During my management classes, I will ask a question about whether leadership should promote employees from within, or hire someone new from the outside of the organization. Usually students will focus on one side of the discussion or the other. It is alway better to hire from within, some will say, while others say it is better to get a fresh set of eyes on the subject. I then point them to the solution of “it depends.” Some situations require promotion from within, while other situations deem fresh blood. According to research, however, promotion from within is the most cost effective.
Accept error can be minimized by promoting from within. Reject error can be avoided by focusing on known entities. Accept error, in other words promoting the wrong person into a particular role, can have a devastating affect on an organization. This is such a serious problem that Cisco Systems has developed a program to help mitigate this problem.
The program is called Talent Connection, and seeks to “identify passive candidates, qualified employees who aren’t necessarily looking for a job.” The reason for this activity is to find that diamond in the rough, thus saving the company money. “Since 2010, about half of Cisco’s 65,000 employees have created profiles on the website, and more have used it to search for jobs,” thus saving Cisco several million dollars in searching fees.
The reason Cisco does this involves the benefits of hiring internal candidates. University of Pennsylvania’s Wharton School “found that external hires were paid some 18% more than internal employees,” but consistently performed at lower levels than internal personnel. The difficulty of integrating new employees is often underestimated by organizations. The data also demonstrates that this phenomenon happens at all levels within the organization.
“Chief Executives hired from outside the company are twice as likely to be forced out as those promoted from within.” Between 2009 and 2011, companies dismissed 35% of outsider CEO’s compared with just 19% of insider ones. Although CEO seem to be getting fired more frequently, insiders last about a year longer than outsiders. There could be many reasons for this, but the fact is insiders seem to have a bit more longevity.
Maybe if companies decide to promote from within approval ratings for company leadership will go up. 60% of all employees feel their companies are well led, and this number is trending down, which means 40% do not feel good about leadership. With the amount of money being spent on leadership classes one would think that the trend would be different. Maybe if promotion from within became the norm, then people would feel better about their companies, which means productivity would skyrocket. We can only hope.
And that is my thought for the day!