When a role opens up in your management, where do you look? According to data from the Society of Human Resource Management, over 70% of these open roles are filled by an external candidate. According to Nielsen SVP of talent Chris Louie, this discrepancy arises from the investment in External Hiring technology, the "shiny new toy" fallacy, and hesitation from managers to let their best performers go.
Understanding where this bias comes from is not enough; next we must identify what it entails for business and efficiency. A study done by Matthew Bidwell of Wharton suggests that external hiring is risky for both firms and candidates, reflected in high turnover, wages, and lower average performance after hire. External hires are more likely to be promoted again, however, signalling that external hires’ strong qualifications translate into team success if the fit is correct.
Internal promotes may not always have the performance ceiling of external hires, but promoting comes with significant benefits. Promotes display strong loyalty to their firms, cost less to hire (especially with a strong internal mobility program), and display stronger average performance in the years after promotion.
Choosing to hire internally or externally is not a binary decision. Your focus should reflect the goals of the position you are hiring for: If you need a team to innovate, hire externally but vet carefully. If you need a reliable, strong performer, hire internally.
Contribution, Performance, and Competence measurements were determined by employee managers during reviews. Contribution measures if an employee completed their annual objectives, Competence measures worker's skill relative to their job, and Performance was a company-wide ranking of employees in terms of organizational value (broken down into 10% 5's, 20% 4's, 60% 3's, and 10% 1's).