GM
and Microsoft
recently announced new CEOs, and both are longtime veterans of their respective
companies. In Microsoft’s case, the CEO search was long and fairly public, with
several internal candidates including eventual pick Satya Nadella, and somewhat unexpected potential picks like Ford CEO Alan Mulally.

This is a constant and difficult debate even when dealing
with lower profile hiring and promotion. Do you select the company veteran with
years of experience, or opt for new ideas and diverse experience often present
in an outside hire? Here are some considerations for each path.

Taking the known
commodity

The most obvious benefits of promoting from within are that
the candidate’s performance and history are well-known and easily vetted. You have
virtually unlimited access to the candidate’s most recent peers and direct
reports, and can access everything from financial data for areas the candidate
managed to recent employee assessments. Whereas an external candidate might
stretch the truth or gloss over a weakness, a few phone calls to the internal
candidate’s peers will give you insight that’s difficult to acquire outside the
company’s walls.

The internal candidate likely has a deeply established
network within the company, earned through years of experience. Ideally the
internal candidate has spent time in different business units, gaining
knowledge of how these individual areas contribute to the company as a whole,
and also establishing relationships across units that he or she may have to influence
or radically change.

One can also expect that the internal candidate already
knows your company’s culture, processes, and politics. Where an external hire
might take a few weeks to learn everything from how to complete expense reports
to who the major power brokers are in the C-suite, the internal hire will spend
that time focusing on his or her new role.

The external change
agent

Depending on what you’re trying to accomplish, the benefits
of the internal hire are also their greatest weaknesses. A candidate who’s well
regarded internally and a master at your company’s politics and processes might
merely be a B player on a C team, who will spend time exploiting outmoded
processes rather than attempting to change them.

Similarly, a deep network and knowledge of the company might
constrain the candidate’s thinking. One of the great joys of consulting is that
you can ask seemingly naïve questions and force leaders to reconsider
longstanding beliefs. The same is true for an external hire, who can question the
existence of a business unit, a process, or a strategy without vilifying old
peers, or questioning something he or she had a hand in creating.

How to choose

Like most management thinking, the winds seem to shift every
few years as to whether a deeply experienced internal hire is better than an
external hire. A few years ago, external talent seemed to be the predominant
solution for staffing top positions, while recently the trend has shifted
toward promoting from within.

Rather than following trends, work with your leadership team
to determine what characteristics are likely to make the position successful. I
recommend starting your search internally, if for no other reason than it’s the
best way to retain existing talent if it’s obvious that leaders are sourced
internally first, and the quickest way to get a list of candidates since you
need only look within the walls of the organization.

If your company has a relatively healthy internal culture,
and you need a candidate who can exploit existing relationships, grow and
accelerate current organizational capabilities, and use deep internal knowledge
to accelerate change, then internal is likely the most effective route. Even if
the area you’re staffing is struggling, there may be new thinking and new ideas
in another division that get you the benefit of new thinking, combined with
knowledge of the company, its culture, and its processes.

Hiring externally can make a powerful statement that a
regime change is underway. When you are in need of new direction due to an
ossified culture, a rapidly changing market, or external factors like recent
malfeasance or major financial trouble, an external hire can be the right
choice merely due to lack of existing corporate baggage. External hires often
have something to prove, and are generally more likely to make bold and
unorthodox moves in the near term, which is often what a company needs.

There’s no evidence that internal or external hires produce
better results in all situations. Be aware of the benefits and drawbacks to
each, and avoid automatically biasing your search internally or externally
unless there is some special circumstance. In either case, explain the results
you want the leader to achieve and how they’ll be benchmarked, give them the
tools they need to succeed, and take corrective action should the results not
meet expectations.

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