CHAMPAIGN, Ill. — In the battle for a competitive advantage in today’s dynamic business environment, it’s increasingly common for companies and managers to tap former employees for access to new opportunities such as technological and market knowledge, client and partner relationships, and employee referrals.
But according to research by a University of Illinois expert in human capital strategy, businesses also might want to keep an eye on the comings and goings of their competitors’ former employees.
Business administration professor Deepak Somaya says even when companies are sophisticated about how to generate and capture value from their former employees, they overlook the value of competitive intelligence on their competitors’ alumni and how those ex-employees might, in turn, affect their bottom line.
“Companies are pretty good at keeping tabs on their own former employees, but keeping track of your competitors’ former employees hasn’t really caught on yet. And it turns out they may be taking opportunities away from you in the market,” said Somaya, also the Stephen V. and Christy C. King Faculty Fellow at the College of Business.
In a paper co-written with Seth Carnahan of the University of Michigan and published in the Academy of Management Journal, Somaya studied the employment patterns of patent attorneys moving between law firms and Fortune 500 companies, and how that churn affected the outsourcing of patent prosecution work from the companies to the firms.
“When academic researchers have looked at this phenomenon in the past, they looked just at the firm’s own alumni and what benefits the firm reaps from them,” Somaya said. “Companies also have focused on the strategy of building relationships with their own ex-employees. There’s been very little attention paid to the strategic impacts of their competitors’ former employees.”
In the paper, the researchers reported evidence that a competitor’s former employees can damage a company’s relationships with its current stable of clients.
“Our results show that a single ex-employee hired by a client from a law firm’s competitor is associated with decrease of about 11 percent in the patent work given to the law firm by that client,” Somaya said.
In a companion article published in the Sloan Management Review, Somaya and Carnahan advise business leaders to develop intelligence about job changes by competitors’ ex-employees and to nurture and leverage relationships with their own alumni.
“One of our interesting findings is that having your own alumni at the sites where your competitors’ ex-employees are moving can blunt their impact to the point that the firm loses very little client business,” Somaya said. “Thus, the alumni buffer the firm against potential damage to those vulnerable client relationships.”
Another key implication of the research is that managers need to understand the opportunity structure that ex-employees face.
“In other words, when do alumni have the potential to have a big impact on business outcomes?” Somaya said. “In our research, law firms experienced a dramatic 50 percent decrease in business from a client when a competitor’s alumni joined the client amid high turnover of staff, which is a time when they are likely to have more power and influence over outsourcing decisions.”
Location matters, too. A competitor’s ex-employee who stays local exerts a more pronounced negative influence (a 17-percent drop in business versus a 6-percent drop) on the firm’s relationship with the client.
“In part, that may be because it’s easier for a competitor’s alum to convince a new employer to shift work to his or her former firm if that firm is nearby, which can be seen as another dimension of opportunity” Somaya said.
Editor’s notes: To contact Deepak Somaya, call 217-333-6873; e-mail dsomaya@illinois.edu.
The articles, “Alumni Effects and Relational Advantage: The Impact of Outsourcing When a Buyer Hires Employees From a Supplier’s Competitors” and “Competing through Alumni: The Other Talent War, MIT Sloan Management Review” are available online.
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