Why Internal Talent Development Is Increasingly Popular

Recent research found that, amid accelerating artificial intelligence (AI) transformation and evolving business models, 50% of organizations are prioritizing internal talent development to stay ahead — however, just 20% of chief human resources officers (CHROs) have leaders ready to fill critical business roles. The 2025 HR Insights Report by global leadership company DDI was based on responses from 2,185 HR professionals and 10,796 leaders across 2,014 organizations worldwide.

“This confidence gap stems from a disconnect between strategic intent and execution,” said Rosey Rhyne, the senior research manager at DDI’s Center for Analytics and Behavioral Research. “Many organizations lack the structured systems and development rigor to turn leadership potential into readiness. As a result, succession planning often remains reactive, informal or overly reliant on tenure rather than [the product of] objective, psychometrically sound assessments.”

This article addresses how total rewards (TR) professionals and HR leaders can fill the benches and grow talent internally with strategic succession and development plans.

Why Succession Is Outpacing Hiring

As the need for external hiring slows, Rhyne said HR/TR leaders are turning their attention inward. “Businesses are under economic pressure, and developing internal talent is far more cost-effective than recruiting and onboarding new hires,” she said, adding that DDI research showed 75% of the surveyed organizations now prioritize internal promotion for leadership.

Bryan Hancock, a partner at consulting firm McKinsey & Co., said by investing in internal talent, HR/TR leaders can foster a more agile, resilient and engaged workforce that is better equipped to navigate a changing business landscape.

“These candidates already understand the organization’s culture and structure, which reduces onboarding and allows for faster redeployment to meet evolving strategic priorities,” he explained. “Clear pathways for advancement and growth drive higher engagement and retention, so employees are more likely to stay and transition to roles that match their skills or require learning new ones.”

For example, outside recruits may cost up to 20% more and need up to three years to match insider productivity, whereas internal moves fill roles faster and safeguard institutional knowledge and customer relationships, said Robin Erickson, the head of human capital research at The Conference Board, a business and economic analysis organization.

“Organizations tend to see a superior risk-return equation when they ‘build’ instead of ‘buy’ when it comes to promoting leaders internally because internal development outperforms external hiring on cost, speed, engagement and risk,” she said.

“Clear pathways for advancement and growth drive higher engagement and retention, so employees are more likely to stay and transition to roles that match their skills or require learning new ones.”
— Bryan Hancock, partner, McKinsey & Co.

Finding the Right Talent

An organization that lacks confidence in its leadership pipeline often lacks visibility into the full capabilities and aspirations of internal talent, according to Hancock.

“Many struggle to identify high-potential employees due to siloed structures and teams that are reluctant to let go of top performers,” he said. “Without structured development pathways and a culture that encourages cross-functional growth, employees often miss the experiences needed to step into leadership roles.”

John Deal, a senior director at Phenom, an HR tech company focused on talent acquisition and talent management, said it was more about scaling the leadership pipeline. He explained organizations are no longer just trying to address risk in the top 1% of positions — they are trying to get to 10%. While that may not seem like much, it’s 10 times as many things an organization must get right to ensure proper succession is in place. “That requires understanding more of the talent in an organization, understanding capabilities and skills at a deeper level, and knowing who can move from one part of the company to another part to fill a gap,” he said.

Rhyne added the underlying issue isn’t a lack of talent — it’s a lack of preparation. “When organizations prioritize cohort-based development, sequential learning paths, frequent manager coaching and leadership assessments, successful internal promotions are far more likely. Yet these practices aren’t widespread enough to close the readiness gap,” she said.

Developing Future Leaders

Some skill pools and roles matter more than others due to their impact on organizational performance, said Hancock.

“Leaders must be intentional about investing in these roles and the people who fill them,” he said. “This starts with a deep understanding of what employees are currently capable of and what they could achieve in the future with necessary upskilling.”

According to DDI research, 86% of surveyed HR respondents expect an increased need to develop new leadership skills and capabilities over the next five years. Since the skills needed to succeed as a leader are constantly evolving, Rhyne said the curriculum is likely to change. So instead of solely focusing on what happens in the classroom, she noted HR/TR leaders also should focus on what happens outside of it, such as building leadership development programs around practical application from day one.

DDI research also found CHROs with structured and scalable succession systems see significantly higher rates of successful internal promotions. Toward this, success is:

3.7 times more likely when leaders participate in cohort-based leadership development.
3.2 times more likely when leadership development courses are sequentially planned.
2.6 times more likely when leaders receive frequent coaching from their managers.
1.6 times more likely when assessments are used to inform leadership selection.

