For many organizations, finding and hiring new leadership is an expensive, time-consuming nightmare. With estimates suggesting these cost $3,500 or more to hire, filling senior positions is not cheap.
That’s further stressed by the fact that, according to Harvard’s calculation, if an employee is worth three times their salary, you could be losing thousands per day for each one a senior vacancy remains. With an average of more than 80 days to fill a senior position, standard recruitment processes can be incredibly expensive. That cost only grows with recruitment programs having to start years before you need them, telling potential recruits you can offer them a step up, career opportunities, and improvement over where they are now.
It’s also why more organizations are turning to internal promotion. Internal leadership and development programs have been popular for decades. Sourcing junior people is easy and, provided you continue to offer opportunities and room for growth, they’re likely to stay with your organization as they gain experience and grow into the intermediate and senior roles of the company’s future. Drawing from this talent pool allows you to step outside of the talent race.
However, it’s not always the best choice. There’s a time to promote internally and a time to hire externally, depending on a few factors.
The insight and value of outside hires
Bringing in new people can be a great step for an organization. While expensive, outside talent brings new expertise, worldviews, and insight learned in other spaces. Their experiences allow them to make efficient changes, optimize your existing processes, and offer the best of both worlds, which wouldn’t be possible without that outside competitor’s view.
It also means you don’t have to restructure teams. For example, if your organization is relatively young or relies on existing structures, promoting someone outside of that team can be disastrous. By bringing in a neutral third party instead, you avoid instances of perceived favoritism and other biases.
Finally, you might need people with experience that you can’t find inside your organization. If you’ve conducted assessments and have skills gaps, external people can help you fill them. They can then coach and work with others to share their skills within the organization, thus closing the gap.
Promoting internally may require significant coaching and training. People moving from technical to managerial roles, for example, need lots of help switching from technical tasks to enabling their teams to solve problems and succeed.
That’s one of the highlights of Ram Charan’s famous book, The Leadership Pipeline, which stresses helping leaders switch their mindset as one of the most important aspects of internal promotions.
People in technical roles also rely much less on communication and leadership skills. Therefore, promoting people without first training them is risky. Hiring externally, however, avoids all of those problems.
The importance of supporting internal employee advancement
An internal promotion structure—sometimes called the leadership pipeline model or leadership development—adds significant value to your company. One of its greatest advantages is that it gives talented and ambitious employees an upward trajectory within your company.
That means they’re more likely to seek a promotion inside the organization rather than look for new opportunities with companies that offer a higher salary or even just the opportunity for growth.
However, your advancement track shouldn’t always be about upward momentum; not everyone wants to move into management. Giving people the opportunity to learn new skills, keep up with industry changes, and become senior and team leads in a technical role is also important. You need those people, too, and hiring that experience is often as expensive as hiring managers.
Internal hires also come ready with the networks, support structures, and knowledge of the company and its people to make things work. This often equates to shorter onboarding times and faster results. It can be significantly cheaper (time- and money-wise) to train and coach existing employees than external hires for the same post.
For example, Satya Nadella took over Microsoft after decades of working in the company. She then proceeded to lead Microsoft in one of the most successful turnarounds ever documented.
Internal hires have a large bank of contextual knowledge about the company that can be invaluable for decision-making. For example, when you move a junior person into an intermediate role, you know they’ve helped build and shape the processes they’re contributing to.
Similarly, when they rise to senior roles, you know they’ve watched teams, processes, and software being built. Thanks to their time and insight into the organization, people who grow into company experts can strategically consider why certain processes exist and decide whether or not to keep them.
Training someone for a promotion increases your likelihood of retaining that employee; if you look externally for intermediate and senior roles, you risk alienating someone in the company who wants the role and who may quit and go elsewhere for a similar opportunity.
Then, you’ll have to fill the upper-level roles as well as the junior ones, costing you more time and money. Promoting internally moves people up the chain of command, meaning you have fewer roles to fill externally.
Tip: Use digital onboarding to upskill your internal hires. Often, the training necessary to promote internally can be delivered online, lowering the cost of coaching, training, and professional development available to all employees. Those with ambition and drive will distinguish themselves, giving you a clear view of who to consider for greater responsibility.
Wrapping up: Hire externally and promote internally
No company can thrive by sticking to just one hiring method; you need a healthy mix of both. For example, you could map competencies to identify skill gaps, then see if you can fill them from within your organization.
If not, you could look to hire externally. When you need a strategy shift that requires an outsider’s perspective, an external hire is extremely valuable.
Otherwise, having a good internal advancement strategy and leadership pipeline in place will improve company leadership as a whole and give you easy access to talented people at a faster onboarding pace.