The Insider/Outsider Hire Decision:
A Question Of Balance
By Gary Kaplan© The HR Bulletin. September 2001.
The choice of recruiting a senior person from outside the organization or promoting one from within the company's management has its pros and cons. When a senior position opens up, the first task is to evaluate the organization's internal strengths vs. the need for an external hire. Either way, the ultimate decision is really a litmus test for an organization.
Time for Reflection and Assessment
Making the decision whether to hire within or search outside the organization is an opportunity for upper management and human resources to take a realistic view of management's strengths and succession plans. Examine management capabilities in light of the potential challenges of growth, a merger or acquisition, a leap from a regional or national business to an international one, an e-commerce venture, or an unexpected change in the direction of the business. Evaluate the fallout of losing one or more senior people. The essential questions to ask are, Do we have the internal resources to fill the position and can they be trained to take on these responsibilities? Is he/she up to the job? Is he or she capable of being innovative?
Essentially, the organization must be confident that its management has the strengths and experience to carry out its business objectives, especially in light of anticipated change. Measuring and evaluating current and potential executives, according to a variety of corporate financial, compensation, diversity and performance issues, provides a solid portrait of what is available and what may be required.
In viewing the insider/outsider hire decision, the keyword is balance. That balance is achieved with an emphasis on internal promotion, but always with an eye towards the advantages of bringing in outside talent as a valuable contribution to the organization's vitality.
Healthy Organizations Promote from Within
A healthy organization looks to its in-house talent pool first for possible promotion. This approach boosts morale and saves money.
Employees view every outside hire as the organization's failure to develop the skills and potential of those within. Visible vertical progress signals a future for current employees and helps retain the best and the brightest. Unless talented people feel there is an upwardly mobile track within the company with opportunities to deepen and expand their managerial skills through increased responsibilities, they are likely to seek the same elsewhere.
Organizations need to view their executives as assets to be managed wisely. Investing in executive education, expanding skills and responsibilities, and internal promotions help retain key talent.
Benefits of Promoting from Within
The known entity factor is a not to be overlooked benefit of promoting from within. The internal employee's working relationships, ability and style are known and can increase the odds of that person's success in the new position.
From a compensation and benefits viewpoint, an internal promotion is cost-effective.
There's no impact on existing benefits packages and the compensation level is established, especially if a promotion means a standardized percentage increase of the base salary.
Too many outside hires and rapid turnover mean the company is not attentive to developing internal human resources. Promoting current executives saves the expenditure of effort required to find and attract high-demand, quality candidates to fill the openings. Yet, sometimes going outside may pay off in terms of the long-term health of the organization.
Benefits of Seeking Outsiders
New hires should not be chosen as quick fixes; there are none. The organization and the recruited executive must fulfill a mutual long-term need.
Certain conditions make it imperative to cast a wider net. Stalled, declining or explosive growth, new business opportunities, a competitive challenge, or a lack of solid, promotable internal skills signal the need to search for outside experience. In other words, there should be a compelling reason to go outside the organization.
One of the most important reasons to recruit an executive is the fresh ideas he or she brings to the table. Companies that only promote executives from within are in danger of inbreeding, of becoming calcified into a corporate mind set.Staying contemporary through cross-pollination reinvigorates an organization, opening it up to new concepts and fresh insights. The organization learns from new leaders and thus, updates its vision.
A strategic outside hire is not without its internal challenges. The new executive must have the ability to bridge the gap between the traditional corporate culture and its future direction. Recruiting from the outside also means the company must be able to adapt to the new executive's methods of operation if he or she is to have an impact on the organization. Flexibility and adaptability, both on the part of the organization and the new executive, pave the way for progress. Anything less will result either in the frustrated executive departing or becoming inculcated into corporate sameness, defeating one purpose of the hire.
Recruiting outside talent has its costs in time and money. Time is required to seek suitable candidates and compensation is at premium levels. Additionally, factors such as guaranteed bonuses, severance pay, outplacement services, and relocation expenses, may be necessary to attract quality candidates and sign a new hire. The hidden cost of the unknown entitymay also be an issue. A new executive hire's vision, management style, and methods of doing business introduce a new variable into the organization's working relationships, which may work to the good of the organization or not.
Either Option Can be Right
Developing management strength positions the company as an attractive place to work and grow. On the other hand, new people bring new opportunities for organizational learning, growth and adaptability. And that may be well worth their price. The key word is balance and knowing when, in a particular instance, to tip the scales towards one or the other.
