Snapshot Summary
A comparison of organisational outcomes from internal promotions versus external hiring, drawing on evidence from multinational firms and leadership research published by Harvard Business Review, McKinsey, and Deloitte.
Key Findings
- Internal hires perform better long-term. A 2019 Harvard Business Review study tracking over 600,000 hires found that external hires were 61% more likely to be fired from their new role than internal promotions, and they took 2–3 years to match internal hires’ performance levels[1].
- External hires cost significantly more. Research by Wharton indicates external recruits are paid 18–20% more on average but score lower in performance appraisals for up to two years compared to internal candidates[2].
- Succession risks are magnified by external dependence. Deloitte’s 2023 Global Human Capital Trends survey found that 63% of surveyed organisations lacked a robust internal succession pipeline, increasing risk exposure in regulatory and leadership continuity contexts[3].
- Speed-to-performance is higher with internal talent. McKinsey’s 2022 organisational health data revealed that internally sourced leaders typically take 50% less time to reach full productivity in a new role compared to external hires[4].
- However, innovation is often driven by external hires. External executives were found to introduce more transformative strategic changes in companies with stagnant cultures or underperforming boards, suggesting situational value in external sourcing[5].
Leadership Insight
There is no absolute winner in the internal versus external talent debate, but the trade-offs are increasingly quantifiable. Internal candidates offer continuity, cultural alignment, and cost efficiency. Critically, they carry lower onboarding risks and can advance diversity agendas if talent mobility frameworks are inclusive. However, exclusive reliance on internal pipelines can lead to insular thinking and blind spots, particularly in rapidly transforming industries like digital gambling or gaming technology.
For gambling operators and suppliers navigating multi-jurisdictional regulation and ESG expectations, leadership continuity and cultural stability matter. An internal pipeline reduces governance and succession risk. Yet, where transformation, digital disruption, or new market entry is the strategic priority, targeted external hires can be catalysts, provided they are appropriately risk-managed and onboarded.
The most resilient firms blend both approaches, maintaining strong internal talent mobility and succession models while selectively sourcing external expertise to address internal capability gaps.
Questions to Ask Your Team
- Are we tracking the performance outcomes of internal vs external leadership appointments?
- How does our internal mobility rate compare to benchmarks in similarly regulated sectors?
- Do we have succession plans in place for key compliance, regulatory, and operational roles?
- Where are we over-reliant on external hiring due to gaps in internal development?
- Is our external hiring strategy aligned with clear, strategic capability needs?
Footnotes and Sources
[1] Harvard Business Review, “Why External Hires Get Paid More, But Perform Worse,” 2019
[2] Wharton School of Business, “Pay and Performance of External vs Internal Hires,” 2018
[3] Deloitte, “2023 Global Human Capital Trends,” 2023
[4] McKinsey & Company, “Organizational Health Index,” 2022
[5] Spencer Stuart, “CEO Transitions and Strategic Renewal,” 2022