Hiring internally or externally, which is best for you?

There is an age-old question of whether to promote from within the company or to hire externally. Recently, I have been talking with members of a company that has a strict “hire from within” policy. Only if a hiring manager can prove that they couldn’t find the right person from within are they permitted to even look externally. So the question is: Is this a good thing?

On the face of it, it appears to be a good thing; staff understand that they can have a full career in the company if they “play their cards right.” This seems to be a very strong plus from the staff perspective. When I have spoken to them, they almost unanimously agree that this is a major reason for staying in the company. From a company perspective, promotions are cheaper than external hires, and there is continuity and familiarity from hiring within. So the question then becomes: Is hiring from within ALWAYS the right thing to do? And if not, what are the circumstances when an external hire would be more beneficial?

Let’s run some thoughts to ground and explore this a little:

What are the downsides of hiring internally?

Skills gaps: This is a major one and probably the most obvious. If all of your staff have only ever experienced one way of doing things, then there will start to be gaps in the company’s knowledge. If there are no new perspectives coming in to “freshen things up,” over time these gaps will get bigger and bigger until you find that the competition has moved way beyond your ability to compete. That’s not good. To combat this, the company would need to invest heavily in training and upskilling, which, although probably cheaper than external hiring, is still costly and doesn’t necessarily solve all of the problems.

Limitation of opportunity is a genuine problem. Firstly, if there is not enough growth in the business, then there will not be enough opportunities for people to grow into. “But the best people will get the positions,” I hear you say. “That must be a good thing”… Well, maybe not. If the best people cannot progress as fast as they would like, and probably deserve, they will simply move on. Now all you are left with is those that are not the best, or are too scared or comfortable to leave. In addition, they have very limited exposure to the market since they have all been hired from within. That is not a good place for the company to find itself.

Then comes the internal competition; when everyone is fighting for the same limited opportunities, it is inevitable that bitterness and resentment will start to crop up when someone is given a position that others do not think deserved it. Taking on board the situation noted above, there is probably some sound rationale to the resentment since those that did deserve the promotion all quit before it was available…

So we potentially create a bitter work environment with under-skilled and comfortable employees with limited exposure to the wider market. That is certainly not what a company should aspire towards.

Ok, that’s an extreme example, but one that is rooted in reality…

If we went to the other extreme with completely external hiring, it would result in bitterness towards never getting progression from the company, no commitment to the company, and a lack of cultural knowledge within the company which is just as disastrous…

So surely then somewhere in the middle is best? But where?

Assuming that most companies have a classic pyramid structure with most people in lower-level positions and the further up the hierarchy you look, the fewer and fewer positions are available. This means that at lower levels within the business, there are more opportunities for promotion which I would wager invites an opportunity to look both internally and externally without limiting people’s ability for progression.

Then we hit the middle layers, which are more tricky as there are fewer opportunities available, so how do we do this fairly? One way I have seen, which I quite like, is to simply target a 60/40 split for internal to external hires across a given period such as a year, leaving it open for management to decide how they want to go. Then monitoring and publishing the results each quarter so everyone can see which individual or department etc. is straying too far in one direction. It will vary up and down a little; however, the social pressure not to stray too far from the target should generally provide a fairly competent regulation function. If one department does go too far either way, then intervention is simple.

Then we get to the senior management and directorship level positions; this gets very nuanced in my opinion. The best approach I have discussed lately at this level seems to be a completely bespoke approach for each position; these are crucial positions that will almost never fit into a “cookie-cutter” model. You should consider talent availability, timing, resources, company culture, skill sets, industry knowledge, and much more. The list is potentially endless. Each circumstance and individual position will have such unique requirements that an individual approach would be well advised for each one, simply hiring from within because a policy says so could dramatically restrict the company’s options and could prevent specific requirements of a role from being adequately fulfilled.

So what is the best approach?

I think it is fair to say that there is no right or wrong answer to this question, however, I think it is also fair to say that making the decision to hire internally Vs externally a blanket rule for the whole company is not the way to go.

So my advice would simply be to look at what type of blended approach will work best for your company. Then to periodically review if you are getting the results you are looking for because what works for you now may not work best for you 3 years from now.

Food for thought…