Who leaves, where to, and why worry? Employee mobility ... · Breakfast Club Who leaves, where to,...
Transcript of Who leaves, where to, and why worry? Employee mobility ... · Breakfast Club Who leaves, where to,...
Breakfast Club
Who leaves, where to, and why worry?
Employee mobility, entrepreneurship, and effects on source firm performance
Benjamin CampbellAssistant ProfessorDepartment of Management and Human Resources
Human Capital“Our people are our single greatest strength and most enduring
long-term competitive advantage.”Gary Kelly, Southwest Airlines
“The thing that wakes me up in the middle of the night is not … the economy or … our competitors … [but] whether we have the [right] leadership capacity and talent …”
David Whitwam, former Chairman & CEO, Whirlpool“Employee first, customer second. The scarce resource is not
customers, it is great employees.” Vineet Nayar, President, HCL Technologies
“Any day in the office I don’t know how many of our key employees will still be there. Dealing with turnover and retention issues takes up over 50% of my time.”
CEO, Health IT Systems Firm
Why should firms worry about employee turnover (and motivation)?
“Like human assets, an oil field may be a strategic asset. However, once acquired, an oil field
1. Cannot quit and move to a competing firm2. Cannot demand higher or more equitable
wages3. Cannot reject the firm’s authority or be
unmotivated4. Need not be satisfied with supervision,
coworkers or advancement opportunities”
---Coff, 1997, p 374
What are spinouts, and how pervasive are they?
• Spinouts are firms– founded by employees that leave the parent firm– that compete in the same industry
• Prevalent in many knowledge intensive industries – i.e. industries where complementary assets are
easy to transfer or replicate82 %
42% 36 % 45%
Complementary Assets
Manufacturing Distribution
Other Employees
Complementarytechnologies
Internal Processes
Client Relationships
Brand Name
Focal
Employee
Adapted from Teece, 1986
Supplier Relationships
Why does this matter?
“Control over non-human assets leads to control over human assets”
Hart, 1995, p 58
• Implications for value appropriation between co-creators of knowledge (firms and employees)
Complementary Assets and Turnover
Importance of firm’s complementary assets to value creation
Abi
lity
of e
mpl
oyee
to
trans
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epro
duce
firm
’s
com
plem
enta
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Technologically intensive manufacturing
Professional services
Adapted from Campbell, Ganco, Franco and Agarwal (2012)
Firm Advantage
Employee Advantage
That is the big picture…
• Drill down and ask:
• Who Leaves, Where to, and Why Worry?– Employee mobility, entrepreneurship, and
effects on source firm performance
Founders and followers…
“Not everyone can be a founder. We talk about the founders of startups and companies. We focus on the founders. The founders get press coverage. Sometimes they get rich. But for every founder, there is an early employee that takes near equal risks in joining an early-stage company.”
David Crow, StartupNorth (2009)
The Double-Edged Sword of Entrepreneurial Employees
• Entrepreneurial employees are the employees who might leave to found or a join a new venture.
• Why should we love them?– They innovate. – They bear risk.– They understand the market and the business.– They are motivated.
• Why should we worry about them?– They leave…
• … and compete against you• … and they take great people with them
What does this mean?
• Employees that are potential entrepreneurs are likely some of the most valuable people in the organization…
• … and some of the people most able and most likely to move.
which gives entrepreneurial employeesgreat leverage
Who leaves? Or why do some employees become entrepreneurs?
• Selection – “Entrepreneurs are born, not made”
• Franco and Filson, 2006
• Spillovers– Exposure to ideas creates entrepreneurial spirit
• Agarwal, Echambadi, Franco and Sarkar, 2004
• Spats– Disagreements with top management creates frustration
• Klepper and Thompson, 2010
• Skills & Signals– Start-up experience enhances general/transferrable human
capital• Campbell, 2012
Antecedents and Consequences of Employee Entrepreneurship
1. What are the long-term earnings effects of the decision to become an entrepreneur?– Entrepreneurial experience has positive
effects on the long-term earnings trajectory of individuals (even after subsequent job change and firm death).
– Entrepreneurial experience generates (or reveals) general/transferable human capital.
– Management Science, 2012.
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-8 -4 0 4 8 12 16 20Quarters
Charter to Start-up Charter Job ChangeMatched Employee Job Change
Charter Employees and Matched Sample- Median EarningsJob Change to Start-up vs. All Other Job Changes
… does it matter?• Employees that generate more value (as
proxied by earnings) are more likely to stay• They are able to bargain for higher
compensation, given the credible threat of mobility
• But if they leave, they are more likely to create spinouts• And they are likely to take other employees,
clients, and critical business relationships with them
• Adverse effects on firm is higher• due to spinout events rather than mobility alone• increases with employee earnings
Campbell, Ganco, Franco and Agarwal (2012)
How much does it matter?In the legal services sector, we estimate the following:
Pre-mobility earnings of employee:$25,000 $100,000 $300,000
Impa
cton
firm
re
venu
es if
: Employee goes to establishedfirm
Small positive effect!
No effect No effect
Employee goes to start-up
No effect $190,000 $1,000,000 !!
Can you just throw money at the problem?
• Do firms that offer “pay for performance” retain their top employees?– Or, how does pay dispersion affect the
likelihood of losing an employee to a spin-out?
Carnahan, Agarwal and Campbell, 2012
Compensation DispersionGreater pay dispersion, more extreme rewards
Less pay dispersion, fewer extreme rewards
Annual Wages
Pr(Wage Level)
• Greater pay dispersion concentrates the value created by the firm in the hands of fewer employees
Can you just throw money at the problem?
• Do firms that offer “pay for performance” retain their top employees?– Yes, but…– Yes! Top performers are less likely to leave
firms with dispersed pay structures– But, they are also more likely to create
spinouts!
• But, money is often not the driving motivation for spinning out– Desire for autonomy, mastery, and purpose
Carnahan, Agarwal and Campbell, 2012
Why does employee entrepreneurship hurt so much?
Agarwal, Campbell, Franco & Ganco, 2013
– Higher human capital founders rally better teams (bigger and more human capital).
– Most of the impact of founders is attributable to the teams they bring with them.
• Drives negative impact on source firm
• Drives positive impact on start-up
Is it about the person or the team?
Why is this good news?• Firms can target followers ex post, instead
of potential founders a priori.
• Followers may be easier to retain and they mitigate the loss of the founder.
• …plus founders may not go at all if they can not take their ideal team.
Antecedents and Consequences of Employee Entrepreneurship
• Fitting it all together:- Selecting into entrepreneurship has positive
long-term effects on individuals.- Employee entrepreneurship hurts source
firms more than traditional mobility.- Source firms can minimize the risks by
implementing pay-for-performance compensation schemes and by targeting potential followers.
Managerial Advice
• Give employees freedom. Create opportunities and organizational support for employees to be innovative.
• Pay top employees well to make sure they don’t leave and found a competitor.– If they do, aggressively retain likely followers.
• Don’t treat everyone the same. – Not all employees are important to retain. – Founders, followers and employees pursuing
traditional mobility have different motives and have different consequences on the organization.