Erickson offered the following tips for developing internal talent:

Scale experiential learning through internal marketplaces that advertise stretch assignments, mentorships and short gigs; this can decrease voluntary attrition while surfacing hidden skills.
Pair these opportunities with coaching, 360-degree feedback and purpose-driven storytelling.
Foster psychological safety via inclusive-leadership workshops so diverse voices innovate.
Publish scorecards tracking promotion velocity, slate diversity and engagement gains; visible metrics generally motivate managers to release talent and let HR redirect budgets to the practices moving numbers fastest.

The Role of AI

Deal said organizations can create personalization in the succession process by leveraging AI and automation to offer professional development opportunities.

“Let AI do the heavy lifting of providing recommendations, and dynamically add people to talent pools based on competencies and skills,” he said. “Boost their visibility to not only their managers but also to the larger HR organization as potential successors. In a global organization with hundreds of thousands of employees, AI makes that more of a reality because it can do trend analysis at scale to build out more comprehensive succession plans.”

A possible scenario is a global health insurance provider with a massive workforce now has visibility into employee skills it didn’t have before. Deal noted AI would make it easier to see who’s ready to step up or step sideways into a new role.

“Before an intelligent talent experience solution was launched, it was actually easier for external talent to see job listings than it was for existing employees. Today, that’s no longer the case,” he said.

According to Erickson, AI is the engine that personalizes and scales internal mobility by transforming static directories into dynamic ecosystems.

“Algorithms parse profiles and work histories to infer skills, recommend stretch roles, identify successors and flag diversity gaps,” she explained. “AI shortens time-to-fill, enhances inclusivity and embeds a culture of continuous growth — provided leaders audit models for bias, ensure explainability and blend algorithmic insights with human judgment. Predictive analytics also simulate shocks — like sudden CEO exits — so boards can test contingency plans with real readiness data instead of a gut feel.”

To maximize the return on AI initiatives, Rhyne said HR/TR leaders can embed interpersonal skill-building and change management into their talent development strategies.

“Currently, trust in leadership is declining, making successful AI adoption even more challenging,” she said. “When leadership lacks strong change management and interpersonal skills, their companies are far less prepared for this shift. ... Developing these skills and capabilities is critical to equip leaders to guide their teams through the complexities of AI transformation.”

Deal added one more important note: AI doesn’t make talent decisions — only people do. “A human in the loop will continue to be a critical part of understanding this fast-moving technology,” he said. “The combination of human control with AI support is a good counterpunch against bias. ... When it comes to AI, it’s not an either/or battle between humans and robots — it’s a partnership.”

Grow, Assess and Maintain

To evaluate the effectiveness of an internal talent marketplace, Hancock said it’s important to track how frequently employees engage in meaningful opportunities. Metrics like usage rates, feedback loops and internal movement data can help provide valuable insight into how well the marketplace is functioning. To scale its impact, Hancock said employees need to understand available roles and feel empowered to apply.

“That often requires building awareness, normalizing cross-functional projects and training managers to view talent not as static resources but as part of a dynamic, organization-wide ecosystem,” he said. “Sustaining momentum also means regularly refreshing opportunities, showcasing success stories, and using real-time data to iterate and improve.”

Erickson suggested organizations use an AI-enabled skills inventory to map current capabilities and gaps across the workforce. To initiate that:

Track both input (e.g., profile completion and adoption) and output (e.g., roles filled, time-to-fill, retention, productivity, engagement) metrics.
Scale by integrating a human resource information system (HRIS), a learning management system (LMS) and workforce-planning tools into the talent marketplace.
Run change-management campaigns to highlight the benefits of an internal talent marketplace, curb manager “talent hoarding” and celebrate early wins.
Refresh skills taxonomies and AI-matching algorithms quarterly.
Set mobility key performance indicators (KPIs) in leader scorecards.
Continually spotlight success stories to entrench a culture where internal movement signals strength and reduces voluntary turnover.

Overall, assessments act as a professional global positioning system (GPS), helping individuals and organizations understand where talent stands today and what’s needed to grow, Rhyne said.

“Organizations should use assessments to create individualized development plans mapped to business needs. These plans help leaders focus their limited time and energy on the areas that will drive the greatest impact,” she said. “When employees see that development is tailored to their unique profile, engagement and retention increases. [These are] key ingredients for a healthy internal marketplace.”

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