Assembling a solid team of employees is crucial to building a successful business. When a new position becomes available in your company, it should be seen as an opportunity to evaluate your brand and direction, and make hiring a decision based on the path you want your business to take as it grows. The immediate reaction to an open job is, naturally, to fill it with the most qualified candidate. But is the perfect hire waiting in your inbox with the resume of your dreams, or are they already working toward your company’s common goals as an existing employee? Should you wait for the perfect candidate, or train an internal employee?
According to a study by professor Matthew Bidwell, promoting internally is in most cases the cost-effective and prudent hiring decision. Bidwell examined 7 years of employment data from over 5,300 employees and found that not only do external hires make around 18% to 20% more than existing employees, they also receive unsatisfactory reviews on performance evaluations for around their first two years with a new company.
Bidwell argues that even if they bring extensive experience that appears to justify the costs of hiring and comparatively higher salaries, external candidates remain at a disadvantage until they acclimate to the company culture, learn routines, and align themselves with the internal brand and common goals. External hires are also 61% more likely to quit or be laid off than existing employees – not a great return on investment considering the cost of advertising, background checks, and time lost to screening, interviewing, and training.
With this in mind, an internal candidate seems to be a safer and more lucrative option. They are already familiar with the company’s infrastructure, making the transition simpler and allowing work to continue virtually uninterrupted. They may not have the prior title to speak for their expertise, but a working knowledge of core values and proven reputation of work within the company can often say more about an employee’s utility than experience that can’t always be thoroughly quantified during the interview process. Internal candidates have also already proven their loyalty to the company, and are likely to continue doing so to justify their new promotion.
Setting a standard of promoting from within has the added effect of encouraging every employee to work hard and remain loyal so that they may have the opportunity to move up in the company. External candidates can seem like the most attractive option, but this perception may be based more on the marketability of their resume than their actual fit within the company. That fit is ultimately the major determining factor in an employee’s success.
In some cases, however, a ‘good fit’ is not the most important factor. While there are many measurable benefits to hiring internally, your company may be in need of fresh perspectives and new ideas to stimulate growth. Internal candidates definitely have the advantage of company-specific experience, but their perspective may prevent them from seeing the bigger picture. Candidates from outside the company have the ability to offer an objective point of view, and offer lessons learned from growth experiences at other organizations.
Continuing to work solely within the same talent pool can eventually stunt your business and prevent it from flourishing. The drawbacks to external hiring posed by Bidwell are surmountable with the proper vetting and training, and finding the candidate that is going to serve the company’s need and provide real value makes the higher costs associated worth the investment.
Ultimately, there is no textbook answer as to whether or not your next hire should come from within or be found outside your organization. A thriving organization with a distinct culture and a position that requires a lot of specialty knowledge would save money and benefit as a corporate community from promoting an existing employee, but a company looking to make a fundamental shift or one in need of a candidate with a specialized background may be better served by looking outside the internal talent pool.
The role must be filled based on the needs of the business, the company, and the position. Either option can be successfully executed with keen attention to the company’s overall needs and proper team planning.