Should you promote from within or take a chance on the outside world?

Promoting from within is a good way to build talent and increase retention. It sends a signal to ambitious employees that there is scope for in-house advancement and it provides high achievers with the opportunity to show what they’re made of. Promoting from within is also good for morale, it keeps costs down and it can be a faster way of filling a vacancy than outside selection, which can take months.

The downside of promoting home-grown talent is that it’s potentially sending a “no change” message to stakeholders. That said, it could also be argued that going this route ensures continuity. Whichever interpretation is chosen, internal promotion is likely to preserve the status quo and there’s the crunch. Is that going to be good or bad for the business? Will it limit a company’s options and make it less inclined to be creative and to consider new scenarios?

The internal versus external hiring debate really heats up when it comes to selecting a new chief executive, but Patrick Gibbons, professor of strategic management at the Smurfit graduate business school, has a compromise solution. "If a decision is made that an internal candidate is the best fit for the job, and I stress that their strategic vision must be the correct and appropriate one for the business at that time, then you can complement it with an external view by putting an outsider or outsiders on the board who will challenge that new chief executive," he says.

“Hiring externally symbolises change, the person has no allegiances within the organisation and is free to shake things up. However, they will need time to get up to speed on both the culture of the business and its key players and they can’t pull all the decision-making levers as fast as someone who already knows it inside out. Indicating that a candidate will be selected from inside can create competition among the senior management team and this is not necessarily a bad thing. In short, there is no universal answer. It’s what’s best for the company at a given time.”

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Operational consequences

Bringing in new blood can revitalise a business and an outsider can also add skills or experience that could be of real benefit. An external hire is quite capable of sweeping in and upsetting the entire senior management team with knock-on operational consequences, but there is a strong possibility that the resentment could be even worse if it’s one of their own rattling their cages. Senior management teams are often hotbeds of conflict, so it’s worth considering who might “walk”(and its impact on the business) if they get passed over in favour of an internal candidate. Choosing someone from outside may in fact unite them.

For small companies in particular bringing in an outsider can be a sizeable risk. The costs can be significant, it can take a long time and it is only possible to get a snapshot of a candidate from their resumé and interview. Bad hires can be a disaster for any organisation, but the negative impact on a small business can be even more significant.

Estelle Davis, managing partner at Brightwater Executive search, says that companies thinking of choosing a chief executive from within need to get started on the process early and if necessary to bring in outside help to identify the potential talent pool.

“Sometimes a narrow view of internal candidates can be the best reason to engage with a third party,” she says. “In some cases, the board lacks the necessary insights to pick the best person mainly because most of them only come in occasionally, do not work with potential candidates on a daily basis and so are not in the best position to gauge their strengths and weaknesses.

“A third party can benchmark the external market on a confidential basis so a board can compare it to their internal pool and either take the time to close the knowledge gaps and develop those with potential or make the decision to go externally.”

Davis also points out that the process shouldn’t end at selection. “It is vital that the board stays involved in the chief executive transition and this involves a number of things including acting as a key sponsor and support to the new chief executive, communicating with stakeholders, ensuring the outgoing chief executive can provide support where possible to the new incumbent, planning retention strategies for those not selected for the position and helping the new chief executive establish a clear plan for their tenure,” she says.

“It would be naive in the extreme to think that all organisations get the luxury of time to develop internal candidates,” Davis adds. “However, identifying potential successors early on and providing them with exposure to the board and the wider business can only lead to much more engagement with these senior leaders and ultimately to greater success for the organisation as a whole.”

Positives of hiring from within

Good for morale, fosters talent.

Helps with staff retention.

Cheaper than external hiring.

You’re getting a “known” quantity.

Negatives of hiring from within

It opens up a vacancy elsewhere that may be harder to fill.

It sends a “no change” message.

It denies a company access to someone with a different world view, skills and experience.

Can cause internal dissent and tension.