Eric Duffy

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Internal Mobility: How Learning and Internal Promotions beat Hiring from the Outside

L&D Talent Management

When you see competing companies start to exceed where your business is lacking, there’s a natural response: try to poach the competition. Or, if that’s impossible or unaffordable, you may check in with recruiters and cast a wide net to find candidates.

You might not be taking a good enough look inside your own business for employees who already have, or can learn quickly, the necessary skills. And for that, your business is paying a big price.

“There is a suspicion that ‘the grass is always greener’ attitude plays a role in some companies’ desire to hire from the outside,” said Wharton Professor Matthew Bidwell at the University of Pennsylvania. “Managers see a great CV and get excited about playing ‘Let’s Make a Deal,’ even when it’s hard to know what weaknesses the external hires bring with them.”

He wrote a paper titled Paying More to Get Less: The Effects of External Hiring versus Internal Mobility. In it, Bidwell provided data showing that “external hires get paid more and perform worse, than internal staff.”

Pathgather reached Bidwell to discuss his findings. He said internal mobility ultimately has three main benefits:

Higher performance

“Because people have experience in the organization already, they can hit the ground running much better,” Bidwell said. “They have strong relationships internally which makes them effective. They also understand the culture. As a consequence, internal hires are assessed as higher performing for the first two to three years than external hires.”

Less costly

“Internal mobility is cheaper,” Bidwell said. “Because managers want to make sure that external hires can do the job but they don’t know them well, they prefer hires who have already done much of the role. That means that external hires are generally moving laterally, and are already well paid. Internal movers are usually getting a promotion, and that means that they were previously in a lower level job. You don’t therefore need to pay them as much to get them to take the job.”

More likely to stick around

“Internal movers already know they are a fit for the organization,” Bidwell said. “As a consequence they are less likely to quit than new hires who may not know what they are getting themselves into.”

Data prove the need

The data makes clear the need for greater internal mobility.

Bidwell looked at personnel figures from a financial services company. He found that external hires are initially paid about 18% more than promoted workers. External hires also get promoted faster. All this despite having less positive results.

Other research backs this up. A white paper by Oracle explains:

“Seminal research conducted over the course of a decade found that the top 10 percent of companies with ‘high-performance work systems’ had four times the amount of sales per employee. Remarkably, these companies filled more than 60 percent of jobs from within. In contrast, the bottom 10 percent of these companies filled just 35 percent of jobs internally. In addition, research has shown that many great leaders have emerged from within organizations’ ranks.”

But despite the benefits, internal promoting remains much less common than external hiring. Statistics provided to Pathgather by the Society for Human Resource Management show that on average, three-quarters of positions are filled externally, while one-quarter are filled internally.

The importance of learning

To fix this, companies must focus more on Learning & Development, Bidwell said. “You need to be developing people effectively in order to be able to promote them into new roles rather than hiring to fill those roles.”

The idea that internal development programs are crucial is also backed up by other research.

Deloitte made a similar point in its 2016 Global Human Capital Trends report. “Companies should focus more heavily on career strategies, talent mobility, and organizational ecosystems and networks to facilitate both individual and organizational reinvention,” the report says.

It calls on L&D professionals to “become part of the entire employee experience, delivering learning solutions that inspire people to reinvent themselves, develop deep skills, and contribute to the learning of others. The goal is a learning environment adapted to a world of increased employee mobility.”

The report cites AT&T, which is undergoing a reinvention. The company is working torapidly retrain its employees rather than do mass hirings.

Filling talent gaps

AT&T and other companies are finding that talent development platforms revolutionize their L&D efforts, paving the way for much greater internal mobility.

“There has been a constant refrain from employers about the difficulties of finding talent with the right skills,” the McKinsey Global Institute says, adding:

“The growing use of online talent platforms may begin to address these problems — and even to swing the pendulum slightly in favor of workers by empowering them with broader choices, more mobility, and more flexibility. These tools are fundamentally altering the way individuals go about searching for work and the way many employers approach hiring …

“Platforms can also help companies make succession plans and address employee mobility and growth over the long term. A recent survey of executives found that leadership development was their number-one concern. Another study that included interviews with more than 800 executives found that only 22 percent view their talent pipeline as promising.”

When to hire from outside

None of this means that all positions must be filled from within. Businesses should still look outside “when they don’t have people internally who are ready or skilled enough to do the job,” Bidwell said.

But an updated learning ecosystem will help keep an agile workforce so that employees are always learning new skills.

In our article on mastering talent agility, Nick Gidwani explains that ratios make a big difference: “You can’t have only people with junior levels of any given skill. You need experts to oversee them as well, and put the right content in front of them.”

So your company may need to hire people to make sure there are enough high-level experts in a given skill.

“Even still,” Gidwani writes, “you’ll want to make sure that everyone you hire has a track record of being good at learning. And you want to make sure that they’re given time to learn new skills as well.”

Categories: L&D Talent Management
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