TSM - The Challenges of Internal Promotion

In 2005, the Daimler-Chrysler giant announced the dismissal of CEO Juergen Schrempp, the architect of the Daimler-Chrysler fusion, who took over the company right after the fusion. Schrempp began his career at Daimler, subsidiary of Mercedes-Benz, in 1967 as an engineer and advanced to the position of CEO. After the fusion, Schrempp, who ignored his Crysler partners from the USA and their marketing strategies, witnessed the decline of the new business. During the first year, the business lost over 50% of the capital value. Due to this deficient collaboration, the board decided to dismiss Juergen Schrempp after a 38 years career within the same company.

This example points to the presence of some errors in the internal promotion, which could have been avoided if, before the promotion, all the critical aspects of an internal promotion had been taken into consideration.

At first sight, we might say that one cannot compare a classical promotion to one for the CEO positions, but, no matter the level, one should thoroughly verify whether that person matches the new position, before making a decision which regards the fate of a team or of an entire company.

Depending on their development stage or on their need of talents, the big, mature companies are in favour of the development of their employees, who, in time, should be able to fill in the vacancies. On the other side, the innovating companies in bloom tend to focus more on attracting external candidates, inclusively for the positions requiring rare abilities.

Almost all the companies eventually turn to a mixed strategy, combining the two resources according to their needs.

In the context of the difficulty of keeping hold of the talented employees, the companies need to focus on discouraging these employees from leaving the company and developing them into future leaders. Each company should have a strategy, a succession plan; it should ensure continuous development, in short, it should form leaders prepared to develop the company.

Recent studies carried out by professor Matthew Bidwell, management professor at the Wharton faculty, regarding the succession to the CEO positions, showed the fact that senior leaders hired from outside the company cost significantly more, as they are paid much more than a CEO "grown" within the company. At the same time, a person brought from the outside has more difficulty in adapting to the position, proving a more reduced efficiency.

Moreover, a study carried out by the company of global management consultancy, Booz and Co. shows that 35% of those hired on CEO positions from the exterior were dismissed, as compared to 19% of the internally grown ones.

Whether we talk about positions of specialists or top management, about the recruitment from internal or external resources, there will always be challenges, from the implementation of an accurate evaluation process to making the right decision.

Companies that choose the internal promotion focus on creating a culture and a powerful brand of the organization. Among the advantages of internal promotion, we enumerate the following:

1. The level of performance of a person accustomed to the environment of the organization is higher than that of a candidate brought from the outside.
2. The internal candidates know the rules and the manner in which the company functions, thus, the induction period is reduced.
3. The costs regarding the advertising, searching and selection of the candidate are reduced.
4. Internal promotions build a powerful organizational culture, which the employees trust.
5. Allowing the employees to move vertically and horizontally within the organization reduces the possibility for them to find another place of work.

Despite the numerous advantages, internal promotion also has some week points, which may lead to failure. In order to avoid the errors that may arise from a mistaken promotion, we should take the following aspects into consideration:

1. If, at the beginning, candidates are offered the advantage of exclusivity and there is no candidate suitable for the position, the recruitment process will be needlessly prolonged.
2. Companies which allow managers to have the right of veto in the hiring decision, which is not grounded on proper evaluations, can cause errors and affect the other candidates.
3. Internal promotions which are not based on a thorough process including psychometric evaluations and assessment centers may lead to frustrations within a team.
4. The internal candidates of a company do not have their CVs updated and their interview abilities are not practiced, so, there is the risk that an internal candidate may seem less suitable than an external one.
5. Sometimes it happens that the newly promoted ones feel the need to eliminate their competition in order to strengthen their position.
6. For the companies with multiple locations, the relocation costs may be high; therefore, hiring from external resources may represent a better choice.
7. When contracts and experience in new areas for the company are required, internal promotion is not of good quality and it is not justified.
8. Many internal promotion systems are based on seniority, which seldom produces quality in the context of rapid change of any industry.
9. An internal promotion may trigger a series of promotions, since, following a promotion there is a new vacancy and thus, the cycle goes on forever. This fact may destabilize the performance of the company because of the fact that there are too many new persons who have a lot to learn.
10. There are situations where those who haven"t been promoted will sabotage the promoted one.
11. Internal promotions can reach the desired level of performance only when there is a very good training and development program. The costs of such internal programs of development can be higher than the talents trained outside.
12. Small companies which grow rapidly do not have enough staff in order to promote from the inside.
13. Promoting the most experimented person or the one with most abilities, does not mean his success. The abilities necessary to a valuable player are different from those of a good coach. Many companies are more likely to degrade seniors than to dismiss them.
14. Few succession systems measure or evaluate efficiency and abilities in an accurate manner.
15. Most of the psychometric evaluations are not suitable to the business environment, becoming thus completely inefficient.

Sooner or later, any company will face challenges in the internal promotion. In order to create a healthy system which might save us from difficulties, before promoting one"s employees, the companies should improve their recruitment and onboarding process.

If we talk about management positions, and some companies are still based only on the interview and the references brought by the candidates, they expose themselves to an erroneous recruitment. Senior leaders know the art of memorable interviews. They have a vast experience in presentations, sales and they are persuasive.

The recipe to avoid such errors is made of the evaluation centers and the psychometric evaluations, which provide a more comprehensive outline and a profile of the candidate"s suitability for a certain role, culture or industry.

New candidates who do not live up to expectations often represent a difficulty for some companies. This is due to the fact that the majority of them haven"t gone through a healthy onboarding process.

Internal promotions are usually the result of some bidirectional activities. On the one hand, the employee proves his abilities and potential according to his position and, on the other hand, the company develops the potential in order to create a successful leader who may be the foundation of a team, a department or maybe even the entire company.

So, when there is an open position, it is good to weigh up the pros and cons of the internal promotion versus the recruitment of an external candidate. And when we choose the internal promotion, it is advisable to include clear selection criteria and we shouldn"t hesitate to turn to specialists for evaluation centers and psychometric tests.