Choose Your Battles to Win the Talent War

A recent McKinsey Global Institute report found that despite unemployment rates being high, 30% of U.S. companies surveyed had positions open for more than six months that they couldn’t fill. And the analysts are projecting an even worse talent shortage in the near future, now widely referred to as an upcoming turnover Armageddon.

It’s true: your best assets walk out the door every day. You train your top executives, you invest in your best engineers, teach your scientists all they need to know, and you will do everything you can to keep them. But too often, competitors get locked in a downward spiral of counter-productive battles over their talent and intangible assets. What if, against your visceral instincts, letting someone you’ve raised and nurtured leave you is actually good for your business?

Frequently, giving your blessing to a valued player who chooses to leave is better than instinctive hostility. First, when your talent leaves for another company, draw a distinction between direct competitors and other types of poachers — customers and clients, suppliers and partners. When some of the best traders at Goldman Sachs left the firm in 2004 to start their own multi-billion dollar hedge fund, Goldman Sachs knew better than burning the bridge. The departing employees quickly became important clients. And of course, it’s important to keep in mind that a company that may be your competitor with one product line or service may well become your customer for others.

When direct competitors are involved, clearly there are risks and costs in the departure of your talent. But even in those cases, the potential gains should not be overlooked. New research on employee turnover reveals the many benefits outbound mobility holds for the sending company. For example, Corredoira and Rosenkopf, in a 2010 article in Strategic Management, Should Auld Acquaintance be Forgot?, find reverse transfer of knowledge effects through mobility, that is, through ongoing contact with their former employees who leave to competitors, firms learn new technologies faster. Former employees can become powerful goodwill ambassadors. Your industry footprint expands with their success. Companies with many former strong employees working in the industry find it easier to navigate professional associations, regional politics, lobbying efforts, and collaborative ventures.

A move within the industry may also lead to shelved patents getting licensed out to the poaching company. Patent imaging research by Jaffe and Trajtenberg shows that mobility increases the awareness about the existence of local patents across firms (Jaffe and Trajtenberg Patents, Citations, and Innovations: a Window on the Knowledge Economy, MIT Press 2002 ). More broadly, it reflects well on your company when your workers are mobile and desired. Employees think these days in terms of managing their own career trajectory and they consider their long-term market options when choosing to work at a company. It’s an even stronger signal when some of those who left return to you after they’ve realized the grass isn’t greener at your competitor. So practice boomerang hiring. Too often, managers have irrational reactions to former employees, showing reluctance of re-hiring despite their advantage. A company should send a clear message to its former talent about leaving the door open. One way to do this is to follow the example set by universities, who have a long tradition of nurturing relations with alums. Companies are increasingly learning to do the same through alumni networks, online forums, and regular alumni events. McKinsey for example prides itself for having nearly 26,000 who work in virtually every business sector in 120 countries. The McKinsey alumni website states that this dynamic network is a lasting benefit of a McKinsey career. Other companies ranging from Microsoft to Shell and Capital One have similarly instituted active alumni programs.

Most importantly, even though loss of talent can be painful, beware of counter-productive restrictions and security overkill. In a series of empirical studies my colleagues and I have conducted, we find that such restrictions on talent mobility can decrease motivation and performance. In one experiment, published in a 2013 article in the Stanford Technology Law Review, we see a significant increase in quit rates and a high drop in task focus when employees are required to sign a non-compete agreement. Similarly, engaging in intimidation tactics that prevent your talent from strengthening their professional ties outside of the firm can prove detrimental. About a decade ago, the Wall Street Journal ran a series about the paranoia that had come to pervade Procter and Gamble. The Ivory-soap and Tide manufacturer that had thrived since 1837 became too controlling for its own good and by the end of the 20^th century was demanding extreme secrecy from its workers. At one point, P&G allegedly persuaded local police officials to secretly search the private phone records of hundreds of P&G employees. These intimidation tactics resulted in many talented P&G employees leaving the company to seek work elsewhere. The excessive monitoring also led to the imposition of rules that choked off potentially great synergies with industry partners. Even within the corporation, memories and experience were lost from one generation of employees to the next. Since then, P&G has realized the power of open innovation and freer flow of knowledge and talent. For the most part, knowledge exchanges do not threaten a company’s competitive advantage. The best thing you can do for your company is to teach your talent how to rationally draw the line between sharing and safeguarding. And instead of imposing a threat to prevent departure, a strong corporate culture and a well implemented performance-based pay structure act as incentives to stay.

Like in each of the past five annual PWC CEO surveys, this year’s report finds talent management to be the top target for strategic change. Facing the talent challenge, the best leaders are learning the age-old strategy: you must lose the occasional battle in order to win the talent war.