No CEO is every going to get an argument from employees when he or she announces: “Our policy whenever possible is to promote from within.”


On the surface, this seems like a good approach. Your existing employees know your culture, your systems and your corporate goals. They won’t need a lot of onboarding. The organization won’t have to get used to them.


And the fact that they sought a promotion suggests at least some level of loyalty to the company. Plus: If your employees know you’ll promote from within, that provides an incentive for them to do well and try to earn those opportunities.


No wonder none of them will argue with this policy. But maybe some of them should.


Hiring from within is usually the popular thing to do, which tends to make it the easy thing to do. It’s certainly the path of least resistance unless you promote a very unpopular employee. But sometimes promoting from within is a gigantic missed opportunity.


And sometimes it’s an abject disaster.


Let’s start with the missed opportunity scenario. Companies who want to grow and improve simply have to open themselves up to fresh ideas and different perspectives, and the best way to do that is to bring people in from the outside who have been different places than you have been. They’re familiar with practices and ideas you’re not – not because they’re necessarily better than you, but simply because every company’s perspective is limited somewhat to its own experiences.


Perhaps your company needs to hire a new chief operations officer, and you’ve got employees already on the team who meet the minimum requirements. They’ve had good reviews and they’re well liked. Why not give one of them a shot?


But let’s say there’s an operations professional available who has learned effective manufacturing practices that your team isn’t familiar with. Given the chance, this person would shore up weaknesses and introduce new efficiencies to the factory floor.


You think you’re doing reasonably well now, but this person would come in and see opportunities to make changes and take things to a next level. It would mean a dramatic boost to both your productivity and your profitability.


How do you know such a person exists? Well that’s my point. If you always promote from within, you don’t, because you’re not even going to look. That internal hire might make some changes and some improvements, but given his or her company pedigree, is likely to keep the broader systems more or less what they’ve always been.


That might be fine. But if you missed out on an opportunity to do way better than fine, what could that cost you down the road? How much harder might it be to grow and achieve stretch goals, when you didn’t even look for the person who could have gotten you there?


Then there’s the abject disaster scenario, and I witnessed this firsthand early in my career. At that time, I got a job in IT with a local hospital. I was a rare hire in that I was from the outside, and I was asked to provide leadership to an IT team whose challenges were significant. Almost everyone else on the team had been hired from the existing internal team, because this hospital had a strong philosophy of hiring from within whenever possible.


It was a train wreck. Some of these people had been nurse’s aides or patient financial counselors. They weren’t IT professionals, but they had some computer proficiency, and the hospital decided that was good enough to put them in the IT department under the “promote internally whenever possible” philosophy.


It was the worst IT department I ever worked with. And it was hard to blame the people. They should never have been put together as an IT team in the first place. The hospital’s management did that.


There was really no way you could lead them into better performance because they simply lacked the talent. There’s a big difference between someone who knows his way around the computer and someone who really understands information technology. Almost no one on this team did, and the hospital paid a huge price because its systems needed a serious upgrade – and there simply wasn’t the talent to get it done.


Now having said all this, I am not against promoting from within in all cases. But I think companies need to be smarter about when it makes sense to do it, and when it doesn’t.


It makes far more sense if you’re promoting within your core competency. If you’ve earned a reputation as an excellent furniture manufacturer, then it makes perfect sense to promote people who have proven themselves within your area of core competency. These people are the ones who made your company the best, so of course they should get the opportunities to go further.


But every company also has to do well in areas outside their core competencies. The furniture manufacturer also needs a good CFO, a solid IT director and an excellent janitor. When you’re hiring for those positions, there’s no reason to be stuck on promoting from within. Search everywhere you can for the best financial, IT and maintenance professionals and hire the best person you can find.


Then let those outside hires support the internal professionals who continue to excel at your company’s area of core competency.


I understand the inclination of corporate leaders to reward their own people first. This especially tends to happen when companies hover around the 50-employee mark. It feels like a family, and you want to take care of the family members above all else. I get it.


But sometimes the best way to take care of the family members is to bring in talent from outside that can strengthen the overall performance of the organization. And sometimes it’s not so helpful to put one of them in a position that doesn’t really fit.


Hire from within when it augments where you’re already strong. But everywhere else? Cast a wide net and see what kind of talent you can bring in to make your team even better. That’s truly a strategy that rewards everyone.


Written by: Wade Wyant

Red Wagon Advisors