When poaching talent backfires

Article based on research by George Chondrakis

Employee mobility brings important skills, knowledge and capabilities to hiring firms. But that is only half of the story. Employees carry important relationships with them – for example with clients, suppliers or other colleagues – that can be beneficial for the organisation. This so-called social capital is an important motivation when poaching talent from competitors as firms try to tap disparate networks and benefit from forging new connections.

Social capital is especially important for industries where observing product quality is challenging, like in professional services firms. In these cases, clients often forge lasting relationships with specific employees and follow them across different employers. It is no surprise then that firms vie for talent and employee poaching is a frequently used tool to get new clients.

What to do when an external worker moves to a new company?

What happens though when firms rely on internal departments as well as on external suppliers? Think of legal services where corporate clients divide work among in-house lawyers and external lawyers working for law firms. When an external lawyer that is used by the corporate client moves to a new law firm, the corporate client can choose to:

• (a) stay with the law firm suffering the employee loss 
• (b) follow the mobile lawyer to her new law firm 
• (c) bring work back in‐house.  

From the corporate client’s point of view, both options (a) and (b) can create problems as contracting becomes more difficult due to the disruption in supplier relationships or due to the need to work with new suppliers. So, reducing reliance on outsourcing – option (c) – could be a viable alternative.

When is it better to bring work back in-house?

Esade professor George Chondrakis and professor Mari Sako from Saïd Business School (University of Oxford), examined in their research patterns of patent attorney mobility and the allocation of patent prosecution work by corporate clients to identify the conditions under which firms bring work back in-house when external patent attorneys move.  

Their results suggest that the later option is preferred when it is easy for corporate clients to expand in‐house capacity, i.e. when corporate clients have relatively large in-house departments and when the in-house patent attorneys undertake tasks that are similar to those done by the mobile external attorneys.

Poaching talent: a risk for firms

Moreover, they show that reducing outsourcing is also favoured when the costs of switching to other law firms already in use are relatively high, for example when mobile external attorneys move to law firms not used by the corporate client or when the work done by the mobile external attorneys is dissimilar to that done by other law firms used by the corporate client.

Overall, these results suggest that firms should be cautious when poaching talent as this can lead to client firms reducing their overall reliance on outsourcing.

Original research publication: Chondrakis, G., & Sako, M. (2020). When suppliers shift my boundaries: Supplier employee mobility and its impact on buyer firms’ sourcing strategy. Strategic Management Journal. http://dx.doi.org/10.2139/ssrn.3512516