Where might your next great hire be hiding? Inside your organization

Your big company is looking to fill a key position. Where do you look? Out in the job market, naturally! Put out an advert, talk to a headhunter, put the word around.

It seems to be a natural instinct. But should it be? Looking externally is certainly the easier option. Surveys show that in-house recruiters are more likely to advertise a job externally rather than look internally. 

I listened to a podcast from the Financial Times recently that questioned this practice. Josh Bersin studies hiring and retention practices for a living. He told the FT that this focus on external hiring reflects a lack of imagination—and isn’t even clever. He’s looked at the financial performance of companies that are good at moving people around inside and those that aren’t, and finds that those who develop internal talent are the outperformers.

This is backed by other studies, which confirm that good internal hires tend not only to perform better—because of their better information and networks, access to institutional knowledge, and fit with existing culture—but also tend to stick with the organization for longer. The person who swans in from outside, usually for more money, will also swan out a lot faster, also for more money. Oh, and external hires often receive higher salaries—but are also more likely to have lower performance reviews and to get fired.

So why don’t more big companies do the internal thing? Because they are asleep to the opportunity, and because creating an internal pool of talent is a long and difficult process.

Josh Bersin makes an excellent point: developing internal talent should be far more than something nice for HR to do; it should be an integral part of the organization’s mission. It should be core to the business strategy, because it’s that important to do. I concur. Some of the best companies I have observed in my lifetime don’t do the knee-jerking by-default external-hiring dance; they build a strong and committed core of long-lived employees, people who grow with the company as well as grow it.

What does it take to do this? Well, if you’re serious, it’s a long play. It entails intentionally developing internal career pathways, and then putting serious money and effort into learning and development. Many multinational organizations tend to be better at this. Some of the best executives I have worked with spent long periods with one or two organizations. They were shown unusual pathways to walk on in their careers; and they were given the support and training to develop into new roles. 

Contrast that with the organization that just uses the short-term play of throwing money at new hires. What you’re doing there is creating a natural churn—as a matter of culture. Talent walks in and walks out, routinely. What does that do to your organization? Two bad things. It prevents the building of a unique working culture, which is one of the key differentiators in corporate success. And it stifles employee engagement. When your people are constantly looking out of the window for other opportunities, how much of their true effort will you get out of them? Oh, they’ll put on a nice show in board meetings and talk the talk—even as they are updating their resumes on their phones under the table.

But let’s pause here. I am not making a case for always focusing on internal talent. There are situations in which your internal pool will simply not have the skills or experiences you need. There are other times when you might be suffering from strategic and cultural stagnation, and you want to shake things up with new hires. You may also want to take a hard look at those who have failed to add value for decades, and only hang on with you because there would be nothing else for them outside. That’s all legit, and you should always blend the old with the new, otherwise you may fossilize the organization.

The point I’m making is more subtle. You need a core team that sticks, and you need continuity. You need these things because culture and engagement are built around them—and those things really matter for the long term. You look for new hires when you want to freshen up, or when you are facing a paradigm shift in your strategy. You use new hires to complement and complete an internal team—not to displace it. Indeed, to be constantly looking outside as a matter of course is an indication of long-term failure. It means that you spent all your time looking cute and attractive for outsiders, while failing to develop and hold people who have been loyal to you.

What does it take? Putting more money down for internal rewards and development, and being imaginative about internal opportunities. Taking talent enhancement very seriously and being methodical and systematic about it. Hiring much more smartly when you go into the market, and focusing less on the CV and more on character and cultural fit for the long term.

Wait, that’s hard work. That probably means you won’t do it…

(Sunday Nation, 3 March 2024)

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