Making internal appointments rather than choosing external candidates can pay dividends in terms of better financial results, more effective personal performance, and stronger engagement across the company.
Most successful organisations know that, in its true sense, talent management is about identifying and developing the business’s own employees. The aim is to create a pipeline of talent so that the company always has the skilled and experienced people it needs.
But what about those situations where internal talent isn’t quite ready for some of the most senior roles? Or where companies start to think fresh talent could bring a fresh perspective? How about those cases where internal politics mean one person already working for the company can’t be selected over others?
It’s in these situations that the debate on whether to grow or to buy talent can become heated. Does it really matter which way the decision goes? The truth is that is does.
Research by PA shows a link between the percentage of internal appointments to an organisation’s Executive Committee and the organisation’s Total Shareholder Return (TSR). We found that in organisations where 51–100% of posts on the Executive Committee were filled through internal appointment, TSR could be up to 51% higher than in organisations where less than 50% of posts were filled through internal appointment.
Clearly other factors - including talent segmentation and embedded talent management - affect TSR too, but as our research shows, companies preferring to appoint internal talent produce markedly better results than those that don’t.
Thinking about why appointing internal talent has a positive impact on TSR, our experience tells us that people who have worked in an organisation for some time and built up an understanding of ‘how things really work’ are the people who will generate better results. And that’s the way it should be. Organisations invest a lot in developing talented employees to make sure they’re ready for internal roles. The return on that investment shows in more effective personal performance.
Choosing to grow rather than to buy talent can also have a positive effect on engagement and motivation organisation-wide. Identifying, developing and promoting talent internally sends a strong message to employees about how the organisation views and values them. It says: ‘We recognise your talents, we’ll help you develop them and, if you can show us you’re committed, we’ll find roles where you can realise your career ambitions.’
In the end, of course, getting the right talent for the job is the priority and sometimes that might mean having to look externally. But organisations need to be clear about the significant benefits of drawing on internal talent, not least the impact on bottom-line results.