30th August 2017
Internal vs. external recruitment: what’s the best hiring strategy for executives?
Finding a replacement for one of your top executives can be a challenging process. Your executive search undoubtedly raises a number of questions.
Even with a solid plan around executive talent acquisition, each set of circumstances is individual and even the best-laid plans may have to change at short notice.
One of the biggest decisions in executive or CEO recruitment is the choice of whether to hire internally or externally. Clearly, a number of factors come into play which are unique to each situation.
To help you make the right decision, we’ve outlined some of the pros and cons of internal vs external recruitment below.
Promoting from within
Put simply, people who have been with your company for longer will know it better – the operations, products or services, as well as the lie of the land.
But depending on what your goal in recruitment is, this may be seen as a good or bad thing. We’ve outlined some of the finer points below to help inform your decision.
Internal recruitment advantages
Shorter onboarding process
Internal candidates (as a general rule) will be able to hit the ground running in their new role.
Their time within the organisation provides them with a level of expertise for the new job, including knowledge of the role they will be moving into and how all its pieces fit together. This expertise is something that simply can’t be replaced through external recruitment.
The costs associated with an internal promotion will be less than those of external recruitment. Monetary costs – of which salary is traditionally the biggest – will be significantly reduced.
According to a 2011 study, internal promotions will traditionally incur a lower salary than external hires, particularly in executive talent recruitment where incentives and bonuses become a significant part of the package.
But considering additional costs other than monetary might also be a big part of the decision-making in your executive search. These include decreased onboarding and training costs.
There’s no two ways about it; bringing in an external hire will cause greater disruption to your operations than promoting internally. The time that it will take a new candidate to learn the networks and systems within the organisation to become productive, is a cost to the company.
With internal recruitment, the candidate will already have most (if not all) of this knowledge ready to go. If they’re proactive they will likely already have an idea of the role they are stepping into and how they can improve it before they even begin.
If employee retention matters to you (and it should), you can never underestimate the positive effect that internal promotions can have on employee morale – and not just for the successful candidate, but their friends and colleagues within the company.
Internal promotions show employees that there is both reward and recognition for hard work in the company, and that they can similarly progress their careers within the company.
Internal recruitment disadvantages
This is perhaps one of the biggest disadvantages of internal recruitment. You have a finite talent pool and are often unconvinced that those candidates possess quite the right skill base for the job.
It’s best to look at this situation critically and ask yourself questions like: What are the skills we’re looking for? Can an internal candidate pick these up quickly? What would be the cost to the organisation to develop this candidate? Do we have any change champions who are ready for a promotion?
Through this analysis you will be able to develop a clearer picture as to whether your needs are best met by recruiting from within anyway and dedicating resources to developing that candidate, or absorbing the costs associated with an outside hire and taking that road instead.
Recruiting for more than one position
If you’re hiring from within, promoting that person into a new role will create another vacancy in the organisation – which will in turn need to be filled. If you then promote internally for that vacancy, you will have another gap to fill and so on.
So for these decisions, in order to best save time and money for the organisation, it’s wise to see where roles can be merged, streamlined or dissolved.
It may also be beneficial to promote internally for more senior vacancies, but to bring in an external candidate for more junior positions where disruption during the onboarding process will be of less significance.
Bringing in someone new
External recruitment also has its pros and cons. Sometimes an external candidate can be just what you need to reinvigorate a role, but there are some risks associated with that. Below are some points to consider.
External recruitment advantages
Building a new skill set within the organisation
One of the key reasons for bringing in an outside candidate is to add a new skill set to your organisation.
It may be that the skills you desire simply don’t exist in your organisation at that time, or it may be that the costs and time associated with upskilling the right internal candidates outweigh the benefits.
In either case, it’s important to be very clear on what you want from your candidate, and to choose someone with demonstrated experience with the skills you’re chasing.
Introducing new skills in this way can be a very effective way of bringing change about quickly in your organisation.
Driving a cultural shift
In a similar fashion, bringing in an external candidate who comes from a different organisational culture can help align your culture with strategic goals.
An example of this is a leader who is brought into a large corporation after working in start-ups to fast-track and simplify processes.
External recruitment disadvantages
Temporary loss of productivity
External recruitment will lead to a temporary loss of productivity. There is a mandatory period of settling in and learning that will ultimately cost money and time – this is to be expected.
The right candidate will learn quickly and be able to make real contributions back to the organisation very quickly, but that initial lull must be taken into account.
On average, external recruits tend to be paid 18-20% more than their internal counterparts for doing the same job. This is a significant cost, on top of added costs of recruitment.
If we take that in context with loss of productivity and the fact that external recruits tend to get lower performance scores for their first two years, you really have to look at external recruitment as an investment in an asset that you hope will appreciate over time.
So, what’s your best option?
Put simply, it depends. You need to look at factors unique to your organisational situation and make a strategic decision based on them, considering the criteria outlined above.
There are a number of strong advantages to internal recruitment that recognise and build upon the leadership qualities of internal executive talent.
Regardless of whether you opt for internal or external candidates, it’s important to optimise your talent pool. In seeking to do so, it’s best to ensure you have a solid succession plan in place.
It can then inform decisions about whether to recruit internally or externally. Click the below image to get started with our free succession plan template.