Inner Strength?

In Or Out?

Is the verdict emphatically in favor of looking outside for high-powered talent? Aside from a possible lack of promotable people inside, there are plenty of arguments in favor of hunting outside for new hires. "If you never go outside, you risk becoming inbred," says David Opton, executive director of Exec-U-Net, a Norwalk, Connecticut-based national networking organization for executives and professionals earning more than $75,000 per year. "When you [hire from] outside, you'll get senior managers with fresh ideas and new perspectives."

Another plus: Outsiders don't arrive with any internal political baggage, such as favors owed to other employees. "Somebody from outside can come in and do things insiders wouldn't have the heart to do or that they might feel couldn't be done politically," says Opton. "People from outside have more freedom to act."

But experts agree your focus shouldn't be exclusively on outsiders as senior-level openings emerge. In fact, any survey of the nation's hiring experts would find more of them favoring the internal side of the argument. Says Jeffrey Pfeffer, a business professor at Stanford University in Stanford, California, "Hiring from outside has become a first resort for many businesses, but it should be the last resort." For companies that lack the talent internally, hiring from outside is obviously the only option--as ETI's Hammer can testify. But that's the exception. "It's almost always better to promote from within," says Pfeffer.

Just what is wrong with ignoring your existing pool of workers? The list of reasons swiftly grows:

  • "When you hire from outside, it disheartens the people who are inside," says Pfeffer. "They joined the company thinking they would grow with it, but when the company grows and they are bypassed, it's demotivating." Worse still, the very people most likely to feel keenly demotivated are the ones who have been your strongest contributors--and the ones you want to keep fired up because, in many ways, it's their hard work that has helped create the new job openings. Skip over them when promotions are at stake, and you run the risk they'll jump ship. "Good people will say `Why should I stay in a firm that won't give me promotions?' " says Terri Griffith, an assistant professor of organizational behavior and technology management at the Olin School of Business at Washington University in St. Louis.
  • "Hire from outside, and these new people have to learn the ropes and figure out how to get things done," says Pfeffer. When you bring in an outsider, there's always a learning period--weeks, sometimes months--during which the newcomer is finding out the way things happen in your business.
  • A new hire's team may sabotage his or her effectiveness, warns Aimee Kaye, president of Actuarial Careers Inc., a White Plains, New York, executive recruitment firm. You may be looking to hire a terrific leader, but if the workers dig in their heels and refuse to follow, what happens to the leader? "If you don't have the support of the people below you, they will ultimately destroy you," says Opton.
  • Hire outside, and you don't know what you'll get until you get it, warns Pfeffer. "With people internally, you should know their strengths and weaknesses very well," he says. "With people outside, mistakes get made." It's a scary thought, but in today's litigious society, many companies are tight-lipped about their employees and former employees. Serious problems--from alcoholism to mental instability--go unmentioned during calls for references. Bad hires can cause chaos in small businesses, which can be terribly expensive to correct. Less dramatic, but potentially very costly, is the risk that the outside talent turns out not to be quite as wonderful as you thought they'd be, says Pfeffer. "People from outside always look a little better," he adds--that is, until they're hired, and suddenly the faults and failings you overlooked are in the spotlight.

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This article was originally published in the August 1998 print edition of Entrepreneur with the headline: Inner Strength?.

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