New Position: Promote From Within or Hire Externally?

February 9, 2017
New Position: Promote From Within or Hire Externally?

You have an open position and you want to make sure you bring in the right person for the job. There is no room for error since the wrong hire can have a negative ripple effect through the ranks and your bottom line, while a superstar can launch your team, your division or even the entire company to the next level.

In some cases, you may not need to look outside the business to find this superstar. It is easier to find the right person internally if you establish a culture of advancement and give top performers the opportunity to succeed. However, it’s important to acknowledge that at some point you may outgrow your company’s internal pool of talent and will need to look outside. So how do you know whether it is better to hire from within the company or to hire externally? 

According to Wharton management professor Matthew Bidwell, “‘external hires' get significantly lower performance evaluations for their first two years on the job compared to internal workers who are promoted into similar jobs.” External hires also have higher exit rates and are paid "substantially more – around 18 to 20 percent more.” However, if these external hires stay beyond two years, they get promoted faster than those promoted internally. Here are a few considerations when deciding whether to hire from within or hire externally.

You know the person well when you hire from within

When you hire someone from within the company, you may already have a good understanding of their abilities and skills. If you are familiar with their work, you may have a better sense of whether they can perform well in the new role. Your internal hire is better-adjusted to the company culture, better understands your products or services and is more familiar with internal processes than an external hire. Hiring valuable contributors from within the company fosters loyalty as employees see potential for growth. Also, you save valuable time not screening multiple external candidates.

On the flip side, you may be limiting yourself by pulling from a smaller talent pool. It also leaves an opening at the employee’s old position and their team is now tasked with finding a replacement. Also, it can cause friction among employees who resent not being considered for the role.

An external hire will bring a fresh perspective 

If you look outside the company, you have a wider pool of candidates to choose from and it may increase your chances of finding a candidate who has the exact skill set that you are looking for. Also, importantly, an external hire will hopefully bring new ideas to the company and could add diversity to the existing team. In some cases, they are instrumental in shaking up the status-quo with a fresh perspective that can elevate your product or service.

At the same time, remember that this can be a costly and time consuming process. You will need to invest time and resources in advertising, interviewing and onboarding. While you may have found the exact skill set you are looking for, the right title or degree doesn’t always guarantee performance.

Keep an open mind

In business, we have all hired people we thought would be ideal for the position, only to see them struggling and eventually letting them go. On the other side, there are many instances of unlikely candidates succeeding in their roles. While it is important to talk about advancement opportunities with your employees, and develop leaders throughout your organization, don’t be afraid to hire an external candidate if you do not have the right person for the job internally.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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