To buy or to develop talent? That is the question.

What do companies of the likes of Cisco Systems and Google have in common? Besides being Fortune 100 companies, they approach talent recruiting in a unique way: they rely heavily on developing and hiring internal talent.

The Wall Street Journal recently highlighted some of the unique solutions organizations have taken to address talent shortages with internal talent. For example, Shaw Group Inc., an engineering and construction services company based in Baton Rouge, created an Internet-based system that serves as a virtual “baseball card” of talent. On these “cards”, an employee’s skills, training completed, and performance evaluations are highlighted. Doing so allows managers and recruiters to quickly assess what talent is available for open projects or positions, respectively.

But why is developing and hiring internal talent preferable over bringing in external talent? In addition to the increased time it takes to fill positions with external candidates, recent research¹ suggests that external hires are typically not only paid more than their internal counterparts, but actually fared worse in performance reviews during the first two years on the job:

Hiring managers may be wowed by an outsider’s résumé or new perspective, but they “underestimate how hard it is to integrate new people,” says Matthew Bidwell, a Wharton assistant professor whose study examined six years of employee data at a financial services company’s U.S. investment banking unit, covering nearly 5,300 workers. [/note]

This isn’t to say that external hires do not bring value, as they may be particularly beneficial in situations that could use a shake-up. However, it is important to integrate an organization’s overall recruitment, management, development, and retention processes into a proven talent management strategy.

The full article is available within The Wall Street Journal.

¹Bidwell, M. (2012). Paying more to get less: The effects of external hiring versus internal mobility. Retrieved from https://mgmt.wharton.upenn.edu/files/?whdmsaction=public:main.file&fileID=1582

Written by: Edward V. Hamilton, Jr.