Should leaders be hired or developed internally?

Developing leaders internally or hiring them from outside is a dilemma as old as a Shakespearean tragedy, but that is barely the point to ponder over. However, it is a question that organisations often ask — Is it worthwhile to groom leaders within the organisation or should we look for ready talent available in the market? While both options have their takers, it makes perfect sense for a company with a long-term perspective and that believes in investing in its human resources wisely to build talent from within.

Identifying and grooming worthy talent within the organisation comes with its set of benefits for the company that cannot be ignored. One most important fact is that the potential resource is well aware of the working conditions. There is little to no time needed to adapt to the working culture.

Sundara Rajan, co-founder, Thomas Assessments India makes more valid points as he gets into specific details.

“We recommend building from within except for specific functional or technological skills which are in short supply. Such a policy sends a positive message to the employees about future growth with the company. Often, a leader who rises from within triggers aspirations about growth across the organisation,” he says.

“When a leader comes from within, the organisation sends two messages to the employees the company has headroom for growth, and that all employees have a future in this company”

Sound grooming further motivates existing employees to believe in the organisation’s future and in their own growth opportunities in the company.

“When a leader comes from within, the organisation sends two messages to the employees — the company has headroom for growth, and that all employees have a future in this company. This is apart from the regular benefits of being in synch with the culture, hitting the ground running, and so on,” says Rajan.

With Thomas Assessments India that works with leading companies in the country offering them talent development and hiring solutions, Rajan notes that many organisations he works with do have extensive programmes to nurture and build leadership pipelines. Some provide clear visibility and runway from the time an employee moves to the middle-management level.

“An area of concern, which many organisations face is the rise of many functional leaders and lack of business leaders or leaders with cross-functional experience,” he says.

Expert Opinions

Sunil Singh, chief human resource officer, Cadila Pharmaceuticals agrees with the points Rajan makes, noting that developing leaders from within has a long-lasting impact. What he further notes is that to reach a stage where a company can look for leaders within its existing resources, it first needs to be at a mature stage with a worthy pool of talent.

“I always recommend building leaders from within the organisation. To reach the stage where you can develop leaders within the company, you need to have a very robust talent pipeline. If the quality of your stock across levels is not sustainable, then the organisation has no option than to hire from outside. However, is this a model that is sustainable for a long period of time? Is it a model that will make an organisation a great place to work? The answer is no!

It takes a period of three to four years for a company to reach a stage where it can first build a robust talent pipeline,” says Singh.

“I always recommend building leaders from within the organisation. To reach the stage where you can develop leaders within the company, you need to have a very robust talent pipeline. If the quality of your stock across levels is not sustainable, then the organisation has no option than to hire from outside”

He clearly illustrates the benefits saying building leaders within the organisation helps motivate employees who see there is scope for growth.

“For a person to really become the company’s ‘insider’, it takes two years and not less than that. By this I mean, in two years, the person is able to understand every single relationship within the organisation. It becomes automatic. Once the person reaches such a level, she/he becomes much more efficient and productive.

You have proper insurance coverage if you are building leaders from inside the company. A person like that does not have to decipher the culture; as she/he is already a part of it. That extra effort isn’t needed. This is one of the biggest advantages when developing leadership from within the organisation,” Singh explains.

Emmanuel David, director, Tata Management Training Centre weighs properly the pros and cons of both developing talent as well as external hiring.

“In the process of succession planning management, people may pass the title to the successor but not always the assets. In conventional succession planning, where the physical asset is there, both the title and the assets pass to the successor”

“My role essentially is to develop talent internally as the director of Tata Management Training Centre. We need to do that because there is shared ethos and shared history, which one can leverage,” he says.

David, while advocating grooming leaders within notes that succession planning management must be done carefully.

“In the process of succession planning management, people may pass the title to the successor but not always the assets. In conventional succession planning, where the physical asset is there, both the title and the assets pass to the successor. Assets here are information and insight. People say business continuity but I don’t think it is done with a certain amount of care. There is also a trend where the outgoing person continues as a consultant (with the company). It is not in his interests then to pass on all the insights,” he explains.

According to him, while development programmes should definitely be invested in, sometimes, if an organisation is foraying into a new area, for instance, it is better to get someone from outside.

“Hire for that competence then and not just experience,” he says.

Among other things, a clear tangible benefit of grooming talent within is lower costs when promoting internally over external hires.