Hire Externally vs Promote Internally: How to Make the Right Choice

When critical positions open up, organizations face a pressing question in talent management: Should we hire externally or promote internally?

The choice carries significant weight, as it can impact company culture, performance, and, ultimately, long-term success:

• The United States (US) Department of Labor, for instance, indicates how a bad hire can cost businesses 30% of the employee’s first-year earnings.
• Some human resource (HR) firms even estimate a heftier expense, ranging from $240K to $850K per worker.

Beyond the wrong hiring decision, even an incorrect promotion can harm team morale and productivity.

Due to these variables, choosing between an external hire or internal promotion is of utmost strategic importance. In this article, we’ll explore the pros and cons of both, then provide a framework that will help you make the right call.

Defining hiring externally and promoting internally

Filling an essential role with an external candidate or existing employee offers two pathways with unique implications. But, before we dive into specifics, here’s a broad overview of each approach.

Hiring externally

This entails recruiting top talent from outside your company. Since you aren’t limited to your workforce, it offers a broader candidate pool—individuals from other industries and geographies. The process often involves:

• Posting job ads
• Leveraging referrals
• Engaging with agencies and headhunters
• Leveraging professional platforms like LinkedIn

This is also seen as a way of injecting new skills, networks, and perspectives into the organization.

Promoting internally

In contrast, this practice fills available roles by advancing people who currently serve the company. Think of someone moving up from manager to director (vertical promotion) or taking on a more specialized position (lateral move). Some considerations include a candidate’s:

• Performance records
• Observed leadership potential
• Culture fit

This internal mobility, meanwhile, typically reflects an organization’s succession planning or talent development strategy.

Due to the scarcity of external talent for niche roles, this approach has become more prevalent in the Asia-Pacific (APAC) region, with 62% of companies increasing internal hiring in 2024.

The critical question

Both internal promotions and external hires offer distinct upsides and downsides. But, when choosing between the two, how do you make the right call?

The process is rarely straightforward, as it boils down to carefully evaluating:

• Your current workforce’s capabilities: Does the company have someone with the necessary skills, competencies, and leadership potential?

• Your business strategy: Is the organization pursuing innovation or a new market? Does it want to maintain its culture and operational stability?

• The role’s urgency: Is the role essential to the company’s day-to-day functions?

• The organization’s long-term talent pipeline: Has your succession planning built leadership-ready talent?

Since these variables will impact your decision, a structured framework is necessary. But, before you can tackle that, you must first understand the benefits and drawbacks of each approach.

Advantages of promoting internally

Promoting from within isn’t just about convenience; it also capitalizes on these positive aspects:

Strong cultural fit and organizational knowledge

Internal candidates already know the company’s values and culture, while being accustomed to its dynamics. Not to mention, they also understand the company’s products, processes, and customer base.

This institutional knowledge and alignment translates to smoother role transitions and fewer disruptions.

A Wharton School study backs this up, citing how external hires took 3 years to perform as well as those promoted internally. They were also 61% more likely to be let go and 21% more likely to quit.

Reduces costs and saves time

Recruiting and hiring external talent can become lengthy and expensive, as these involve job postings, background checks, interviews, training, and onboarding. The Society for Human Resource Management (SHRM), in fact, found that:

• The average cost per hire was nearly $4,700, with many employers even estimating total expenses to reach three to four times the position’s salary.
• The average time to hire, meanwhile, was 44 days.

Since internal moves can be made almost immediately, they save time and money tied to these activities.

Clear performance history

A massive advantage of promotions is transparency. Managers are already aware of an existing employee’s:

• Skills
• Competencies
• Work ethic
• Track record
• Potential

This reduces the risk of any mismatches, as decisions are based on performance reviews and proven observations rather than predictions from interviews.

Boosts morale and retains talent

Internal promotions greatly benefit engagement and retention, since personnel see clear growth opportunities. Advancement validates their efforts as well, as it’s a concrete way of recognizing and rewarding their contributions.

Disadvantages of promoting internally

However, you must also consider the flaws of elevating a current employee.

Possible skills gaps

Someone who shines in their current role isn’t necessarily the ideal leadership candidate. For example, although you consistently exceed individual sales targets, it doesn’t indicate your readiness to coach, manage, and motivate others.

A Harvard Business Review (HBR) study supports this, claiming how 40% of internal job moves involving high-potential employees end in failure due to these errors:

• Assuming leadership candidates are engaged
• Mistaking current performance for future potential
• Poor delegation of talent development opportunities
• Disproportionate rise in compensation and recognition
• Not sharing future strategies

Internal competition

Each employee has personal career goals, so promotion opportunities can fuel rivalries. When several team members aim for the same role, those you pass over may harbor resentment.

Although advancement makes personnel more invested in their roles, the opposite also applies. Missed growth opportunities may cause them to disengage and, according to Gallup, become 18% less productive (sales) and 23% less profitable.  

Lack of fresh perspectives

New ideas don’t always come from within, since an over-reliance on internal talent entrenches personnel in existing practices. This results in groupthink—a behavior that makes teams stagnant and resistant to change.

This establishes a counterintuitive environment, especially in dynamic industries, as it limits innovation and adaptability.

Advantages of hiring externally

On the other hand, external hiring is seen as a way to inject new energy into the organization—for several key reasons.

