Why it Pays to Develop Existing Employees

At some point, you’re likely to be faced with an important business decision: Hire from within and develop existing employees or hire externally and bring in someone from the outside.

In other words, should you build it or buy it? Although every situation is different, developing existing employees is often your best move for several reasons.


It Makes Sense Financially

Hiring externally can be costly. More specifically, research from Recruiterbox found, “The total cost of hiring one new employee could be as high as $5,000 or more, in a professional or manufacturing industry. Even hiring a new employee in a services-related industry typically costs more than $1,000.”

Promoting from within is usually far more cost-effective because you can eliminate recruitment fees, job advertisements, sign on bonuses and so on. There’s also the issue of salary.

According to Matthew Bidwell, management professor at The Wharton School of the University of Pennsylvania, “External hires have higher exit rates, and they are paid ‘substantially more.’ About 18% to 20% more.” When you look at the big picture, you can literally save tens of thousands of dollars by promoting from within.


Internal Employees Perform Better on Average

Bidwell also states, “External hires get significantly lower performance evaluations for their first two years on the job than do internal workers who are promoted into similar jobs.” Forbes even found, “External hires were 61 percent more likely to be fired from their new jobs than were those who had been promoted from within the firm.”

Maybe it’s due to a sense of entitlement, which translates into diminished work ethic. Maybe it’s because of the inherent learning curve that’s associated with many jobs. Or maybe it’s simply because it takes time to build legitimate team chemistry. Whatever the reason, research across the board indicates that internal employees outperform external hires considerably.


Boost Workplace Morale

A high level of workplace morale can have a host of positive benefits for your company and overall brand. Some specific advantages include:

  • Employees are satisfied for the most part
  • They’re more engaged
  • There’s less absenteeism and tardiness
  • There’s a lower turnover rate
  • Operations are more efficient and productive


The list goes on. When you develop existing employees, it shows that you have a vested interest in your workforce. You want to see them succeed. By giving current staff an opportunity to work their way up the ladder, it provides them with an incentive and there’s a legitimate opportunity for growth.

This can have a tremendous impact on workplace morale and tends to lead to highly satisfied employees who are in it for the long haul. On the other hand, external hires tend to be less loyal and may easily jump at the first opportunity that comes their way.

Keep these points in mind if you’re ever faced with the decision to develop existing employees or hire externally. While it’s impossible to say for sure if internal promotion will work out, a solid body of data suggests that this is usually the smartest move.

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