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The True ROI of Investing in Internal Talent vs. Hiring Externally


 

Employees are the backbone of any organization — their contributions drive success, innovation, and growth. As businesses navigate shifting economic landscapes, technological advancements, and evolving work models, it becomes crucial to optimize talent strategies for both productivity and value creation. Ensuring that employees are placed in the right roles and given opportunities to develop and thrive can lead to strong returns for companies.

But when leadership positions open up, organizations face a choice: should they promote within or hire someone new? The answer lies in evaluating the return on investment (ROI) of both approaches. 

The Case for Promoting from Within

Many companies don’t realize until it’s too late that they have dissatisfaction and disengagement in the workplace, causing chronic attrition and vacancy rates. When companies have low attrition rates, it’s often due to a lack of engagement within the current organization. That’s why it can be crucial to look within for promotions and filling roles, because it can boost employee retention and morale. 

Here are a few benefits of hiring within the company:

  • Faster ramp-up time – Internal hires already understand company culture, processes, and goals, reducing their learning curve. This means they can hit the ground running to make changes earlier on.
  • Cost savings – External recruitment can be expensive and time-consuming. Hiring internally cuts costs associated with job postings, advertisements, recruiters, and extensive screening processes.
  • Time efficiency – On average, it takes 36 days to fill a position externally — often longer for specialized roles. Promoting your current talent can help fill roles quicker.
  • Higher employee engagement and retention – Studies show that skills development and career advancement opportunities significantly impact employee retention. Organizations that prioritize internal mobility foster loyalty and motivation among their workforce.

Promoting within has its proven benefits. Companies like Sephora have had long-standing success with focusing on high-potential employees, with over half of their leadership roles filled by internal talent. They credit their retention efforts to this commitment.

The Case for Hiring New Talent

While the case for promoting within is strong, it’s also important to consider the benefits of external hires. New individuals can bring unique advantages like access to fresh perspectives and new skills, which expands the company’s talent pool, and having a larger pool means organizations can be more selective. Looking to bring in someone with a specific set of skills? External hiring allows you to pick someone based on skills, education, and experience.

However, external hiring comes with challenges:

  • Increased hiring costs – The average cost per hire rose from $4,129 in 2019 to $4,700 in 2023. When factoring in turnover risks, recruitment expenses can double or triple.
  • Longer onboarding and adaptation periods – The costs of onboarding a new employee range from $1,000 to $5,000, factoring in training and supervisors’ salaries. 

Comparing the ROI of Each Approach

“At the end of the day, if you don’t hire and cultivate great talent, your recruiting expenses are going to be off the charts,” says Delores Lenzy-Jones, CFO of Waterloo Greenway. Investing in top talent, whether through retention efforts or strategic hiring practices, will keep recruitment costs in check and ensure workforce stability.

Organizations must weigh direct costs, such as talent development pricing versus external hiring expenses, alongside indirect costs, including productivity loss, cultural fit, and training time. 

Talent development programs have proven results and create a longer-term value for a company. For example, since 2021, Rocket Software’s Aurora program has trained over 140 participants, and has expanded its leadership and professional development offerings because of the abundance of success stories coming out of reacHIRE’s program.

Bringing new talent into an organization is sometimes a necessity, but the costs of external hires can add up. Fortunately, programs exist to help mitigate these expenses while ensuring strong employee retention beyond the two-year mark. Our Return-to-Work program offers comprehensive support, including end-to-end recruitment, immersive week-long training, ongoing development, and personalized one-on-one coaching. We empower professionals returning to the workforce while connecting companies with capable, underutilized talent.

How does your company approach hiring and talent development? Whether your priority is fostering internal growth or seeking external candidates – or both –strategic workforce planning remains crucial. If leadership development or hiring new talent is part of your strategy, consider reacHIRE’s talent development program and Return-to-Work initiative to optimize your approach.