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A Silver Lining to Layoffs
Losing an employee may bring unexpected benefits to your
firm.
Many firms have been forced to lay off valued employees this year, and
watched with dismay as all of that knowledge, experience and expertise walked
out the door. But Rafael A. Corredoira, assistant professor of
management and
organization, says that a firm that loses an employee may also reap some
unexpected gains—knowledge from the firm the employee goes to.
 That’s
a counter-intuitive thought for many of us. Employers hate to lose employees.
Even the language we use, “losing employees,” pre-disposes us to think of
outward mobility as entirely bad for the organization.
But it turns out that when an employee leaves a company, he often takes with
him the relationships he made while there—colleagues and co-workers with whom he
may remain in contact. And the employees left behind learn from the new
knowledge their ex-co-worker gains at his new place of employment.
Corredoira explored the linkages between firms in the semiconductor R&D
industry. He examined patents granted by the U.S. Patent and Trademark Office,
obtained from the National Bureau of Economic Research, U.S. Patents, and
National University of Singapore Patent databases.
 Patents
are a good way to track the movement of knowledge from one firm to another.
Around all codified knowledge there is a lot of tacit knowledge—information that
is not written. A new firm requires not just the knowledge codified in the
patent, but also all the knowledge created while developing it, to effectively
use the patent—knowledge the inventive firm gains when tacit knowledge is passed
informally from one worker to another.
Corredoira measured how often a firm that lost an employee used the patents
of the firm to which its former employee went. He found that Firm A is about 20
percent more likely to use Firm B’s knowledge once a former employee is working
there. This is about the same increase in the utilization of Firm B’s knowledge
that Firm A would gain if it hired away one of Firm B’s employees.
How are firms that lose employees benefiting from the knowledge at the
employee’s new firm? Ongoing relationships with former co-workers are one
reason; knowledge is shared informally through social networks. But it also
appears that when an employee moves to a new firm, his former colleagues may be
more motivated to pay attention to the knowledge generated at that firm.
But if an employee moves to a firm within the same geographical region—the
New York or Washington, D.C., metro area, for example—there is less benefit to
be gained. Outbound mobility to a more distant region is more likely to create a
unique channel through which knowledge can flow. This is probably because
workers in the same industry located in the same area probably already share
information through established social networks such as professional
associations. Workers in companies that are geographically distant don’t have
these established networks through which knowledge can be transmitted, making
the employee’s social network a more powerful vehicle for transmitting
knowledge.
So should managers be setting up formal alumni networking opportunities for
current and former employees? That’s not really the answer, says Corredoira.
“Beyond the legal issues due to confidentiality agreements, it would also strain
relationships between firms,” he says. Knowledge-sharing at this level appears
to happen informally and organically through existing social networks. But it is
important that employers work to minimize negative feelings toward the company
when an employee leaves to work elsewhere, whether that transition is voluntary
or involuntary. That makes it more likely that the employee’s social networks
will be maintained.
And employers must also be open to capturing the information as it “trickles
up” through the organization from current employees through their social
connections. Managers must be willing to harvest that knowledge by being
receptive to new ideas and opinions coming from below them in the ranks.
“We are in a learning economy. Everything we used to know becomes obsolete in
a matter of years. In addition, last year’s financial and economic events have
changed the economic and business landscape in ways that we still are trying to
make sense of. You have to adapt and find answered to unstructured questions.
That is where it becomes very useful to have scouts around the world giving you
information that can help you learn,” says Corredoira. “Trying to solve problems
using information from your friends is more efficient than trying to go it
alone. Even across industries this knowledge can be useful.”
So the diaspora of finance industry employees from Wall Street to smaller
financial firms, or to other industries entirely, may bring useful knowledge
back to Wall Street as well—if management has ears to hear.—RW
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