Talent Management

Internal or External? Why You May Benefit Promoting From Within

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Let’s say there is a skills gap in your company. If budgets allow, your first inclination might be to hire someone from outside the company to close that gap.

After all, there are some people who know how to look great on “paper,” and a stunning resume can make any company leader salivate over the potential of hiring a “rock star” employee.

While that philosophy works in certain situations, new research suggests promoting a current employee because they may actually perform better than hiring an external candidate.

Why internal promotions make sense

The research, conducted by University of Pennsylvania Wharton School of Management Professor Matthew Bidwell, claims external hires actually get lower performance evaluations during their first years on the job than internal workers who are promoted into similar jobs, according to Knowledge@Wharton, the online journal of the Wharton School. In addition, external hires have higher exit rates, and are paid up to 20 percent more than internal candidates.

To conduct his research, Bidwell analyzed personnel data from a U.S. investment banking division from 2003 to 2009 where he found twice as many internal promotions as external hires.

One major issue Bidwell pointed out was that external hires need about two years “to get up to speed” in their new jobs, meaning there is potential of a high risk of failure.

If a company hires an internal candidate, they are already well familiar with the organization, which may eliminate the learning curve for them to learn how to be effective at the company.

This study is pretty significant because an extremely critical question for companies is whether to train a person in-house to fit the role versus hiring someone who appears already qualified for the role.

Why internal promotions are preferable

I do believe it’s important to promote from within, but don’t get me wrong; I’ve definitely hired people from outside for various roles. There are situations where an outside hire is simply the best way to go.

However, if an opportunity presents itself and I know a current employee who (with a bit of training and development) can take on the new responsibilities, my preference is to go that route. Of course, I’m biased towards the philosophy that organizations can really benefit from hiring people who can develop into leaders rather than those who are just meant to fill a job.

It’s a simple concept, but what if you have a skills gap in your organization? Well, I would still encourage you to first look at your current talent pool. Seek out the workers who have the potential to turn into leaders and provide them with development opportunities. Here are some very basic tips that can begin to shift the company culture mindset from a first look external to a “promote from within” mentality.

Empower your employees

The success of your projects often depends upon how well your team works together and how well you provide team leadership. But in addition to the strength of your team as a whole, the abilities of the individuals are critical.

Make a list of the key strengths and limitations of your colleagues and each person on your team. Find ways to utilize the strengths and to build understanding of one another’s styles and interests. For example, have your employees contribute at higher levels through providing them special assignments and targeted opportunities.

If you’re not giving your employees stretch goals, and pushing their skills envelope, then how can we realistically expect them to grow and develop into a more valuable resource?

The importance of recognition

You are probably aware of this, but one key way to motivate people is through incentives and rewards. What rewards have you offered lately? While you may or may not have control over pay and promotion, one reward that you always have control over is the recognition you give for the good work of others, and your willingness to share the credit for achieving the goals you have set.

Two keys to motivating team members are to first understand what they find rewarding, and then, to give the desired rewards for behaviors that are aligned with team success. It’s not hard; just catch team members doing something right, then make sure you give them positive feedback.

Honest feedback

An important management function is to provide ongoing, honest feedback about their performance to team members. Feedback gives employees the chance to capitalize on strengths and improve on weaknesses.

Make sure that your observations and feedback are performance-related and supported by well-defined goals, roles and responsibilities. Meet with your team members regularly throughout the year, not just at appraisal time. Review progress on their development plans and on their career planning. If there are stumbling blocks, ask: “What do you need to successfully meet this goal?” Do your best to provide what they need.

With the right tools, you may just be able to grow your talent from within.

Derek Murphy is CEO of TBC , a global assessment company with over four decades of experience, specializing in 360s and survey customization. Our hosting platform, TruScore®, allows you to manage all of your talent management assessments in one central location. Contact him at derek@boothco.com .