Adding Leadership - Insider or Outsider?

Source: A Leader to Leader Guide - On Leading Change, Ram Charan Chapter

Insider or Outsider?

One of the first and most difficult questions in a search for a new senior executive is whether to look inside or outside the organization.

An insider is best when

• The organization is on a good trajectory. No radical changes are required in the company's direction, organization or people.

An outsider is best when

• The business portfolio requires transformation. An insider, particularly someone from the operating side, is less likely to have the necessary skills in deal making and negotiation.
• The company must make a dramatic shift in strategy to adjust to a discontinuity, such as e-commerce. An insider will have a harder time breaking away from business as usual and may lack experience in the new arena.
• The organization must adjust to industry consolidation or the convergence of several industries. An insider will have a harder time adopting a highly objective frame of mind. An outsider is more likely to be able to reinvent and reposition the business.
• The company lacks credibility with investors. A marquee name may be needed to allay concerns about company performance. An insider would most likely be viewed as a continuation of the previous regime. 
• The internal workings of the company require wholesale change. An insider, with long-term relationships and psychological bonds, will not have as much freedom to break from the past.
• The company must make a major shift, such as going from a domestic to a global business. Experience is key. It is best to look for someone who has led another company through such a shift