiters.com.

3 COMMENTS Join the discussion
  • Lisa November, 29, 2016

    Employees who already work for the company know how the company runs and are familiar with the culture. This can definitely be a benefit and can help the employee be effective. But you should have a robust internal training process created; otherwise, you risk harming your operations in the long run.

  • Michael November, 29, 2016

    I agree with the author that “there is no one-size-fits-all strategy.” It depends on the needs, budget, current situation in the company, company spirit, etc. New people may be more open to questioning why things are the way they are. This can be the first step in restructuring old processes or rethinking goals and expectations. But an internal promotion can also be a push for current employees to perform better, in hopes of being able to be promoted themselves.

  • Kevin November, 29, 2016

    Whenever you’re trying to solve this “eternal” question, try not to think about money and don’t assume that hiring from the inside saves your budget. Inviting a recognized, proven external expert may be cheaper and less work than developing one internally.

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Guest November, 29, 2016