One of the ongoing debates in talent management involves whether it is better to promote from within or the hire external talent. This debate captures the foundational impact that these programs have within organizations because a well-run talent development program should create a pipeline that would mitigate the need for outside hiring.
What are the benefits of having a “hire from within” organizational strategy?
Employee Retention
A promote from within philosophy encourages employees to stay with the organization because they see that new opportunities that open up will be available to them
Internal promotions are more productive
In a March 28, 2012 article Matthew Bidwell, a Wharton Business School Professor, wrote
“external hires get significantly lower performance evaluations for their first two years on the job than do internal workers who are promoted into similar jobs. They also have higher exit rates, and they are paid “substantially more.”
About 18% to 20% more. On the plus side for these external hires, if they stay beyond two years, they get promoted faster than do those who are promoted internally”.
Development Of A Strong Culture
In his article Bidwell goes on further to say that internal mobility can create a more productive career
“If you like where you are, stay there. Or at least understand how hard it can be to take your skills with you. You think you can go to another job and perform well, but it takes a long time to build up to the same effectiveness that you had in your previous organization. You need to be aware that often your skills are much less portable than you think they are.”
“While the pay may be less, your performance is better, and there is more security.”
The list of organizations that have a strong promote from within cultures include some of the country’s most well run businesses – Proctor & Gamble, General Electric, Chick-Fil-A and Goldman Sachs. They all are well known for the investment they make in talent development.
Internal Promotion Reduces Hiring Risk
One major difference with internal promotions versus external promotions is that there is so much more information that is known about the candidate. The organization has full view of the employee at work and can see measurable results of their work versus trusting the resume, interviewing or references of an external candidate.
Professor Bidwell goes on further to say:
Bidwell suggests that his paper “provides unique evidence on the value to firms of internal labor market structures. Results show that internal mobility allows the firm to staff higher-level jobs with workers who have better performance but are paid less.” By detailing the strong advantage of internal mobility over external hires, he adds, “these findings help to explain the continued resilience of internal labor markets in the face of pressures for worker mobility.”
There is a lot of strong evidence to point to developing a promote from within talent development strategy. Yet talent mobility – both external hiring and employee voluntary turnover – seems to be actually increasing. Is this a sign that organizations have given up trying to develop their people because they see their training dollars continually go out of the door when employees move to their next external opportunity?
I hope not.
A commitment to talent development – succession planning, rotational assignments, skills training, executive coaching, mentoring – can be a powerful tool in creating a strong culture. It can also be financially smart since the funds for talent development will most likely in aggregate be less than the collective compensation premiums that are paid for bringing in external talent.
