Power to the Outsiders: External Hiring and Decision Authority Allocation Within Organizations

Abstract

This study examines the relationship between external hiring and the allocation of decision authority within organizations, and how they interact to affect organizational change and innovation. We test our hypotheses using panel data for a nationally representative sample of businesses in Canada. We find that the practice of external hiring of managers and high-skilled non-managerial employees predicts greater decision authority allocated to each respective level of the hierarchy. Reallocation of authority is positively moderated by the strategic priority of i) workplace reorganization for managerial hiring, and ii) new product development for non-managerial hiring. We also find evidence of related associations with workplace reorganization and product innovation. The findings suggest that decision authority allocation is essential to effectively utilizing externally acquired human capital.