When you’re looking to hire new workers, is it better to hire from the outside or from the inside? This is not a new question, and it does not have an easy answer. In our experience of attracting, developing, engaging and retaining top talent, the best answer is that “it depends.”
Here are some of the factors to consider when you are looking for top talent to build your organization’s current and future capabilities:
1. Length of time to hire
Look internally first if you need to fill a position quickly. It takes far less time to hire from within because your talent pool is on site, easily accessible, and known.
2. Speed to productivity
Workers promoted internally typically get up to speed faster than new external hires. It is generally acknowledged that external hires take up to about two years to be fully productive in their new jobs. Everything is new…they have to build relationships and figure out where to go for support and resources.
3. Institutional knowledge
Hiring internally allows you to build on the employee’s knowledge of how the company works. They have developed the firm- or industry-specific skills needed to succeed.
4. Cultural fit
There is no doubt that an employee who does not fit the organizational culture will not be as effective as an employee who understands and adheres to the values and behaviors that the company espouses. Presumably, if you hire from within, you can be pretty certain that the employee knows and supports the organization’s culture.
5. Morale and company loyalty
If you hire from the outside as a matter of course, you risk undermining employee morale and their loyalty to the company. Employee engagement experts will tell you how important the idea of career development can be to your work force. If employees do not see a path toward advancement and growth, they will be discouraged and disengage or leave.
Almost always, it is more expensive to hire externally. Hiring managers have come to expect to pay 10 to 20% more for outside hires. This can be because of external hires’ more impressive resumes or because it costs more to lure them away from their current position into one that is somewhat uncertain.
7. New skills and approaches
The one clear and persuasive advantage to hiring from the outside is that you bring new skills and approaches aboard. Companies benefit from multiple perspectives and diversity. The mix of ideas in an open environment fosters innovation and constant improvement.
8. Onboarding process or system
If you hire externally, you should be confident that your onboarding process is a sound one. The faster you can incorporate new hires into the fabric of your organization, the faster they will contribute to the company’s overall business success.
9. Performance on-the-job
Despite getting higher pay, Pennsylvania Wharton School professor Matthew Bidwell’s research on hiring decisions in the investment banking industry shows that external hires receive lower performance scores during their first two years at a new organization as compared with internal hires in similar positions.
So it’s a mixed bag. Consider your unique situation carefully before hiring and prioritize the factors that are most critical to your organization’s success.
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Margaret M. Mader
Vice President, Human Resources
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