Internal vs external in succession planning
What is succession planning? How do you make a great succession plan? What happens if it all goes wrong?
It’s important to have a solid succession plan in place to avoid potential risk caused by business-critical employees exiting the company. Yet an important question that arises is “Should we hire a successor externally or nurture a successor internally?”
It’s an interesting question that will vary depending on a variety of factors, from the cost of an external compared to an internal hire, the downtime, training and whether they would be a right fit.
£25,181 is the average cost to business of the downtime period between a business-critical employee leaving and their new successor (hired or promoted) reaching their optimal performance, according to a study by Oxford Economics.
This means that you’ll very rarely get a smooth transition no matter how perfect your succession plan is, nor whether you internally or externally fill the position.
With optimal productivity being our benchmark, even a filled position will always experience some amount of downtime, as the hire can never fully prepare for the detailed requirements of the job.
The time taken to get to optimal productivity varies significantly, depending on the background of the new employee and the sector which they are coming from. If the employee is moving firms in the same sector, the time to optimal productivity is greatly reduced compared to a student or someone who was previously unemployed.
Costs of Hiring
The costs of hiring a new employee varies based on a several factors. Studies have shown that the average cost of hiring a new employee is £5,433 (Oxford Economics). This means that there will always be a cost of bringing in someone fresh to fill the role, whereas the promotion or pivot of an employee may save you some money in the short-term.
Another factor that has an impact on the cost of recruiting is the number of employees in the company. Companies with less than 9 employees spend on average £2902 on logistical costs, whereas firms with 250 or more employees spend on average over £7000. The difference in these costs comes down to smaller companies tending not to use temporary workers or recruitment agencies.
If on the other hand you’ve put in a succession plan to nurture a promising employee to move up to a new position (for example a managerial position), then training and preparation will pay off, downtime will be reduced and you’ll potentially increase loyalty with a promotion.
Some roles simply won’t be as replaceable, so roles like a Financial Director or CEO may require the life experience and acumen of someone outside the industry and external recruitment may be the most appropriate solution.
The ‘right fit’
The importance of a hire being someone who is the ‘right fit’ for your business is huge. In a market where people swap job roles more frequently and businesses experience higher levels of churn, it’s a priority that a business makes the right cultural fit.
For an internal successor, of course this isn’t an issue as they are an already established employee who has been a part of the business for years, and know the business, its goals, values, employees and working best practices intimately.
It’s important for a company to realise the importance of the culture and talent attraction of their business and keep a plan in place when it comes to building and maintaining it (see talent article on The Recruitment Network).
Not only is it vital to hire someone who is the right fit for the business, but they also must be the right fit for the role, which is not always easy. Behavioural, aptitude and personality assessments can help with this as they will give a more in-depth overview of a person than interview questions alone.
Thomas International have a range of assessments for candidates to complete during the hiring process. Not only does this give an excellent view of the candidate, their abilities and their personality, but it also provides a benchmark for the individual that can be monitored and assessed as they progress through their career and the talent management programme.
Training Internal Talent
Building internal talent to be prepared to fill a business-critical position can still be expensive and time-consuming. Whether you send them on courses or hire an internal trainer, you’ll still incur some high costs to get them ready for the role.
It’s important that in a succession plan you tally up the theoretical costs for both eventualities and look at what the outcomes of both choices could be. But remember, creating a great internal training course which could be semi-autonomous will make it transferable company wide.
Talent Management Programmes
Talent management programmes ensure that the right quantity and quality of people are in place within companies or organisations for their current and future business requirements and it is the ‘future’ part of that statement where succession planning comes in. Planning for the future with a talent management programme should link in with the business’s strategies, otherwise it’s easy to lose sight of the main goals and destination.
Studies have shown that businesses that have talent management programmes in place post up to 15% higher earnings than those of their peers, so although these programmes develop employees and their skills, there are also benefits outside of this for the business as a whole.
Candidate profiling through the assessments that Thomas International offers delivers quantifiable data that can be measured and analysed in order to assess how the employee is progressing through the programme, but also how well the programme is doing in providing value to the employee.
While talent management programmes develop the individuals involved, there are some qualities that cannot be developed, so hiring the right person for the role is extremely important right from the start. No amount of development can make up for a poor fit for a role and it is good to keep this in mind when hiring and developing employees.
Losing an employee who holds great worth to the company naturally leads to a desire to avoid a similar scenario when filling the role. So employee engagement is vital to avoiding high rates of churn.
Preventing disengagement of current employees helps to keep the company culture in a positive place. When the culture within a company works well, then it also makes it easier to find talent, as current employees would recommend their workplace to a friend or acquaintance.
Using talent management programmes can also help to retain employees. More and more studies show that younger generations are more concerned with doing challenging and meaningful work than previous generations, so by having these programmes in place, it can help employees chart their progression within the company, in the same way that involving employees in the process of producing a succession plan.
By involving the individuals that are included in the plan, you will receive their input and ideas which broadens the view and encourages collaboration. It will also mean that the employees involved with feel valued as an individual within the business and send them a signal that the company doesn’t want to lose them.
An increasingly aging workforce can cause some frustration with the younger up and coming workers. A survey by CareerBuilder showed that 60% of over 60s are postponing their retirement, but many of these older workers are in higher positions in companies. As a result of this, progression for the younger workers can get delayed, which means that they start to look to move on rather than staying put. Involving both types of employees, the older established and the younger up and coming, in planning for succession can help them to see that they are all appreciated and play a role in a bigger picture.
We believe if you’re weighing up a straight choice between internal or external succession planning, you’re going to lose: it all depends on the role and the correct conditions required to fill that role. The whole point of a succession plan is to be prepared for theoretical scenarios that may affect the business.
As we’ve seen, employees who are nurtured and developed will remain loyal and engaged. So it’s vital that a succession plan includes strong training protocols to get your most promising employees ready to tackle a more advanced position, as it will make them feel like a valued part of the company.
But it’s always a good idea to keep a plan of action in place to externally recruit a candidate for your business-critical employee roles, especially when you’ve struggled to locate a internal candidate who will fully fit into the role.
Ultimately every job role will be different and every company's situation will be varied, so there is no one-way to effectively fill a role. So when it comes to internal versus external, our advice is do both, be prepared, and build a solid succession plan for each business-critical role.
When to externally recruit:
You have a great candidate already in mind who can fill in quickly
There is a tight deadline for filling the position
The stability of the internal structure is delicate and moving employees around may cause problems
There still isn’t a strong succession plan in place yet, and time constraints make it difficult to create one quickly
The required skills/experience required to take the role are not available/teachable internally
It’s important to bring a fresh perspective into the role
You’ve got a good training plan in place to onboard the new hire.
When to internally recruit:
Promising employees are already in the company who could fill the job
Good lead time / notice, during which you’re able to promote from within
Your company is thriving, internal shifts are viable, and you have an employee surplus
An abundance of skills and experience for the role from internal talent
Lack of onboarding training available to bring an external hire to optimal performance efficiently.
Based on an original article by Gordon Stoddart in November 2017 on ‘The Recruitment Network’