Internal vs External Hires: The Decision Leaders Keep Getting Wrong

Few hiring decisions create more confusion than this one:

Should we hire this executive internally or externally?

Most leadership teams talk about it like a philosophical debate. Culture vs fresh perspective. Continuity vs disruption. Loyalty vs experience.

That framing is the problem.

Because the real failure rarely comes from choosing internal or external. It comes from not deciding what problem you are actually trying to solve. And worse, changing that decision halfway through the process.

What the Research Actually Shows

The data on internal versus external hiring is remarkably consistent, and it challenges what many leaders assume.

Cornell University researchers analysed the objective performance of over 109,000 salespeople and 12,000 managers at a large national retailer. They found that internal hires had greater objectively measured performance than external hires. More importantly, the highest performing internal hires stayed the longest, while the highest performing external hires tended to leave more quickly.

Matthew Bidwell at Wharton studied seven years of personnel data from a major investment bank. His findings: external hires got significantly lower performance evaluations for their first two years and had higher exit rates, yet were paid 18-20% more. If they stayed beyond two years, they were promoted faster, but most didn't stay.

This isn't an argument against external hiring. It's evidence that internal and external hires solve fundamentally different problems, and that most organisations don't differentiate between them clearly enough.

The Real Trade-Off Leaders Miss

Internal hires optimize for speed, institutional knowledge, and retention. They understand how decisions get made, know the constraints, and carry informal influence from day one. The highest performing internal hires tend to stay the longest, creating compounding value over time.

External hires optimise for capability gaps, pattern recognition from other contexts, and challenging entrenched assumptions. They bring experience that doesn't exist internally. But they also face what researchers call "incomplete information costs": they lack firm-specific knowledge, take longer to perform at full capacity, and face higher risk of voluntary and involuntary exit.

Neither is better by default.

The question leaders should ask first is this: Are we trying to scale what is already working, or fundamentally change something that is not?

Without that clarity, the process drifts.

Why Changing Strategy Mid-Process Is So Costly

I saw this play out recently with an executive search I was involved in. The leadership team started convinced they needed an external hire. Someone to "raise the bar" and bring new thinking. Midway through the process, internal candidates began to surface. Suddenly the brief shifted.

The criteria softened. The role description changed. The conversation moved from outcomes to politics.

By the end, no one was clear what success even meant anymore.

This is how good candidates, internal and external, lose trust. And research shows why it matters: when hiring processes lack clear, consistent criteria, subjective performance measures can be shaped by favoritism or bias, leading to decisions that satisfy no one and solve nothing.

When leaders switch between internal and external strategies without resetting the brief, three things happen:

Candidates sense uncertainty and disengage. Interviewers stop evaluating consistently. The final decision becomes political, not strategic.

What looks like flexibility is often indecision. And executive hiring punishes indecision brutally.

A Better Way to Decide

Strong leadership teams make this decision early and explicitly.

They define the problem the role must solve. They decide which path best solves that problem. They commit to it for the duration of the process.

This means:

If you choose internal: You're optimising for speed to impact, cultural fit, and retention. You accept that the candidate may need capability building in certain areas. You commit to developing them rather than second-guessing the decision when external candidates appear more polished.

If you choose external: You're optimising for new capability, fresh perspective, and pattern recognition from other contexts. You accept longer ramp-up time and higher attrition risk. You commit to rigorous onboarding and integration rather than expecting them to "figure it out."

The research is clear on one point: organisations that maintain clear, consistent evaluation criteria throughout the hiring process make better decisions. Those that shift criteria mid-process create confusion, reduce candidate quality, and ultimately hire the wrong person for the wrong reasons.

Internal candidates deserve clarity. External candidates deserve honesty. The business deserves a decision that doesn't have to be undone.

Final Thought

Internal vs external is not a talent question. It is a leadership judgment question.

If you want to avoid executive hiring processes that drift, stall, or quietly fail, start by being explicit about what you are really hiring for. Then stay consistent.

The research shows that when you do, you'll make better decisions. When you don't, you'll make expensive mistakes that take years to correct.

If this is something your leadership team is wrestling with, and you want a clearer way to frame and run these decisions, that is exactly the kind of work I help teams with.

Book a call and let's talk!

P.S. I break down hiring decisions like this one every week on YouTube. If you want practical frameworks backed by research (and no fluff), subscribe here: youtube.com/@schoolofhiring