December 17, 2018

A HR Dilemma: Hire externally or promote internally?

We discuss an HR dilemma. Any employer looking to fill a senior role has a choice when it comes to hiring – promote from the inside or bring in someone new. But which is best?

The truth is that both can work well in different instances. From a human resources point of view,  sometimes promoting an existing staff member will save you time and money and mean your business keeps up momentum. However, there’s no substitute for the fresh approach and ideas that come from hiring from outside.

We take a look at the HR pros and cons of each and walk through some questions to ask, which will assist you in making the right decision.

The HR pros and cons of promoting within

Promoting an existing staff member brings many advantages. You’ll know what you’re getting (at least to some extent), you’ll be helping them grow their careers, you’ll spend less on training them in processes and procedures and they’ll already be stepped in your company culture. Just as importantly, they’ll also be known throughout the business and should have forged many of the relationships they’ll need to make to succeed.

But familiarity is a double-edged sword. Promoting a staff member can breed resentment, as colleagues now find someone who was once ‘one of them’ is now their superior. It can be especially hard to take for people who were passed over for the same role – this can lead to a loss of morale and productivity or even resignations. By promoting someone you’ll also have to fill their role, which can be tough if they were a star performer.

The HR pros and cons of hiring externally

When you bring someone in from outside, you can overcome some of these internal politics. But not all. Your current staff will still be on high alert, weighing up what they think of their new boss, even if you won’t be faced with the awkward prospect of a newly promoted worker now giving orders to their former peers.

The reality is that you won’t always have all the skills you need in-house and you may have to import them from time-to-time. This is especially true for expanding businesses where your growth means you’ll need to acquire whole new functions and specialties and the only way to get them is from outside.

An external hire can also bring new ideas and new ways of doing things. They’ll have hopefully seen how other successful organisations work and can bring some of that experience to play in your business. This perspective can also make external hires great mentors for more junior staff.

But what do the studies show?

There has been surprisingly little academic analysis about which approach is likely to work best. However, one study by Wharton Business School concluded that external hires generally performed worse, were more likely to leave and were paid more than their internally promoted counterparts – at least for the first two years.

After two years, however, the situation reversed. External hires were then usually more competent and tended to be promoted more rapidly to even higher positions within the organisation.

What this reflects, is that hiring externally is a greater risk and one that involves some serious time and effort in helping someone come up to speed. That’s something most employers are usually prepared to accept with junior staff but they often think twice when it comes to employees higher up the ladder.

It’s about the HR processes

The truth is both hiring and promoting can work. What’s most important is that you gear your business up so that it’s possible to use either depending on the circumstances.

What this means is that you provide proper HR, training and experience so that employees are encouraged to grow their skills to the point where they could step into a role if you need them to. You should also consider a formal leadership development program, where you identify talented staff members and groom them to take over the running of the show.

At the same time, you should also make sure your HR department have fine-tuned your recruitment and are ready to go whenever an external hire is required.

Here’s your hiring versus promoting checklist:

Once you have your HR systems in place, you can then ask yourself a series of questions to work out which approach is likely to yield the best results for you. As professional HR consultants, we’ve carefully put these together.

  • What does the role involve? Does anyone internally have the skills and talent needed to fill it?
  • If so, what’s holding you back from promoting them? Do you need to smooth over things with colleagues? Are you concerned about the hole they’ll leave in their current role? Do you need to find a way to work things out so that the business and the employee will benefit from the promotion?
  • If no one has the skills now, could you get someone quickly up to speed with the training? If so, is this a cheaper, more efficient option than bringing someone in from outside?
  • How important are new ideas and skills to your business? Can you only get these from outside?
  • Are you growing quickly? Will you need to build a bigger workforce?
  • How quickly do you need to see results? Can you afford to give the new employee a couple of years to get the most out of an external hire?

If you’re still unsure, engage an HR consultant

At Catalina Consultants, we’re the experts when it comes to the hiring process. If you have a potential new opening in your business and need some advice from an HR consultant, then speak with us today.

say hi to our author

Merilyn founded Catalina Consultants in 2012 on the belief that all organisations, regardless of size, should have access to top quality bespoke HR services. She enjoys working closely with her clients and believes that the best results are built on relationships of rapport, trust and authenticity. Growing up, Merilyn had her sight set on stardom and dreamed of becoming an actor. She also sang and played the piano, but ended up studying accounting and HR. Whilst she hasn’t won her Grammy just yet, she still loves a good karaoke night. Merilyn loves to travel with her family, with South Africa being one of her most memorable destinations.

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