When looking to fill high-level leadership positions, is it better to “buy” or “build”? In today’s dynamic business environment, organizations often face a tough decision of whether to hire internally or externally. While external candidates bring fresh perspectives, research indicates hiring externally not only costs approximately 18-20% more, but those hires are also more likely to underperform their internal counterparts for the first two years (Fanning, 2017).
Challenges of Hiring External Candidates
- Cultural Fit: External candidates might struggle to adapt to the company’s culture, leading to friction with existing teams and undermining overall cohesion. This cultural mismatch can also impact employee morale and productivity (Krell, 2015; Sabina & Colwell, 2018).
- Longer Onboarding Periods: External hires do not have the same institutional knowledge as internal candidates and often require extended onboarding to acclimate to the organization’s operations, strategies, and personnel (Krell, 2015; Sabina & Colwell, 2018).
- Risk of Unmet Expectations: The new hire’s failure to meet expectations can lead to stakeholder dissatisfaction and swift turnover, which is both costly and disruptive for the organization. Research indicates that although external hires tend to receive higher starting salaries, their performance evaluations are significantly lower than internal candidates in their first year (Bidwell, 2011; Steinhorst, 2023).
Role of Succession Planning
Succession planning can significantly alleviate these challenges by ensuring the continuity of critical roles (Van Vulpen, 2024). Effective succession planning involves:
- Identifying Internal Talent: By nurturing internal candidates, organizations can cultivate leaders who are already familiar with the company culture and operational nuances. While external candidates can be brought in to fill a role, it often takes much longer to bring them up to speed (Krell, 2015).
- Creating a Leadership Pipeline: A structured succession plan ensures that there is a pool of qualified candidates ready to step into leadership roles when needed (Van Vulpen, 2024). This proactive approach reduces the reliance on time-sensitive external hiring and mitigates the risks associated with abrupt transitions.
- Ongoing Training and Development: Beyond identifying potential leaders, it is also important to develop them. This preparation helps candidates grow the skills needed to be most effective in their future roles (Van Vulpen, 2024).
Conclusion
In summary, the decision to fill high-level leadership positions with internal or external candidates should be considered carefully. Whether hiring internally or externally, effective succession planning is important for ensuring a company’s long-term success. Focusing on developing leaders for the future and leveraging tools like the 4R Leaders 360 Platform can mitigate potential pitfalls in the hiring process and enhance organizational stability.
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References
- Bidwell, M. (2011). Paying more to get less: The effects of external hiring versus internal mobility. Administrative Science Quarterly, 56(3), 369-407.
- Fanning, B. (2017, November 16). Wharton research exposes the damaging cost of hiring externally. Lead the Team Podcast.
- Krell, E. (2015, January 15). Weighing internal vs. external hires. SHRM.
- Sabina, L. L., & Colwell, C. (2018). Challenges of principal succession—Examining the challenges of hiring internal vs. external candidates. Athens Journal of Education, 5(4), 375-395.
- Steinhorst, C. (2023, April 20). Quiet hiring and other ways to neglect internal talent. Forbes.
- Van Vulpen, E. (2024, April 4). Succession planning: Essential guide for HR. AIHR.
