And the Most Effective Employee Retention is…No Strategy

Employee_Turnover

The nature of the workforce is changing rapidly, and human resource managers are struggling to keep up.  The average employee will change jobs 4 times before the age of thirty-two,1 with more than 20% of workers looking to change jobs within the next year.2

Short-term job

Turnover is costly, so employers are on the lookout for strategies to improve retention.  The recruiter Robert Half suggests giving employees more autonomy and appreciation to stem the tide of turnover.3  Companies could also pay their employees more money, offer opportunities for advancement, or provide free tickets to a Cubs game (this could be a negative for some folks).  Consultants stress the importance of intrinsic motivation and creating a culture where employees believe they are part of a team that is making a difference in the world.  Faced with a multitude of strategies, you might look to academia for the solution.  In fact, researchers have identified an innovative new approach to employee retention:

Let them go.

Yes, you read that correctly.  If your talented young executives walk in the door with an offer from a competing firm, extend your hand to congratulate them and ask if you can help pack their bags (asking them to return the t-shirt they received at the company picnic defrays costs but is not recommended). 

Firing employee

According to a study that appeared in the Strategic Management Journal, “losing employees to rivals can actually enhance a firm’s competitive position in the labor market.”4 

Why might this be the case? 

It comes back to the changes that are occurring in the workforce.  Employees today view their firm as a temporary stop along a winding career path.  Thus, they “increasingly favor jobs that provide future external mobility opportunities for career advancement.”5  In other words, they take future career moves into consideration when deciding whether to take a job.  The employees of yesterday wanted to know the opportunities offered by the firm to which they were applying; the employees of today want to know whether the firm to which they are applying will help them get to a different firm. 

Employee Turnover

That sounds like a human resource manager’s worst nightmare.  Who wants to dedicate resources to recruiting and training a talented person, only to have your firm serve as a free training facility for a competitor?   

You should, if you are a hardcore believer in academic research.

dog with glasses

In a study that examined companies that make hard disk drives, researchers found that companies that had recently spun off a technologically-sophisticated new venture actually outperformed firms that didn’t do a spin-off.6  This was surprising because a company often loses key personnel when it spins off part of its operations into a new business (that smart young executive who was headed for the C-suite is now adding value to a different company).  Yet, the companies doing spin-offs actually perform better than those that don’t lose such talent.  This could be because a spin-off serves as a signal to prospective employees:  it showcases the company’s ability to innovate.  Prospective employees see the parent company as an “entrepreneurial hub” and think that if they get on board, they too might one day be part of a spin-off.7   

This brings us back to the original study, which suggested that letting employees go might actually be a good thing.  That study, which looked at a sample of law firms from 2004 to 2013, found that the loss of an employee to a competing firm improved the losing firm’s reputation when the employee went to a higher-status competitor.8  Thus, it is not merely the loss of an employee that adds value, but the signal that this departure sends to prospective employees:  work here, because it could serve as a valuable stepping-stool to a more prestigious firm.

Baby Godfather on firm reputation

These studies are interesting because they challenge the belief that employee turnover is entirely a bad thing.  Yet, while these findings suggest there may be a silver lining in an otherwise dark cloud, they should be weighed against the large body of research which shows that employee turnover is a drag on company performance.  When key employees leave, they often take clients9 and insider knowledge10 with them.  Productivity may decrease and the human capital developed by the company may be reaped by a competing firm.11  Thus, while the nature of the workforce is indeed changing, firms that find a way to avoid becoming a revolving door for employees may have a significant advantage.  The increased reputation that comes from being viewed as a stepping-stone to better companies will be of little value if your firm continues to be outperformed by those very companies which are poaching your best employees. 

So if a star employee is thinking of leaving, it might not be wise to usher them out the door just yet.  Turnover is costly.  It may improve the company’s reputation among prospective employees, but what is the point if they too are simply going to leave the company in a year or two?

crying child

1.http://money.cnn.com/2016/04/12/news/economy/millennials-change-jobs-frequently/index.html

2. According to a survey by CareerBuilder. http://www.careerbuilder.com/advice/looking-for-a-new-job-in-2017-so-are-your-coworkers

3. https://www.roberthalf.com/finance/blog/employee-retention-4-ways-to-keep-top-talent-happy-and-loyal

4. Tan, D., & Rider, C. I. (2017). Let them go? How losing employees to competitors can enhance firm status. Strategic Management Journal, 38, 1848-1874.

5. Ibid.

6. McKendrick, D. G, Wade, J. B., & Jaffee, J. (2009). A good riddance? Spin-offs and the technological performance of parent firms. Organization Science, 20(6), 979–992.

7.  Ibid.

8.  Tan, D., & Rider, C. I. (2017). Let them go? How losing employees to competitors can enhance firm status. Strategic Management Journal, 38, 1848-1874.

9.  Rogan, M. (2014). Executive departures without client losses: The role of multiplex ties in exchange partner retention. Academy of Management Journal, 57(2), 563–584.

10.  Briscoe, F., & Rogan, M. (2016). Coordinating complex work: knowledge networks, partner departures, and client relationship performance in a law firm. Management Science, 62(8), 2392–2411.

11.Campbell, B. A., Ganco, M., Franco, A. M., & Agarwal, R. (2011). Who leaves, where to, and why worry? Employee mobility, entrepreneurship and effects on source firm performance. Strategic Management Journal, 33(1), 65–87.

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