Should the next CHRO be internal or external?

As per a survey, around 53 per cent of new CHROs in 2019 were internal successors. While they still represent a majority, there has been a steady decline in the selection of internal successors for the CHROs.

In 2017, 70 per cent of CHROs were internal successors compared to 61 per cent in 2018 and 53 per cent in 2019. If the same trend continues, a majority of new CHROs in 2020 will be external successors.

Is the difference between an internal successor for CHRO vs an external hire a big deal? After all, in today’s time, for any CHRO, it is important to understand the role of an HR leader in terms of working with the leadership team to help drive the business by enabling people’s performance.

When you hire externally, you bring the person based on his subject matter expertise and ability to drive the growth mindset

With so many things to consider, how should a company decide what is right for them when selecting a CHRO?

Internal hiring 

An internally-groomed CHRO has in-depth organisational knowledge —awareness of the players, the chemistry between them, culture assimilation, the long-term roadmap of the company — which is favourable to a CHRO when internally promoted.

Benefits 

Manu Wadhwa, CHRO, Sony Pictures Networks India, says, “Internal hires retain organisational knowledge and get up to speed in their new roles more quickly than external hires. It also serves a long term trajectory of growth of the individual in getting the credibility of the management team due to which the person was hired.”

When it comes to building credibility, the cultural assimilation and the acceptability of the stakeholder group is much higher in internal succession. This makes it very easy to take on the role and influence the changing operating model of the company.

There are other benefits to choosing internal succession candidates as well.

Wadhwa feels that an internal successor has prior knowledge of the business dynamics to anticipate the future accurately, which is in fact a highly-considered factor for that role. Also, the organisation’s ability to give higher leverage also increases in internal promotions.

If the businesses are changing rapidly, successors should be able to drive the business with the same speed

Ravi Mishra, SVP-HR, Epoxy Business, Aditya Birla Group opines, “Internally, if not much, the one biggest advantage is that the successor is aware about the organisation’s culture, that constitutes the strengths and weaknesses of the company.”

Drawbacks

For many companies, hiring within the organisation implies a serious drawback in its succession plan. For leaders, such as Wadhwa, it is the inability to have a bigger picture of the market and a limited networking circle as the maximum amount of time has been spent in the same organisation.

Relationships within an organisation are cast a particular way. The role of a CHRO, in case of an internal promotion, also gets limited by past chemistry.

The biggest con for the decline in internal succession, according to Wadhwa, is having a macro strategic thought leadership on business. This that lands up in a massive gap for somebody being considered for internal hiring. It becomes the game changer at some point of time. One is no more an enabling partner or an executor of the decisions.

Vaijayanti Naik, HR consultant and former head, leadership development, ICICI Bank, points out several reasons for organisations to not hire CHROs internally.

She says, “Organisations today, are looking forward to changing the drive, and building new capabilities. Today it is all about strategic agenda, so, unless the person has capabilities, she/he cannot be elevated as a CHRO.”

Naik also adds that an internal successor lacks a strategic orientation and a business understanding that needs to drive the HR processes.

In Mishra’s words, “The biggest downfall in promoting a CHRO internally is the thinking process, which has remained the same, with an inbuilt bias that comes from being within the organisation for more than five years. The ideas are limited and there is no scope of growth within the same organisation.”

“If the businesses are changing rapidly, successors should be able to drive the business with the same speed,’ he adds.

Advantage of external hiring

Just like internal succession, there are reasons to hire externally as well.

In Naik’s words, “Selecting a CHRO from another company can bring new perspective, experience and innovation to the entire team. Due to their expertise in other organisations, the chances of bringing in improvements to methods and processes are much higher than internal succession.”

Mishra shares a similar opinion— “An external successor has the flexibility to experiment with his past experience. New ideas, innovation and non-judgemental views will undoubtedly benefit an organisation from the mix of both the worlds.”

Wadhwa explains, “Mostly, an organisation looks for external hiring when the internal talent pipeline is completely dry. In recent times, this has happened more because the retention level is relatively decreasing.”

Another circumstance, according to Wadhwa, that leads to external hiring is the miopic thinking of the internal player. “The biggest advantage in external hiring is the market understanding, business acumen, and far-sighted industry knowledge of the CHRO,” asserts Wadhwa.

Organisations today, are looking forward to changing the drive, and building new capabilities. Today it is all about strategic agenda, so, unless the person has capabilities, she/he cannot be elevated as a CHRO

Sometimes, a fresh set of eyes can see issues or possible solutions that a team of the brightest minds may have overlooked.

Disadvantages

There are several gaps that need to be filled, while hiring a CHRO externally.

What Wadhwa considers the biggest challenge in external hiring is the gap in culture assimilation of the organisation. “When you hire externally, you bring the person based on his subject matter expertise and ability to drive the growth mindset,” she says.

When compared to internal successors, external hiring has other disadvantages as well.

Naik points out, “A lack of solid relationships with others in the senior management team can make it hard for a new CHRO to be effective. From settling down in the new company, boosting the morale of employees to winning their trust, everything counts.”

She is also of the opinion that new ideas may be naively constructed if the external CHRO is unfamiliar with the industry or the context in which a company exists.