Build or buy? The individual and unit-level performance of internally versus externally selected managers over time.

Abstract

At some point, hiring managers in all organizations face the decision of whether to fill open positions with internal candidates (e.g., through promotions) or to hire external candidates (e.g., from competitors or new entrants into the labor market). Despite this ubiquitous choice, surprisingly little research has compared the effectiveness of internal and external selection or has identified situations in which 1 approach may be better than the other. The authors use theory on human capital resources to predict differences between internal and external hires on manager- and unit-level outcomes. Analysis of data from a quick-service retail organization (N = 3,697) suggested that internally hired managers demonstrated higher levels of individual job performance and commanded lower starting salaries than externally hired managers. At the unit-level, operations led by internal hires demonstrated higher performance on organization-specific criteria (i.e., service performance), whereas no internal-external differences were found on more general criteria (i.e., financial performance). They also found some evidence that differences in unit service performance decreased over time (but did not diminish completely) as external hires improved at a slightly faster rate than internal hires. Overall, these findings underscore the complexity of the recurring "build or buy" decision. The results also suggest that internal hires generally outperform external hires, both individually and collectively, and they do so for less money. (PsycINFO Database Record

Resources for What? Understanding Performance in the Resource-Based View and Strategic Human Capital Resource Literatures

“…Preliminary evidence also suggests performance outcomes differ in their firm specificity. For example, DeOrtentiis, Van Iddekinge, Ployhart, and Heetderks (2018) examined the “build versus buy” question relating to human capital. A unique aspect of their study was an examination of two types of strategic business unit (SBU) performance: customer satisfaction and productivity (i.e., sales per labor hour).…”

Welcome Back? Job Performance and Turnover of Boomerang Employees Compared to Internal and External Hires

“…On the one hand, internal hires may possess unique knowledge, skills, and relationships within the organization that may enable them to perform effectively in a higher level position. Internal hires are also familiar with the organization's culture, norms, and systems and, thus, may "get up to speed" more quickly than hires who are external to the organization (DeOrtentiis, Van Iddekinge, Ployhart, & Heetderks, 2018). On the other hand, external hires may provide new perspectives or attributes the organization lacks.…”

“…Research has found evidence of internal-external hire differences with respect to variables such as starting pay, job performance, promotions, and turnover. For instance, although internal hires tend to perform as well as or better than external hires, employees hired from the outside tend to receive higher starting salaries (Bidwell, 2011;Chan, 1996;DeOrtentiis et al, 2018).…”

“…Second, we begin to insert boomerang employees into the staffing literature that has, to date, focused primarily on two sources of employees available to organizations: internal applicants (e.g., employees promoted from within) and external applicants (e.g., recent college graduates) (Bidwell, 2011;DeOrtentiis et al, 2018;Rosenbaum, 1979;White, 1970). In doing so, we address a key question that appears to have received no attention in organizational scholarship: How do rehires perform compared to internal hires and first-time external hires, both initially and over time?…”

Eight Simple Guidelines for Improved Understanding of Transformations and Nonlinear Effects

“…Adding squared independent variables to a model is currently the dominant practice for modeling nonlinear relationships in organizational research; out of the 18 (17%) articles that stated some kind of nonlinear hypothesis, just one did not use a squared independent variable (Bamberger et al, 2018). Out of the 19 (18%) studies that did use a power transformation, just two did not state a nonlinear hypothesis (DeOrtentiis et al, 2018;Hou et al, 2017), but even these articles used power terms to model nonlinearity. 11 Thus, there is a strong convention that nonlinear effects should be tested by adding power terms to the model and that power terms should be used only for that purpose.…”