Deciding whether to hire externally or promote from within is never a one-size-fits-all proposition. This is especially true in executive roles, where the balance of pros and cons weigh more heavily because of the outsized impact of leadership on the rest of the organization.
Making the wrong decision when hiring executives will cost you. Per Gallup, you can expect to pay 200% of an executive’s salary to replace them. Considering that the median pay for an executive tops $100,000 per year according to the Bureau of Labor Statistics, you’re looking at a significant investment.
So, how do you decide whether to develop leaders internally or onboard new executives? This guide covers everything you need to know to adapt your hiring process and make the right decision.
Hiring vs Promoting at a Glance
Two-thirds of top executives are internal hires, according to data from Russell Reynolds Associates. But that doesn’t mean that promoting from within is the best choice for every organization and every role.
Generally, the tradeoff in hiring leadership roles externally vs. internally boils down to the value of new perspectives as opposed to institutional knowledge and speed. Your mileage will vary depending on the size of your organization, the skill set of your existing talent pool and your specific goals.
Here’s when it makes sense to go with external hiring or promote from within.
Benefits of External Hiring
Hiring external candidates can help expand your team’s skill set, broaden your internal perspectives, and strengthen your company’s network. (You’re not just hiring a leader – you’re acquiring that leader’s business relationships, client base, and contacts.)
In addition, the benefits of external hiring include:
- A larger talent pool to choose from. Instead of being limited to your current team, your options include every qualified candidate in your area – perhaps even beyond your metro, if prospective hires are willing to relocate.
- Experience in a similar role, which means less to teach before your new hire can be up and running in the position.
- Fewer people to hire. If you hire from within, you not only have to onboard the new person – you also have to fill that candidate’s existing job.
- Increased diversity. Crucially, this includes cognitive diversity, meaning that your new hire will have a fresh perspective, a different outlook and novel problem-solving skills.
- A blank slate. By hiring from outside, you ensure that the leader starts fresh with the new. There are no preconceived notions.
Pitfalls with Onboarding New Executives
Starting from scratch comes with downsides as well, including substantial investments of time and money. These are a few of the pitfalls to expect if you decide to hire external candidates for leadership roles:
- Expense. Hiring from outside costs more, especially for top talent. Executive searches take anywhere from six months to one year and may necessitate the use of external recruiters, adding to the budget.
- Longer training period. It takes longer to get up to speed in a leadership job than at the individual contributor or middle manager level.
- Risk of unnecessary changes. New leaders often want to make their mark on the organization. This can lead to big changes, some of them unnecessary.
- Slower integration with organizational culture. Unlike internal promotions, external hires have to adapt to a new company culture – and there may be a significant, time-consuming learning curve. A new employee will also need some time to gain their team’s trust.
- Impacts on employee morale. Unless handled with care, hiring from outside the organization can send the message that there are fewer growth opportunities at the company. This can have obvious detrimental effects on employee morale and increase burnout.
Why Promote Internally
Promoting internally can be faster, less expensive and provide a smoother transition, among other benefits:
- Less expensive. In addition to saving recruiting costs and time spent screening external candidates, hiring internal candidates can mean lower compensation costs.
- Much faster than onboarding new executives. Promoted leaders can often step right into the job, saving significant time and training. There’s no need for additional background checks or other onboarding requirements. As long as they receive the right support via leadership mentoring programs, they can hit the ground running.
- Boosts retention. LinkedIn’s data shows that employees who are promoted within three years of hire have a 70% retention rate – nearly twice that of an employee who isn’t promoted. Further, internal promotions may boost team morale by demonstrating that the organization is invested in recognizing performance.
- No cultural learning curve. Executives who come up through the ranks already know the company’s quirks and culture.
- Organizational knowledge. Leaders who have been with the company for a while are deeply familiar with the organization’s history, goals and products or services.
Potential Downsides of Promoting Employees
Promoting employees into leadership roles also has some potential downsides including:
- Need to backfill the position. Unless you’re restructuring the team, promoting from within means filling the leader’s former position.
- Lack of new perspectives. Promoting leaders means that you’ll get executives who understand the organizational culture – but it also means forgoing an opportunity to bring in diverse talent. However, developing internal candidates with workshops, events and training can help encourage leaders to envision and enact change.
- Skills gaps. Be ready to support newly promoted executives with leadership development that includes the skills training they need to be successful in the job.
- Internal conflict. Promoting internally can mean conflict if multiple employees apply for an open job. Be ready to address these issues proactively.
Key Factors to Consider When Selecting New Leaders
Whenever you’re hiring for leadership roles, keep the following considerations in mind:
- The size of your organization (today and in the future). What will be the impact on the team if you promote from within or hire externally? Consider your plans to scale growth and what fits best with these goals.
- How urgently you need to fill the role. Internal hires can get up to speed more quickly, so if time is of the essence, you may decide to promote rather than recruit.
- The skill set of your existing workforce. Does your staff have the talent and knowledge required for the role you’re trying to fill?
- Your support framework for leadership, regardless of whether they’re developed from within or hired externally. Be prepared to support your new or developing leader with the right training and mentor software.
Mentorship Software Supports Successful Hiring
Regardless of whether you promote or hire executives, mentoring software like Chronus support new leaders by ensuring that they have the hard and soft skills required to do the job well. Mentorship also ensures that employees know their career development is important to the organization—according to Gallup, employees with mentors are 75% more likely to agree that their employer offers a career path than those without. In the long term, this means a more stable organization with better employee engagement, retention and productivity.
