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Transcript: Why defectors could help your bottom line



KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today, I am delighted to speak to [Wharton School management professor] Lori Rosenkopf.

One of the things you are looking at, a very interesting topic, is to look at technical people and moving from firm to firm. A lot of us would see that as a negative thing, but you take a little different perspective.

LORI ROSENKOPF – Well, when somebody moves from firm A to firm B, an economist would take the human capital perspective and say, "Everything in that person's head moves to firm B from firm A, so firm A loses it." But I am a sociologist, so I take a social capital perspective and I say when someone moves from A to B, they still are in contact with their friends at A. So even though there are all sorts of non-disclosure and non-compete arrangements, research has shown that those are pretty unenforceable, in most cases. So what I argue is that firm B is of course learning from firm A, it might just be from social connections, but furthermore, firm A, that has lost the person, the people who still work there can talk to their friend who is now in a new place, firm B.

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In fact, my research shows that when a firm in the semi-conductor industry loses people to another firm that they wind up learning more in terms of patent, productivity, and using the information in the other firm's patents than if the person had not moved.

KARL MOORE – But this means that some of your competitive advantage is going to be lost. How do you enforce, then, your intellectual property?

LORI ROSENKOPF – The traditional mindset is that firms lose competitive advantage when they lose people, and there has always been a push to try to keep your best people and that is still true, but the reality is, particularly in places like the Valley, in Silicon Valley, that people are moving all over the place and you can't really control it, and so let's take advantage of the flows of people who are recombining knowledge from all different firms, rather than try and stifle it so much.

There are non-compete agreements in place but research has shown pretty clearly that those are very difficult to enforce, particularly in high-tech regions like Silicon Valley. The court circuit there is one of the most lax in terms of enforcing those arrangements.

KARL MOORE – So would a firm want to try and get rid of some people to encourage this? Is that taking it too far?

LORI ROSENKOPF – Yes, that's taking it a little too far. I don't encourage that firm to intentionally try and get rid of their good employees. But given that it's a reality that people are leaving, it is great that firms try to capitalize on the web of social network connections that exist among people in these particularly technologically rich regions. It actually turns out that firms like professional service firms, consulting firms, legal services, etc., are very aware of this phenomenon and have been hosting alumni gatherings for years because when people leave, say McKinsey, they are going to work for, in many cases, a client of McKinsey.

So, bringing all their people back into the fold is a great opportunity to be cultivating customers. But in the high-tech arena, it is a little more different because people are leaving for competitors. So then there are some antitrust considerations in place, and nobody is having an alumni gathering party as explicitly as the professional services firms would do.

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