Fresh perspectives and diverse skills

External hires can come from different industries and geographies. Due to their varying experiences, they enhance workforce diversity, offering capabilities and creative approaches that challenge the status quo.

This cross-pollination of ideas, according to Forbes, can boost your organization’s capacity for innovation and problem-solving, as well as its financial performance.

Broader network

Candidates from outside your company don’t only possess valuable skills, but also connections. They can introduce new networks that possess industry insights—an aspect you can miss when focusing solely on existing employees.

These external connections, meanwhile, can open doors to potential clients and partnerships, even talent pipelines.

Larger talent pool

Access to a wide selection of qualified professionals is critical, especially when your workforce lacks the capabilities needed for senior or more specialized roles.

External recruitment circumvents this challenge, as it allows you to look beyond existing teams and find candidates that match your requirements.

This is quite prevalent in today’s tight labor market, with SHRM data showing how most positions are filled externally. The rates, however, decrease according to the type of role and the organization’s size:

Company size	Rate for non-executive positions	Rate for executive positions
Small	100%	100%
Medium	90%	100%
Large	80%	75%
Extra-large	72%	50%

Competitive advantage

Again, external hires can offer insights into diverse market trends, competitor strategies, and best practices—even from other industries. These can be utilized to gain a strategic and competitive edge.

A McKinsey report even indicates how diverse companies are more likely to outperform their less diverse counterparts on profitability!

Disadvantages of hiring externally

But, like internal promotions, acquiring talent from outside your organization also has pitfalls.

Higher costs and longer hiring time

As mentioned earlier, external hiring requires a significant investment—an average of almost $4,700 per hire and a 44-day time to hire according to the SHRM.

These are due to elements such as job ads, background checks, screening and interviews, as well as training and onboarding. Internal promotions, however, can be done quickly, saving you from the costs of such activities.

Negatively impacts employee morale

Consistently hiring from the outside rather than promoting from within may lead existing talent to think that you overlook their growth.

This makes them feel undervalued—this issue pushes them to disengage or, in worse cases, leave. The Work Institute, in fact, tackles how the lack of career development is a key reason people quit their jobs.

Longer onboarding processes

External hires need time to understand the company’s culture and systems before reaching full productivity. This requires stringent training and onboarding procedures.

As touched upon by the Wharton School’s study, external hires can take 3 years to perform at a level similar to those promoted internally.

During this period, teams may experience lower efficiency and slower decision-making. This also places a strain on current personnel, as they have to support the new hire’s transition.

Cultural misalignment

You risk a lack of culture fit when you bring in talent from the outside. New hires, although skilled, may clash with established norms, values, and practices, damaging team dynamics.

Leadership IQ’s Hiring for Attitude study, for example, found 46% of fresh employees failing within 18 months due to factors overlooked during hiring:

• Being uncoachable
• The lack of emotional intelligence (EI)
• Their temperament
• Insufficient motivation

Hire externally or promote internally: Key considerations

Since each approach has distinct upsides and downsides, your decision isn’t going to be a one-size-fits-all solution. Errors can become costly, so it’s vital that you follow an informed and structured process. Evaluating these factors can help you achieve this.

Company size and growth stage

First, you must account for your business’s maturity:

• Startups and high-growth companies may need to fill critical skill gaps as they scale. So, they’ll benefit from external hires that offer specialized expertise.
• Established organizations, on the other hand, may desire someone that preserves cultural and operational continuity and stability—aspects that internal promotions deliver.

Hiring urgency

Timing also plays a role in decision-making. For instance, leadership positions must be filled immediately, as lengthy delays can disrupt operations. In such cases, internal promotions are favored, as these require less time and resources.

Your current workforce’s skills

You must objectively evaluate your existing employees’ capabilities as well. If they lack the skills tied to open roles, external hiring is often better. But, when there’s qualified talent among your ranks, choose someone you can promote or train quickly.

Profiles Asia Pacific’s talent assessments can support your decision, as their data-driven insights reveal whether a candidate’s skills and competencies align with open positions. 

Succession planning readiness

According to Deloitte, leadership is the top talent issue organizations face, but only 14% of them say they excel at developing leaders. Simply put, your succession planning determines your choice:

• If your company lacks the ability to develop a strong talent pipeline, an external hire can provide the leadership needed in the short term.
• If you have robust holistic training programs in place, however, promoting from within is extremely feasible.

External market conditions

Talent shortages, rising salaries, or competitive industries can influence the practicality of your options:

• For instance, finding qualified external candidates can be expensive and time-consuming in tight labor markets. So, you should focus on promoting and developing existing personnel.
• An abundance of skilled individuals brought about by economic downturns, however, can make hiring from the outside more attractive.

Hire externally or promote internally: Your decision must consider context

Honestly, the right approach to filling an open role depends on your company’s unique needs. When choosing between an external hire or internal promotion, always ask the following:

• Are you looking for fresh perspectives or cultural and operational continuity?
• Must the role be filled as soon as possible?
• Has the organization developed qualified, existing talent?
• Do you have enough resources to hunt for skilled individuals outside the company?

Once you consider context, the rest becomes easier. But, if you need help ensuring smoother transitions of responsibility and power, we offer comprehensive succession planning solutions. Just reach out if you want to learn more!