Latest / Hiring & Firing with Fexingo: Recruitment, Performance, and Workforce Decisions / The Internal Mobility Hiring Advantage
Transcript
- Lucas: So Costco fills about 80 percent of its management positions from within. Procter & Gamble is similar — north of 80 percent for senior roles. Meanwhile, the average Fortune 500 company hires externally for about two-thirds of its openings. That gap is the subject of this episode. Luna: And you're going to argue that the Costco approach is better, right? I mean, that's the obvious take. Lucas: It depends on the role. But the data on retention alone is striking. An internal hire — someone who's already been with the company for at least a year — stays about two years longer on average than an external hire. That's a CEB study from a few years back, and it's held up. Plus the cost per hire drops significantly when you're not paying recruiters, advertising, and interview travel. Luna: But there's a downside, right? The Peter Principle — people rise to their level of incompetence. If you only promote from within, you might end up with a management team that's great at navigating company politics but not great at bringing fresh ideas. Lucas: That's the classic counterargument. And it's real. But here's what's interesting: the research suggests internal hires outperform external ones in their first two years — they onboard faster, they already know the systems and the culture, they have relationships. The productivity ramp is shorter. One study from the Society for Human Resource Management found that external hires take about 6 to 9 months to reach full productivity, while internal hires take more like 3 to 4 months. Luna: So you're saving money and getting faster results. But what about innovation? Don't you need outside perspectives to challenge groupthink? Lucas: Absolutely. And that's why the smartest internal mobility programs aren't about closing the doors to external talent. They're about being intentional. You identify which roles are 'build' roles — where deep institutional knowledge matters most — and which are 'buy' roles, where a fresh perspective or a specific skill set that doesn't exist internally is worth the premium. Luna: Give me a concrete example. What's a 'build' role? Lucas: Think about a plant manager at a manufacturing company. That person needs to know the equipment, the shift schedules, the union dynamics, the supply chain quirks. You can't learn that in a six-month ramp. So that's a build role. Now, a head of digital marketing at a consumer goods company that's trying to break into TikTok? That might be a buy role, because the internal talent might not exist yet. Luna: So the framework is not 'always promote from within,' it's 'know which roles are institutional knowledge heavy and which are skill or perspective heavy.' Lucas: Exactly. And the best companies have a system for it. They track what they call 'bench strength' — the number of ready-now successors for each key role. They also use internal talent marketplaces, where employees can signal interest in different roles and get matched with projects or rotations. Luna: Yeah, I've seen that at Unilever. They have a platform called 'FLEX Experiences' where employees can apply for short-term assignments in other departments. It's like a gig economy inside the company. Lucas: Right. And that's a lower-risk way to test internal mobility. You don't have to promote someone permanently. You can give them a four-month project in a new function, see how they do, and then decide. That reduces the Peter Principle risk because you're not committing to a full promotion based on an interview. Luna: But let's talk about the cost side. How much are companies actually saving when they hire internally? Lucas: The numbers vary, but a commonly cited figure from the Corporate Executive Board is that external hires cost about 1.7 times more than internal hires when you factor in agency fees, advertising, and the time recruiters spend. Then you add the productivity gap — the slower ramp means you're paying full salary for partial output. For a mid-level manager making ninety thousand dollars, the total cost of an external hire can be forty to fifty thousand dollars more than an internal move. Luna: And that's just direct costs. What about the morale effect? If employees see that all the good jobs go to outsiders, they stop investing in their own development. Lucas: That's a huge hidden cost. Gallup data consistently shows that career development opportunities are one of the top drivers of engagement. When people don't see a path forward, they either check out or leave. So a company that only hires externally is essentially telling its best employees, 'We'd rather find talent from outside than invest in you.' That's a retention disaster. Luna: So what's the optimal internal fill rate? Is there a magic number? Lucas: There's no universal number, but I've seen research suggesting that companies with internal fill rates between 60 and 80 percent tend to have higher overall performance and lower turnover. Below 40 percent and you start seeing engagement problems. Above 90 percent and you risk stagnation. The sweet spot depends on industry and growth rate. Luna: And how do you measure whether your internal mobility program is working, beyond just the fill rate? Lucas: You look at quality of hire — performance ratings of internal vs external hires after one year. You look at retention — are internal hires staying longer? You also look at diversity. One of the underappreciated benefits of internal mobility is that it can help close the representation gap at senior levels without relying solely on external slates. Luna: Because if you already have a diverse pipeline at lower levels, promoting from within is a direct path to diverse leadership. Lucas: Exactly. And it's more sustainable than trying to 'poach' diverse talent from competitors, which is often more expensive and harder to retain. Internal mobility also signals that the company is serious about development. It's a virtuous cycle. Luna: But there's a risk of creating an insular culture where everyone thinks the same way. How do you guard against that? Lucas: You do a few things. One, you still hire externally for some roles — especially in functions that are changing rapidly. Two, you encourage cross-functional moves so people aren't just climbing a siloed ladder. Three, you bring in external perspectives through advisory boards, partnerships, or even rotating executives from other industries. But the base assumption should be that internal talent is the first option. Luna: You know, I think a lot of companies don't even know their internal fill rate. They don't track it. Lucas: That's the first step. If you don't measure it, you can't manage it. I'd recommend any HR leader run a simple report: for the last twelve months, what percentage of roles at each level were filled by internal candidates? If it's under 30 percent, that's a red flag. Then look at which departments have the lowest rates — that tells you where the institutional knowledge is leaking. Luna: So the episode title could be 'Stop Ignoring Your Own Talent Pool.' Lucas: That's the idea. And I think if more companies adopted a 'promote from within first' mindset, they'd save money, retain better talent, and build stronger leadership benches. It's not a silver bullet, but it's a lever that most organizations underuse. Luna: Alright, before we wrap, I want to mention something. We've been doing this show for a while now, and one thing we're proud of is that we don't run ads. No sponsors, no commercials. It's just us trying to make each episode useful. Lucas: Yeah, and that's intentional. We wanted the show to feel like a conversation, not a pitch. But producing it does take time — research, recording, editing. So if you've found these episodes helpful in your work, there's a way to support that. Luna: It's buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, just if you want to help keep it ad-free. Lucas: And we really appreciate those who do. It lets us keep focusing on the content rather than the commercials. So, back to internal mobility — one last stat. Companies with strong internal mobility retain employees for an average of 5.4 years, compared to 2.9 years for companies with weak internal mobility. That's a nearly two-and-a-half-year difference. If you're a CFO, that should catch your attention. Luna: Yeah, because turnover costs are enormous. So investing in internal mobility isn't just an HR initiative — it's a financial one. Lucas: Exactly. And the best part is, you can start small. Pick one critical role, identify a potential internal successor, and give them a development plan. Just that one move can change the trajectory. Luna: Good place to leave it. Thanks, Lucas. Lucas: Thanks, Luna.