Promote Managers Internally or Hire Externally?

Innovative Pathways for Employee Development May Be a Better Option

I've been neck-deep lately examining the Peter Principle, which posits that…

People in hierarchies tend to get promoted to their level of incompetence.

and …

… Parkinson's Law, which is known for proposing…

Work expands according to the time available to do it

(Parkinson extends this principle to explain how bureaucracies get bloated)…

Neither construct is rooted in evidence. Yet both have persisted over time because they resonate with workers' lived experience.

Internally Promoted Managers Outperformed External Hires

I like research that calls me to question my beliefs. So I appreciate a new study by Chase Thiel, Anthony Klotz, and team, who — in contrast to what Parkinson or Peter would've predicted — write in Harvard Business Review:

"Beyond retention, our study also found that, on average, internally promoted managers outperformed their externally hired counterparts. Promoted managers received higher performance ratings, generated more revenue, and had lower rates of subordinate turnover."

This one limited study won’t shake my conviction that we need to support employees to develop "horizontally" in organizations (when that's the best fit for their strengths and goals), while compensating them appropriately, as an alternative to promoting them into roles where they’re set up for failure…

But it has given me (and, I hope, you, if you go on to read the HBR article or the study’s pre-print) food for thought. Ultimately, the question may not be whether internally or externally promoted managers are more effective. In the context of data showing that “companies miss the mark on high managerial talent in 82% of their hiring decisions” — as well as Peter’s theory that people are promoted to their level of incompetence and Parkinson’s theory that bureaucracies are predisposed to over-expansion — the greater question is whether unskilled management is self-perpetuating, as the least qualified managerial candidates crowd out the most qualified.

P.S. According to reports of a recent trend dubbed “the flattening,” large companies are disproportionately laying off middle managers. Nothing in my article should be construed as endorsing layoffs or penalizing managers. If layers of middle management are perceived as overgrown, it’s because executives made flawed decisions regarding organizational structure and employee development, and, once they shaped their organizations, didn’t have the vision or know-how to optimize them.