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Balancing the scales: Do you promote from within or hire outside talent?

Friday, March 4, 2016 - 14:11

Choosing whether to hire external staff or promote internally is one of the trickiest balancing acts for HR departments. It can easily feel like walking a tight-rope, particularly when they are filling the shoes of senior managers.

Of course, there are benefits to both, and in most cases the primary focus will have to be on selecting the right candidate for the position, regardless of where they have come from.

This was underscored by research from the American Management Association, which found that 55 per cent of firms are ambivalent about whether they hire internally or externally. Instead, they will hire based on prevailing business objectives at the time. By comparison, only a little over a third (34 per cent) of respondents were focused first and foremost on developing internal candidates.

However, there are many different issues that HR departments will need to consider when weighing up the potential of different candidates for a role. In fact, recent research has found there is a significant difference in performance based on whether an individual is hired externally or internally.

New hires can take longer to get up to speed in a new role.

External hires can bring lower performance

In research published by the Wharton Business School at the University of Pennsylvania, external hires are often paid more than internal promotions, despite having lower performance when they take up a new role.

Those who come into a new role from outside the firm will traditionally have more qualifications

According to the study's authors, external hires were lower performers over the first two years, while also having higher exit rates. There was still a significant pay gap between the two though, with external hires receiving a 16-18 per cent higher wage.

There is one main reason why organisations choose to hire externally, one which can also help to explain the variation in pay between internal and external hires: education. Those who come into a new role from outside the firm will traditionally have more qualifications and experience, and it's these concrete qualifications that give them the edge.

Levelling the playing field

For HR departments, the challenge now is how to level the playing field to ensure they aren't letting these differences between candidates colour the way they promote staff to new roles. 

If education is proving to be the main stumbling block, then options like custom short courses can help to remove balance the scales so internal candidates can compete with external ones. It's also important to think bigger though: Are there pathways within the business in which staff can move into new positions and expand their skill set? If not, it might be time to devote more attention to this area.

Taking these steps can ensure that, regardless of whether a hire is internal or external, they are able to fill the shoes of any new role they step into.