Is Hiring More Effective than Developing Leaders?

If you are similar to other executives, you sit in your share of meetings discussing what it will take to accomplish business objectives and sustain success. During the course of this discussion, the issue of buying or building leadership talent often surfaces. While this is an important talent management issue, there is a related issue that should be addressed before the “buy vs. build” debate to ensure resources are utilized in the most productive way.

This issue deals with where the talent management process is providing the most value to the organization and where it is not. With the work of Brad Smart and the International Coach Federation showing that the cost of one leadership mis-hire can range from 15-27 times the leader’s base salary and the median company ROI for coaching is seven times the initial investment, there are two questions worth considering:

  1. How effective is the organization at “hiring” candidates into leadership roles versus developing leaders once they are in the roles?

To be inclusive, hiring is defined as both external hires and internal hires (e.g., promotions). Developing leaders once they are in the roles includes helping them get up to speed in new roles (e.g., onboarding) and offering ways for them to enhance their capabilities as they serve in the roles over time.

  1. What elements of the talent management process are the most and least effective regarding leaders?

In order to provide more detail, each part of the talent management process from question #1 is considered. The most critical parts are then identified.

To obtain answers to these two questions, I interviewed leaders at organizations in eight different industries ranging from consumer goods to healthcare to the Internet. These leaders rated the effectiveness of their organizations on each of the following items using a 5-point scale (1 = Ineffective and 5 = Very Effective).

  • Promoting individuals into leadership roles
  • Hiring external individuals into leadership roles
  • Enhancing capabilities of individuals as they serve in leadership roles
  • Onboarding individuals into leadership roles

Regarding question #1, the results showed that hiring (internal and external combined) leaders is done in a more effective manner at the organizations than developing leaders. On average, hiring leaders was found to be “somewhat effective” whereas developing leaders was found to be “neither effective/nor ineffective.” These results align with those from the New Talent Management Network’s 2014 Enablers and Blockers Report that show companies do not adequately reinforce the importance of development.

Regarding question #2, there are clear parts of the talent management process that are providing more value to these organizations. The organizations are the most effective at promoting individuals into leadership roles (internal hires) since this received the highest average rating of “somewhat effective.” These companies are the least effective at onboarding individuals into leadership roles since this received the lowest average rating of “somewhat ineffective.”

Given these findings, organizations need to focus more on helping leaders be productive in their roles once the internal/external hiring decision is made. Onboarding processes are a good starting point, and other offerings such as executive coaching and leadership programs can provide continuity. In order to ensure that talent management resources are used efficiently, appropriate methods and criteria should be used to assess the effectiveness of the leadership development offerings.

For more information, see Selecting an Executive Coach: The Three Critical Factors.

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Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti

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