When it comes to hiring, the stakes are high. A bad hire can cost your company more than $50,000, while the right hire can increase your company’s performance.

So is it better to hire externally or promote internally? Should managers devote more time to finding external candidates or invest in their teams so they can be promoted some time down the line?

The answer is: it depends. Here is an overview of the benefits of promoting internally and the benefits of hiring externally, as well as some particular circumstances that could make one or the other better for your company.


The benefits of promoting internally

The benefits of promoting internally read like a checklist designed to please managers. Lower costs? Check. Better employee performance management? Check. Better morale? Check and check.

It’s true. Promoting internally has a lot going for it, including:

  • Better performance. External hires perform worse in their first two years of being hired than do internal employees promoted into similar jobs.
  • Lower costs. Between 40-60% of external hires aren’t successful in their new role, compared to 25% of those hired internally. That means poorer productivity likely to end in another hiring process, which is expensive and time-consuming.
  • It’s faster. It takes less time to promote internally than it does to run an external hiring process.
  • Better morale. One of the most common reasons people leave their job or company is that they believe there is no room for advancement. Hiring internally helps with morale and retention.
  • Familiarity with organizational culture. Some people believe the most important factor in an employee’s success is cultural fit. Internal candidates already know your culture.

The benefits of hiring externally

Given all the benefits of promoting internally, why consider hiring externally? There are a few good reasons.

Hiring externally is the right move if your company needs to:

  • Uncover new talent, perspectives and ideas. New blood can invigorate a team or organization, and in certain industries, generating new ideas is crucial to staying relevant.
  • Find skill sets not available in the organization. Sometimes, the skills you need just aren’t available internally. This is often true when launching a new initiative or product, or hiring for a new position.

Other factors to consider

In addition to considering the benefits of promoting internally versus the benefits of hiring externally, it’s important to consider circumstances within your company which may make it better-suited to going one way or the other.

External hires may be a better fit for your company if:

  • Job training and professional development opportunities are available to help employees grow into a position
  • The company is heading into a time of change and can use employees not hindered by a “but this is how we’ve always done it” mentality
  • The company’s culture embraces different perspectives
  • There is inadequate succession planning

On the other hand, promoting internal hires may be a good idea if:

  • The company is doing well (if it’s not broke, don’t fix it)
  • The company has a very specific and unique culture and way of doing things
  • Job training and professional development opportunities aren’t available
  • Time is of the essence; the position needs to be filled immediately

Ultimately, it’s not an either/or proposition. There will be times when it is best to promote internally, and times when it is best to cast your company’s net wide to find an external hire. The trick is in knowing which is appropriate when.