Due to the often extortionate costs associated with the hiring and training of new staff, employers can sometimes be tempted to turn away from external recruitment. Especially in tough economic times, some choose to save money by promoting from within their own ranks and filling the gaps left by their new managers by sharing out their former duties and responsibilities amongst the remainder of the team. Even taking into account the additional compensation costs for all concerned, this can seem like a cheaper option than paying for an experienced manager to come in from outside. Without an effective staff development, talent management and succession planning strategy in place, however, promoting staff internally can ultimately work out to be a far more expensive option.
Take, for example, a company that promotes a team member from an operational role to a management position purely in order to save the cost of external recruitment. Even if the individual is provided with fairly extensive training, it could still take months or even years before they become fully effective in the role, if in fact they ever do. In the meantime, of course, the productivity, not to mention the morale of the staff they are supposed to be managing, could suffer immensely and could ultimately result in a revenue loss which exceeds what it would have cost to bring in an experienced manager from outside the organization.
Even with training and despite performing superbly in other roles, some individuals simply don’t have what it takes to become effective managers and promoting them to management roles not only does them a huge disservice, but also the company that employs them. While there are, of course, costs associated with recruiting experienced external candidates, as there are with developing an effective talent management and succession planning strategy, ultimately these can be far less expensive options that trying to squash round pegs into square holes.
October 23rd, 2011 at 6:01 pm
There’s another benefit to promoting from within. Here’s a stat about Chipotle: “When they started promoting from within instead of looking for talent outside the organization, turnover for salaried managers dropped from 52% to 35%, and turnover for hourly managers dropped a whopping 64% (111% down to 47%).”
October 25th, 2011 at 4:39 pm
A very valid point Duncan and thanks for your input. In cases where businesses choose carefully from within their own ranks the results can be hugely increased levels of motivation and commitment, which in turn bring about decreased rates of staff turnover. Sadly though, some employers promote from within purely as a cost-saving exercise and when it turns out that their new managers aren’t actually very well-suited to the position, the results are far less positive. At the end of the day, the most important thing should be to find the most suitable person to fill the role and if that individual already exists within the organization then great. If they don’t though, then often employers can save themselves huge amounts of money by recruiting externally.
October 27th, 2011 at 9:59 pm
I hear ya.
Do you know of any companies that exclusively pick the CEO (for example) from within? I was reminded by Jack Welsh’s book ‘Winning’ which is on the shelf to the right of me here. I think I read that in his autobigraphy ‘Jack’ that he was in a race with 3 other internal candidates to be the CEO back about 30 years ago. I wonder was that a G.E. policy? Jeff Immelt was an internal promotion too right?