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Should You Grow Leaders from Within or Hire Them?

Should You Grow Leaders from Within or Hire Them?

Start a management degree at American Public University.

By Dr. Marie Gould Harper
Program Director, Management at American Public University

The question “What is the difference between a leader and a manager?” is as old as “Should our leaders come from within the company or be hired from outside?” Why does one have to be better than the other? Why can’t an organization use both approaches to assess the situation and determine which method is better at a given time?

Writing in ATD, the online magazine of the Association for Talent Development, author Lisa Whealon found that most CEOs cite the need for strong leadership to grow the business. However, the organization struggles when there is a gap in leadership and efforts are made to close that gap.

To those CEOs, my question would be, “Do you need to fill the gap immediately or are you doing long-term strategic planning with the hope of eventually having the right people in place?” Depending on which is more important, the approach may be different.

For example, if you are in an industry where there is a lot of personnel turnover and competition is tough, you may not have the luxury to groom individuals. Time waits for no one, and your competition won’t wait while you get your people in place.

At this point, you might need to bring in someone who knows how to take an organization to the next level and move you in the right direction. At the same time, you groom some internal leaders for such a position in the future.

Whealon highlights two critical factors that she found during her research. The results suggest two dynamics operating from opposite ends of the spectrum. However, researchers who follow the trends in succession planning, especially as they relate to leadership in corporations, have found different results.

Some research shows that hiring someone from outside the company for a leadership role is more likely to result in that person not being a long-term fit.

Susan Adams of Forbes magazine cites the work of Dr. Matthew Bidwell, Assistant Professor at the Wharton School of Business. Dr. Bidwell’s study was from 2003 to 2009, and involved 5,300 participants from the U.S. investment banking unit of a financial services firm.

New Hires Tend to Make More Money than Internal Candidates

Bidwell’s results highlighted how new hires tended to make more money than internal candidates and their and performance reviews were poorer than those of internal candidates, especially during the first few years of employment.

Are these findings a problem and a valid argument to groom only internal employees for future leadership positions? No, not really.

First of all, given the compensation and classification system in most companies, internal candidates will more than likely make less money than external candidates. Most organizations do not adequately keep pace with the external salary markets.

Changing Jobs Yields a Better Pay Increase than Staying at the Same Organization

Many employees job hop because they have figured out that changing jobs yields a better pay increase than staying at the same organization and receiving a minimum annual increase.

So is the issue about whether external candidates make more than internal candidates? I think the candidates issue should come down to what type of performance you are expecting versus how much money you have to pay to get to that point. Remember, your competition will not wait for you to get the right leaders in place.

In regard to the poorer performance of external candidates during their first few years on the job, it is possible that the period was due to a steep learning curve rather than weaknesses in performance. Maybe the performance review ratings were lower because of specific job requirements. Also, some soft skills could have been the issue, which would have a correlation to learning the organization’s culture to properly function and make necessary changes.

Finally, Bidwell’s study involved just one industry, the investment side of the financial sector. Could we duplicate the results using different sectors? Would the findings be similar, especially in an industry that might not be as highly structured as a financial service corporation?

More than one-third of the organizations surveyed in Brandon Hall Group’s State of Leadership Development Study acknowledged that their leadership development practices were below average or poor. Another third say their methods were average, and 31 percent reported that their practices were exceptional or above average.

The results support the argument that leadership development should be considered a strategic, long-term business initiative versus short-term training. The model that most organizations use to develop leaders for future top positions only works in the long term, rather than hiring to fill short-term needs.

If there is a sudden shift in the market or industry, an organization might not be able to adequately respond with the necessary leadership to deal with such challenges.

Organizations Should Develop Two Types of Programs for Developing Leaders

Organizations must develop two types of programs when it comes to leadership development. One program should be devoted to what we currently know as leadership development training. Let’s fine-tune the process of developing leaders on a long-term basis with the understanding that it will take time before individuals in this group are ready to join the leadership ranks.

The second program should be the “fast track” group. Organizations should allow only high performers in this group. Also, the ability to adapt to change and move accordingly when a change occurs should be one of the characteristics sought after in the selection process.

If you do not have individuals who embrace change management initiatives, you might not have the proper leadership to respond to disruptors when they arise unexpectedly.

Finally, sometimes we have to consider that the best course of action might be a shot of new blood. What does a new hire bring? A unique perspective on the situation for one thing. People who are not close to a situation can sometimes provide a more objective view for resolving a problem.

What do you think is the best way to prepare future leaders in an organization?

Start a management degree at American Public University.

About the Author

Dr. Marie Gould Harper is the Program Director of Management at American Public University. She holds an undergraduate degree in psychology from Wellesley College, a master’s degree in instructional systems from Pennsylvania State University and a doctorate in business from Capella University. She is a progressive coach, facilitator, writer, strategist and human resources/organizational development professional with more than 30 years of leadership, project management, and administrative experience. Dr. Gould Harper has worked in both corporate and academic environments.

Dr. Gould Harper is an innovative thinker and strong leader, manifesting people skills, a methodical approach to problems, organizational vision and ability to inspire followers. She is committed to continuous improvement in organizational effectiveness and human capital development, customer service and the development of future leaders.