Now What? The Pros And Cons Of Hiring From Within Or Without
By Gary Kaplan© ACA News. October 1999.
Installing or replacing a senior person from outside or promoting from within a company's management suite has its costs. Assessing the impact on the organization's compensation and benefits, staffing and succession planning is superceded by first evaluating the organization's internal strengths vs. the need for an external hire.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.
Take the Opportunity
Facing such a decision is an opportunity for upper management to examine the existing depth of management's strengths and orderly succession planning. An executive opening prompts a company to evaluate its management capabilities in relation to its potential challenges of growth, a merger or acquisition, a leap from a regional or national business to international or e-commerce, or an anticipated or unexpected change of business direction.
The investment in retaining in-house executives or lifting the company's horizons to seek others is both necessary and beneficial at times. The keyword is balance in viewing the insider/outsider hire decision. Balance is achieved through an emphasis on internal promotion with an eye toward the advantages of bringing in outside talent as a valuable contribution to the organization's vitality.
Promote Internally?
A healthy organization first looks to its in-house talent pool for possible promotion, as both a morale booster and cost-saving approach.
Employees view each outside hire as an in-house failure to develop their own skills and opportunity within the organization. Visible vertical progress helps retention by signaling a future for current employees. Unless talented people feel there are opportunities within the company to deepen and expand their managerial skills through increasing responsibilities, they are likely to seek the same elsewhere.
Promotion contributes to retaining key talent and the investment already made in them.
In today's tight executive job market, developing informal and formal training programs focusing on or toward promotion retains current employees' interest and involvement, in line with the company's goals and growth plan, and at less cost. There also is the "known entity" factor. The internal employee's working relationships, ability and style are known and can increase the odds of success in the new position, if that person can adapt to change.
From a compensation and benefits viewpoint, an internal promotion is cost-effective. With no impact on existing benefits packages and compensation level established, especially if a promotion means a standardized percentage increase of the base salary, the financially prudent choice is an internal hire. If the compensation and benefits function is attuned to the organization's goal of retaining and developing in-house leadership, the choice is hiring from within.
Too many outside hires and rapid turnover mean the company is not attentive to developing internal human resources. Bringing along current executives saves the even greater expenditure of effort to find and attract high-demand, quality candidates to fill the openings. Yet, sometimes going outside may promote the future health of the organization.
...Or Seek Outsiders?
New hires should not be made for quick fixes; there are none. Rather, the organization and the recruited executive fill a need for both to grow long term.
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 a solid, promotable internal skill base signal a search for external experience.
One of the most important reasons to recruit an executive is for new ideas. Companies that promote executives solely from within are in danger of inbreeding and of becoming calcified into a "corporate mind set" against the grain of a dynamic, competitive environment. Staying contemporary through cross-pollination revitalizes an organization, opening it up to new concepts of conducting business and fresh insights into capitalizing on the marketplace.
A strategic outside hire has its internal challenges. The new executive needs the ability to bridge the gap between the traditional corporate culture and leading its future direction. Recruiting from the outside also means the company needs to adapt to the new executive's methods of operation for an impact on the organization. Flexibility and adaptability, both on the part of the organization and the new executive, pave the way for progress. The company and the executive need to have a meeting of the minds. Otherwise, the frustrated executive soon will depart or will become inculcated into corporate sameness, defeating one purpose of the hire.
Recruiting outside talent has its costs in time and money. In a tight job market, time is required to seek suitable candidates and compensation is at premium levels. Additionally, compensation and benefits factors such as guaranteed bonuses, severance pay, outplacement services, relocation expenses, among other items in the package, may be necessary to attract quality candidates and sign a new hire. The hidden cost of the "unknown entity" also may be an issue. A new executive hire's vision, management style and methods of doing business introduce new variables into the organization's working relationships, which may or may not work to the good of the organization.
Knowing when to hire internally vs. externally is the key to strategic business planning.
