Internal Promotion vs. External Hiring: Strategic Advantages and Disadvantages

Introduction

Hiring talented and qualified applicants is key to the future success of any company. There is a current debate among employers about whether it is better to give preference to internal applicants before looking outside to fill an opening. Older and more established companies typically prefer internal applicants, while fast-growing and innovative companies tend to focus more on external recruits. Although most companies end up using a combined strategy, the ratio of internal to external recruits remains controversial. However, before promoting internally, employers must understand the pros and cons that both hiring strategies offer.

Internal Promotion Strategy

Internal promotion strategy is recognized by promoting workers from within an organization to fill future vacancies. Many companies use devices such as intranet posts, job posting boards, email announcements, and brochures to recommend current workers for positions they may intend to fill. This hiring may take the form of temporary group assignments to fill certain positions or may involve long-term changes. Internal promotion may be primarily horizontal, or it may involve promotions in which the promoted worker's former post may not be filled (Bayo-Moriones & Ortón-Ángel, 2006).

External Recruitment Strategy

An external hiring strategy is one in which an HR division systematically investigates the worker pool outside its current employees to fill vacancies. Many companies use job search websites, newspaper advertisements, referrals from current workers, and job fairs to fill vacancies. Some companies utilize employment agencies to fill vacancies quickly, when less company-specific skill is required to complete the task. Others use recruiters or consultants to seek, screen, and provide workers for a fee.

Advantages and Disadvantages of Both Methods

When promoting from within or filling new roles with internal applicants, there is a positive impact on employees' morale. Workers perceive that the company rewards effort by providing an opportunity to take on new responsibilities or transfer to a division in which they have an interest. Internal hiring can motivate employees to perform at optimum efficiency (Murphy & Zábojnák, 2004). When the prospect of advancement is the reward, employees will strive to maintain high performance levels. This allows a company to build strong employee loyalty by making employees feel valued and giving them development opportunities through promotions (Bidwell & Keller, 2014).

Internal promotion has natural operational benefits. Employers do not have to "reinvent the wheel" with an internal hire. An internal candidate will likely understand the organizational culture, business model, and company procedures before taking on new roles. Consequently, they will integrate into the new position faster than an external candidate who must be trained on company formalities—from benefits to safety procedures—before beginning job-specific training. External hires require more time to recruit, more time and money to train, and may not fully integrate into company culture even after training. Often, self-development opportunities offer powerful motivation in a company that uses a strong internal promotion strategy (Bayo-Moriones & Ortón-Ángel, 2006).

The cost of internal promotion is significantly lower than sourcing employees outside the company. When advertising a position to current employees, the HR division only needs to post the job on a bulletin board and share information on the company intranet. Recruiting external applicants requires the expense of marketing in external media such as magazines, websites, and newspapers. There is also the cost of time needed to screen candidates and conduct shortlisting and interviews.

Internal sourcing can provide motivation for workers to increase productivity, but it can also foster a competitive atmosphere that leads to reduced productivity. Workers may feel pressured to compete for promotion consideration, which can lead to disputes. While the intent is to improve morale through employee advancement, it can work against this goal and reduce morale. This occurs because workers focus on competing for positions instead of striving to increase efficiency in their current roles (Murphy & Zábojnák, 2004).

Another significant concern with internal promotion is the common mistake of promoting an excellent individual contributor into a supervisory role. While a person may excel at their current position, they may lack leadership capability. When promoted to a supervisory role, the once "golden performer" may struggle because the skill set required for leadership differs significantly from that needed for task-oriented roles. Without proper skills assessment before promotion and development support after promotion, the company loses on two counts. First, there will no longer be a "golden performer" in the original position, and second, there will be an ineffective performer in the supervisory role (Compton & Nankervis, 2009).

In contrast, looking outside the company allows managers to bring new energy and perspectives into their organizations. When vacancies arise, supervisors have the opportunity to generate applications from candidates who offer different viewpoints from current employees. When recruiting internally, employers retain the same set of ideas they have worked with for years. Internal sourcing has a way of restricting the flow of new concepts into an organization that could encourage innovation and growth (Bidwell & Keller, 2014). Because outsiders bring fresh perspectives to company culture, external recruitment may introduce new ideas. Meanwhile, the experience of someone from another company or industry may allow that individual to introduce different processes or alternative solutions to problems. Where an issue affects functions in one area, another sector or company may have already solved it. In addition, companies often become accustomed to certain techniques; thus, an outsider can provide a new direction.

External recruitment also allows a firm to identify and recruit key players who make its competition effective. Hiring an applicant with a proven track record from a competitor allows the organization to gain insider knowledge about what competitors do to be successful. This gives the organization a chance to stay ahead of competitors (Compton & Nankervis, 2009). Additionally, companies using internal hiring have a restricted pool of applicants for each job. External hiring provides a larger field of applicants. This may include staffing and employment organizations, job fairs, and newspaper classified advertisements where larger groups of interested and skilled applicants can be reached.

External hiring also has disadvantages. It is a costly process and consumes significant time and energy from the HR division to manage all prospective applicants. External recruitment is time-consuming because companies must work through numerous procedures before selection (Bidwell & Keller, 2014). Even after completing all recruitment and training procedures, there is no guarantee that the new hire will fit into the organization. A company may recruit someone who shows great potential but fails to deliver once employed.

Conclusion

The key benefits of internal promotion—being less time-consuming, employees possessing company knowledge, improved employee morale, and increased staff motivation—outweigh the benefits of external hiring. Companies need to prevent the departure of talented employees and properly develop their future leaders. In fact, every company should have a strategic succession plan that ensures qualified, experienced leaders are ready to advance when high-level positions become available.