I was wondering how/when do managers decide to promote someone vs hire
someone from the outside? When is it better to do one or the other?
Whenever I could, I always promoted from within. I think that sends the right message to everyone, rewards hard work, and keeps folks energized and interested (and sometimes keeps them around).
It doesn't always work, but ideally you want to always have someone (or several someones) ready to step up and step in for anyone who leaves. That requires constant training, enhancement of responsibilities, and empowerment.
I like to have people pair up to some extent. I like to have a more senior worker help at least one less senior worker learn and understand - to the extent that the less senior individual is ready to fill in when necessary.
The times when I've had to go outside were the times when I had nobody ready to take over for a team member who left, the times when I've expanded the team, the times when I needed new expertise that didn't exist within the team and couldn't be learned quickly enough.
In general, I'd prefer to promote from within whenever possible.