Many organizations do not know whether to fill CEO vacancies by promoting from within or by looking at external candidates, but hiring an outside candidate may be more effective in the long term, according to a study published in the Harvard Business Review.
Here are four study findings.
1. A team of researchers examined 490 healthcare CEO succession decisions against a control group of 1,150 organizations. Eighty-two organizations hired an internal C-suite candidate as their CEO while the others turned to outside candidates.
2. Using a version of the Cobb-Douglas productivity measure, the study utilized a frontier analysis to identify organizations that "push the performance envelope" relative to other firms.
3. The results showed that hospitals led by outside hires had a short-term dip in productivity but rebounded in subsequent years to beat the performance of hospitals that hired internal candidates for CEO.
4. "As U.S. corporations replace CEOs with increasing frequency, our findings indicate, they should consider that any change has a negative impact in the short term and that more patience might be warranted," the study's authors wrote. "But if a new CEO must be found, then recruiters may want to look outside rather than in."