When the opportunity presents itself to fill a leadership position, a company generally has two options: recruit externally or promote from within.
In some circumstances, there may be no choice but to hire from outside, if a role requires a specific set of skills or credentials that current employees do not have. However, in most cases, you’ll have the choice between an internal or an external appointment. Many times, promoting from within offers many more advantages compared to hiring someone from outside the company.
Here is a look at the key advantages of internal promotions over external hires.
Less Expensive
The cost of hiring external candidates ranges from anything between $4,000 and half a year’s salary, depending on which study you read. Whatever the precise figure, it’s well known that external recruitment costs a lot more than internal promotions.
This includes the hiring process and time-consuming interviews, training, onboarding, and moving and accommodation expenses if the new staff member is relocating. External hires may also command higher salaries. According to research conducted by the Wharton School, external hires earn on average 18 to 20 percent more than an employee who receives an internal promotion to do the same job.
Strengthens Company Culture Over Time
Established employees have already proved that they fit into the company culture. When they are promoted, this is how an organizational culture continues on, even after people retire or quit. (Remember that culture doesn’t come from one person.) As a company grows and senior executives aren’t involved in every single hire, it’s useful to have internally promoted managers who can be trusted to hire new people that share the same values.
That’s not to say that external candidates will not also mesh with your company’s culture—but long-time employees have already proved they do.
Encourages Loyalty
All companies want to retain their best staff. One way to encourage your best talent to stick with you is to offer a clear pathway for career advancement. Talented people usually don’t take dead-end jobs—they want to know that there are other opportunities available if they perform well. Internal promotions show your employees that you reward loyalty and talent, and that you’re invested in their professional development. Besides serving as a motivation tool for current employees, the fact that you promote from within can be a good selling point for those times you must recruit externally. You can cultivate your employer brand as an organization that values its people.
On the flip side, consistently ignoring the commitment and contributions of current staff in favor of external recruits can breed resentment and damage morale. Of course, this doesn’t mean you should feel compelled to promote internally to avoid hurting people’s feelings. If you decide to recruit externally, be sure to communicate your reasons with honesty and transparency to the overlooked internal candidate.
As Richard Branson, founder of Virgin Group, once told Forbes: “I like to take chances on people, and whenever possible, promote from within. It sends a great message to everyone in the company when someone demonstrates a passion for the job and leadership skills at every step along the way and is rewarded with a leadership role.”
Less Risk
Any new appointment carries a certain amount of risk, but internal promotions are generally safer bets than external appointments. They’re a known quantity. They’ve not only demonstrated their loyalty and skills, but you also know their personality, leadership qualities, how well respected they are by their colleagues, and how they interact with senior management.
Essentially, with an internal hire, you have much more data to inform your opinion of the person. While external hires can of course be seamless fits, there is still uncertainty, especially with regard to their soft skills and personality. There could be unexpected personality clashes with people who did not participate in the interview process. Their management style may be at odds with what is expected within the company.
Additionally, external candidates are, on average, less likely to remain at the company long-term compared to employees who receive internal promotions. A study in Administrative Science Quarterly found that external hires were 61 percent more likely to be fired from their new job compared to internal hires. Internal hires, on the other hand, tended to be promoted faster and had lower rates of voluntary and involuntary exits.
Smoother Transition
By promoting internally, you have the advantage of a shorter transition or onboarding period compared to an external hire. The internal hire is already familiar with the inner workings of the company, the official and unofficial channels of communication, the relationships among key figures, the particular quirks of certain executives—in other words, they know how the company really works. Meanwhile, an outsider starts out cold. They have to build rapport, earn trust from scratch, and get up to speed on how things get done within your organization.
Internal v. External
Again, internal recruitment isn’t always appropriate—sometimes your employees don’t have the specific skills you’re looking for. In particular, this can be the case if the company is pivoting to a new strategy after a period of stagnation or is undergoing a major change.
Otherwise, however, it’s wise to at least look to your internal staff first when you have a new vacancy to fill. You’ll reinforce your culture, encourage employee loyalty and retention, and save money in the process.
Bill Malloy 