Smart Money Says Promote from Within

Recent research indicates that hiring external management candidates at all levels drives increases in remuneration. It also poses disadvantages when compared to the promoting internal candidates. So, why elect the external option and, at the same time, become less committed to growing within the next-generation leaders you need? 

I'll share a point of view on the proper use of external hiring and how we can err in over-relying on it. More importantly, I'll offer some suggestions on how to optimize your strategy for building a robust internal talent pool and pipeline of leadership potential.

The Internal vs External Factor

 Historical Context 

By the 1980s, the notion of lifetime employment at iconic American employers like IBM and AT&T was giving way to a new “social contract” in the workplace. To unburden themselves of unsustainable expectations, corporations encouraged a new ethos of self-directed career management and personal accountability for development. It may have been a realistic corrective in some respects, but it had ripple effects in attitude on employees toward loyalty, commitment, and tenure.  

By the mid-1990s, the predominance of large corporations was challenged by tech start-ups, and at this point we saw an enthusiastic embrace of “career mobility” by employers and a new generation of workers. Tenure was a sign of complacency in the minds of some. The way to make money and advance your career is to keep moving, letting the upward trajectory of these moves create the impression that you are a rising star if not a "rock star," thereby commanding a higher salary along the way. 

Some have been inclined to view this phenomenon as generational (i.e., Gen X). I believe the truth is that future generations adaptively respond to the social realities that confront them as they come of age. In this light, career mobility falls into a category of social forces, along with the prevalence of divorce and attitudes towards company loyalty, which have become normative in the broader social-economic reality. If anything, Boomers probably had more to do with this change than Gen Xers. 

In any case, after the tech bubble and the Wall Street crash, running lean, outsourcing “non-strategic” infrastructure, and HR practices like “stacked ranking” and culling out all but the so-called A and B players further reinforced new norms for how to invest in people. They were: a) invest only in those who have the most potential; b) reward disproportionately those who perform best; and c) manage out those who don’t keep pace or measure up. 

A Rational Balance

There will always be reasons to hire from outside. Factors such as business growth, change in markets and product, turnover, and retirements create needs to look externally for talent at all levels. Some experts believe that there should be a proper mix (e.g., 70/30) of internal to external hires to ensure a healthy influx of new ideas, perspectives, and energy. My point in this article does not dispute these considerations.

Rather, I believe that in many cases we may have given up on the possibility of building greatness and value through identity with and allegiance to a brand and culture. Encouraging (if not guaranteeing) this kind of commitment can lend virtue to a longer-term career with a single company. It creates value for the company itself, but also for its customers. Maximizing your ability to build managerial capacity from within involves taking some risks, e.g., hiring in advance of need, but it dramatically mitigates the risks of fit that come with rushed hiring decisions.  

Maximizing Your Potential to Promote from Within

The best way to appreciate the power of promoting from within is by doing it. Only when we act on our responsibility to teach, supervise, and build organizational capability are we able to objectively evaluate this strategy. Doing so will also counteract any magical thinking about finding an easy solution through external hiring, because we become more discerning in our ability to spot and grow the potential that makes a difference here, in this company, in our business. Now here's my advice:

  1. Leverage your HR department – If you have human resource development (HRD) experts on your payroll, use them! How? I would suggest that you use them first and foremost as consultants rather than as procedural bureaucrats – filling out forms won’t get it done. If they're good, they'll love it. If they want/need to learn more, they'll seek it out. 

  2. Make management accountable – As top management, line executives, and supervisory management, you are ultimately accountable for building organizational capacity. How? First by collaborating with your HRD consultants to define what good management and effective leadership look like. Next, by finding ways to observe your people in action and providing feedback. 

  3. Get expert help at the beginning – Engage an external consultancy to partner with you on a design that works for your company and your needs. They will help you build and pilot an approach that you will then own and operate. Think of it as you might think about building any other operational capability (e.g., supply chain). Help at the beginning is critical. 

  4. Make it practical – Link your development of people to a strategy that employs action learning and stretch assignments. These methods of linking development to the real-world work of the business are very powerful. It keeps people focused on mastering what makes a difference here, in our company, and keeps you accountable for coaching. 

  5. Build soft skills – Don't make the mistake of losing sight of the so-called soft skills. This is where most problems ending in "derailment" (failure in managerial hires) stem from. When people are stretched and challenged, they must learn how to cope with the nontechnical tasks of admitting limitations, seeking help, and asserting confidence that "we" can get there. 

Concluding Comments

Perhaps the pendulum, in swinging too far in either direction, carries us away from the vital center of our collective identity as a company. Yes, we must be responsive to change, and we must be prudent in our addition of permanent hires. But with the right approach to hiring early-career professionals and developing them well, we can build an internal capacity for growth that limits our dependency on external hiring of managerial talent. That way, when do make these hires, we can do so carefully.

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As always, I welcome your questions.