Promote internally or hire an experienced leader?

Bad leadership starts when you ask a shark to farm pumpkins in the Himalayas.

I saw a version of this happen recently. Someone was technically excellent, had been a strong individual contributor for years, and the company decided the logical next step was to make them a leader.

Six months later, the team was struggling with priorities, decisions were getting escalated upward, strong people were frustrated, and the executive team was spending time fixing problems that should never have reached them.

Instead of saving money by promoting internally, the company was paying for the learning curve across an entire organization.

What the wrong leader costs

McKinsey has estimated that ineffective decision-making can translate into more than 530,000 days of lost management time and roughly $250 million in wasted labor costs every year for a typical Fortune 500 company. That's based on the time managers spend making decisions and the share they report as ineffective.

And leadership transitions themselves carry real risk. McKinsey's research found that when leaders struggle during a transition, their direct reports' performance can be 15% lower, while those employees are 20% more likely to become disengaged or leave. Successful transitions showed the opposite pattern, including higher revenue and profit generation.

Deloitte's 2025 research makes another point that gets overlooked. Only 26% of organizations said their managers were very or extremely effective at enabling the performance of their teams. Deloitte also found that companies with strong management report up to 15% higher financial performance than those with weaker management.

The question to ask instead

So when you're choosing between promoting someone internally and hiring an experienced leader from outside, I don't think the question should be, “Who deserves the promotion?”

The better question is, “Who can successfully run this organization today?”

If the internal candidate has already demonstrated that capability, promote them. You get continuity, institutional knowledge and someone who has earned the trust of the organization.

But if you're taking your best engineer and hoping they will learn people management, prioritization, organizational design, executive communication and resource allocation after receiving the title, you're effectively making the entire team part of their training program.

Instead, the right leader can walk into an organization, recognize the problems faster, make better decisions earlier, bring proven operating patterns and give the team clarity while everyone else is still figuring out what the job actually requires.

And at the Director, VP and C-suite level, six months of the wrong decisions can be an incredibly expensive tuition fee.

Hire for the capability the business needs if you can’t promote internally.