There is no easy answer on how to decide on whether a new hire should come from inside your company or outside. There are a variety of factors that influence the decision. There are hard costs and soft costs associated with both approaches. External hires generally receive higher compensation than internal resources. They need more time to be become productive as much as two years in some cases. According to research conducted by Matthew Bidwell externals hires have a 21% higher voluntary departure rate then internal hires. Clearly it’s not an easy choice.
The training costs of a new hire can go either way. Teaching a new hire how an organization works takes time and money. For this reason internal hires have an advantage on organization specific training. External hires might have the advantage of having been trained by another company therefore reducing the costs of training on transportable skills. This frequently happens when external hires come from a larger company that has a larger training budget. Smaller companies can piggy back on this training.
Internal hires make a lot of sense if your company does not have a rigorous onboarding process. Poor onboarding can lead to early departure for a new hire. In one study 31% of the respondents had quit a job within 30 days of being hired.
In the Bidwell report it was identified that external hires receive lower performance evaluations in their first two years on the job. It is believed this is because it takes time to navigate and build relationships in a new organization.
Hiring from within is a great way to send a message that your company is serious about career planning and succession. If you are willing to invest in your employees they tend to be more willing to invest in your company. Maintaining institutional knowledge from internal hires has to be balanced against the introduction of new ideas from external hires.
Pros to hiring internally:
Pros to hiring externally
It is hard to judge which is the best method to fill a position. For that reason it may make sense to look both internally and externally for talent. There are costs and consequences of both approaches.