Promote Internally vs. Hire Externally: Which Is Better?

Senior HR leaders often face the dilemma: Is it better to promote from within or hire externally? Ideally, it’s best to promote from within — assuming the leadership pipeline can supply the right leaders in the right roles at the right times. Often, this is not the case.

Companies need to prevent the departure of high potentials and carefully groom their future leaders. In fact, every organization should have a strategic, thoughtful succession plan, ensuring it has trained, experienced leaders ready to move up when high-level positions become available.

How do you decide when to promote internally vs. hire externally? Consider these factors:

This doesn’t mean that an internal promotion cannot be trained or developed to achieve what an external hire may have as an “edge.” However, speed is typically critical when making hiring decisions, and in talent management, it’s important to either “make or buy” top leaders.

While hiring from the outside may have an edge in many situations, it’s also the most risky route. Recent research about CEO succession by Wharton management professor Matthew Bidwell demonstrated that senior leaders hired from the outside cost significantly more, are paid significantly more, have less tenure in their roles and perform lower when compared to internal promotions. Booz and Co. also showed that 35 percent of the externally hired CEOs were let go versus 19 percent who were promoted from within.

Here are some best practices to not only help companies select the best candidate, but also to ensure effectiveness and retention:

Improved selection process: If companies are still relying on the interview and reference checking to vet their top internal and external candidates, then they have exposure for “false positive” and “false negative” errors. Senior leader candidates typically have mastered the art of interviewing, receiving media or presentation skills training in their careers, and can easily win people over during the interview process. Reference checks, while common, are unreliable to get the “real story” on the leader. Companies can’t get current references if their external hire is employed, which makes it challenging to determine the candidate’s real competencies. And it has been proven repeatedly that effective leadership is often situational. Leaders successful in one organization may not be as successful in similar roles elsewhere. Implement cognitive and personality assessments to provide a more comprehensive outline of the leader’s potential to fit in the role, culture, industry, etc.

  • Formal on-boarding process: Many new hires/promotions fail to live up to expectations. Worse yet, many quit or are terminated, in large part due to a sink-or-swim on-boarding process. There are proven tools and techniques that help ensure a new leader’s success. The best on-boarding processes have three elements:
  • An assessment of new leaders’ strengths and weaknesses and how these match to the new role. This process helps increase their self-awareness and ensure they surround themselves with complementary talents.
  • A formal on-boarding process that includes the development and execution of a 90- to 100-day plan.
    A resource/coach (either internal or external) to support them through the initial time in the new role and help them overcome obstacles.

Team assimilation process. This helps the new leader quickly form strong relationships with staff, direct reports and senior leaders. Activities could include a series of group and one-on-one meetings, information sharing about the leader’s professional and personal background (e.g., hobbies/interests, preferred communication style, goals for the team and organization, etc.) The point of the assimilation activities is to accelerate the relationship-building process and help everyone feel comfortable with the new leadership, direction, processes and roles.

Implement more formal processes — on-boarding, assimilation, coaching — to help new leaders succeed. These practices are critical regardless of whether the new leader was promoted from within or hired externally. The key is to help new leaders transition effectively, bond with their team, leverage their strengths, improve their weaknesses and quickly add value to the team, company and key stakeholders.

David Brookmire is an executive adviser, researcher, author and authority in leadership effectiveness. He has coached executives at companies including The Cheesecake Factory, Darden Restaurants, Bekaert, McKesson, Flowers Foods, ADP and Frito-Lay. He can be reached at editor@talentmgt.com.