Insights Blog

By QLK Team
on Oct 4, 2021
  • Healthcare | Recruiting | Blog
Hospital CEO Study: Outsiders Are More Efficient Than Insiders

Finding an executive on the market capable of taking over the role of CEO in a healthcare facility is almost always an enormous undertaking. As a result, the most common practice is to promote from within, allowing individuals who might not be well-qualified to assume a position with responsibilities they are not quite ready to handle.

While you might be hesitant to hire from the outside when you have a vast number of executive staff to promote from within, you might be interested to know that you are overlooking an excellent talent pool. If you are still hesitant to look into outside résumés for executive positions, allow us to give you a little more information.

The Study on Hospital CEOs

Promoting from within has been a common practice among hospitals, corporations, and all sorts of businesses for quite some time. However, a study was conducted by Eric W. Ford, Kevin B. Lowe, and Timothy R. Huerta, three professors from prestigious universities, to determine how effective internal promotion is. To do so, they observed a pool of 1,640 healthcare firms, 490 of which underwent leadership changes, and kept track of their performance during leadership changes and how the CEO positions were filled during a transition.

Of the 490 firms that underwent transitions from one CEO to another, 82 firms had promoted from within while the other 408 hired outside talent. If nothing else, this shows that the popularity of hiring new blood to take over the CEO position is rising as time moves on. However, to determine how effective such transitions are, the study decided to make evaluations based on three criteria:

  1. The competitive dynamics of the healthcare sector.
  2. The degree of productivity of the firm against its competitors.
  3. What responsibilities are attributed to the new CEO.

These criteria underwent consistent analysis throughout a 5-year period following the succession of the previous CEO and then compared to the control group. However, the results that came back served as an excellent statement on how internal promotion can be a huge mistake when replacing an executive employee.

The Results

Performance was compared between internal promotions and external hires following the 5-year observation of the 490 firms that saw a transition between CEOs. Then, the results for both groups were compared to the remaining 1,150 firms that retained their original executives.

When the firms that elected to hire outside talent to take over the position of CEO were reviewed, it was found that they underwent a slight decline in productivity and efficiency and lost a bit of their competitive edge in the initial period after the succession. However, after a brief period, they not only recouped their original performance but began to outperform the firms that opted to promote from within. This demonstrated that, on average, healthcare firms that favor outside talent for executive roles tend to get ahead of those who promote their other employees who might not have the necessary training.

When compared to the firms that did not undergo a transition, it was found that both firms that hired new executives and those who promoted from within both fell behind those who retained their original executives. This was attributed to the fact that change of any kind will negatively affect performance. Still, offering patience for newly recruited talent tends to pay off more than simply bumping an existing employee up the ladder.

Wrapping Up

The transition of executive leadership can always be a challenge, especially when it comes to a role as vital as CEO. When an established executive leaves, it can be difficult to attract new talent to your firm, making internal promotion an easy way out. However, outsider talent can boost the efficiency of your staff by introducing a fresh perspective to the firm.

If finding the talent you need is proving difficult, consider contacting QLK. We specialize in providing top-tier executive talent for healthcare firms. Contact us today and see how we can help you with your executive needs.