Internal mobility vs external hire – which is right for your company?

Endaba Group

The hunt for top talent never ends and amidst increasing efforts to cut costs and improve employee engagement and development, many businesses are now looking for talent in a place often overlooked in the past: within the company itself. So arises the common debate amongst hiring managers: should you promote internally or hire externally? 

A study conducted in 2012 by Matthew Bidwell at University of Pennsylvania Wharton School, explores internal mobility versus external hiring, surveying costs, retention rates, performance and benefits of internal promotion. He found that external hires earn about 18-20% more than internal employees do for the same job; 61% were more likely to be fired from their new jobs than were those who had been promoted internally; although external hires tend to be more educated and experienced, employers sometimes underestimate the time it takes to learn the ropes; they receive significantly lower performance evaluations for their first two years on the job and when they do catch up to the internal promotees, they have often already moved on.

Sometimes “the grass is greener” attitude comes into play, fueling desire to hire from the outside. There is also the notion of stealing talent away from the competition, introducing new perspectives and intelligence, amongst other benefits. However, promoting and developing from within can be a powerful management tool. Conversely, it can be disastrous if not done with due diligence and care. 

It’s critical to establish a culture of advancement and give top performers the opportunity to grow and succeed. Procter & Gamble, for example, have made leadership development an integral part of its culture, mentoring employees across all levels, understanding that leadership development benefits not only its employees, but customers and the company as a whole.  Their commitment to development enabled the creation of a leadership funnel, which has led to many internal promotion. This leadership model attracts and retains top talent as people want to work for a company with clear growth potential. The company has been at the top of Chief Executive Magazine’s list of the best overall companies for leadership development for three consecutive years.

Benefits resulting from internal mobility include:

 – the culture of advancement encourages productivity 

 – boosts morale and cultivates loyalty 

 – keeps employees focused on business goals

That said, the arguments for external hires include:

 – a fresh perspective

 – external intelligence and experience

 – brings in new skills

‘’At Endaba, we support businesses to both develop their internal people effectively through our leadership development programmes capitalising on existing internal strengths and developing visionary leaders whilst also finding the right external candidates for roles and supporting them with our  unique ‘onboarding’ executive coaching accelerate transition and productivity’’   Patrick Egan, Managing Director Endaba

For most companies, the best solution is to strike a balance between internal promotions and strategic outside hires. Promoting from within is a great way to strengthen your company, however, current talent pools are often outgrown. This decreases the likelihood of an internal hire and it is far better to hire externally than promote someone who is not qualified. Whilst fresh hires may require time to adjust to a company’s unique culture, these hires have several advantages: they have the correct skill set, offer a fresh perspective, mentor existing employees and help the team develop crucial skills. An external hire can also motivate top performers to work harder because it sends the message that there are no guarantees for promotion!

“As in life, the key to success is balance. Creating a healthy culture with a mix of motivated, internal talent and hungry external candidates with fresh ideas is the nirvana for all businesses.” Patrick Egan, Managing Director Endaba