When deciding whether to hire or promote an internal or an external candidate for a leadership position, these are the factors to consider.
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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