There are many views on the concept of leveraging existing talent to fill up on new positions, though the majority of them seem to lean towards it being a better option whenever feasible than the alternative, which is to acquire talent from a candidate pool outside of the current work force.
Recently, Matthew Bidwell, an assistant professor at Wharton, focussing on patterns of work and employment conducted a study which was published by the Wall Street Journal. In his study, which spans over three decades, Bidwell begins by noting that few companies if any realised the cost of job hopping in the time frame dealt with in his study, a fact that made it harder to get precise statistics for the said study, owing to the scarce amount of data available on the topic.
There are several interesting findings to take away from Bidwell’s study. For example, it’s remarkable how the notion of leveraging internal talent isn’t already a priority for so many companies, seeing how not only do external hires get more money, but also that for the first two years their performance review are significantly lower than their internally promoted counterparts. To add to this picture, external hires also stand a much greater chance of being sacked than internally promoted employees, a fact that makes sense in light of their cost and subsequent performance.
To substantiate his findings, Bidwell submits his scrutiny of a US financial services firm, for the period of 2003 to 2009, in which it is found that external hires made a substantial 18% more than their internally promoted counterparts, and that in addition to scoring worse than the internally promoted employees, they also faced a 61% increased likelihood of getting sacked. What makes these findings interesting is that on paper, the external hires had higher educational qualifications and more experience, but according to Bidwell, employers tend to under appreciate the importance of employees ‘knowing the ropes’ of an organisation. “People don’t hit the ground running,’ he says, adding, “we have relationships in office that are key to getting work done and a set of structures and routines we need to know.” For example, work efficiency improves considerably if one already knows where to get the approval for a certain project or where and when to file papers.
Bidwell also finds that after two years, the performance of the external hires did tend to catch up to that of the internally promoted employees, but therein lies the lesson. Not many external hires lasted the two year period, whereas most of the internal promotes were still going strong with the same company. And more often than note, the unfamiliarity that comes with the external hire has consequences for everyone around them when they are placed in a team. “Because everyone had to work to bring the new hire up to speed, the performance of the whole unit declined.”
Other experts tend to agree with Bidwell’s findings, Boris Groysberg, a professor at Harvard, who published a rather well received text a few years back titled Chasing Stars: The Myth of Talent and Portability of Performance, which deals with the same concept as Bidwell’s study, but focussed more on the investment analyst tangent. Groysberg found, after studying over the careers of over a thousand ‘star’ analysts, that after changing jobs, most of them suffered an instantaneous, crippling and lasting decline. The reason behind this according to the professor; is that to great extent, their strengths depended on the resources, colleagues, and networks of their previous firms.
The message to take away from these experts and findings would appear to be this: it may be difficult to build a workforce of suitable employees fit for promotion internally, and it may get harder still to resist the alluring shine of a superstar candidate, but in the long run, it pays more in every sense of the term, to nurture existing talent and promote from within.
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