By Frédéric Godart, Andrew Shipilov, Kim Claes/INSEAD Business School
Is losing employees bad for your firm? An intuitive answer would be a straight “yes” because by losing employees, your organisation seemingly loses not only its human capital (their skills and tacit knowledge accumulated over the years) but also its social capital (all the internal and external connections your employees have made over their career inside your firm). In other words, conventional wisdom suggests that by losing employees a “source firm” loses both its brains and its address books. This idea is out of date.
The late 1980s spawned the War for Talent mantra: in essence, firms have to make sacrifices and be very creative to retain talent. Hence management should attract the best, make sure they grow, keep them as long as possible and make sure they do not leave. Twenty years ago these were considered insightful and thought-provoking ideas.
Talent was seen as a scarce resource in an increasingly competitive and globalised world. We think however that the rules of the game have changed. Fighting to get the best talent is still important, but having the courage to let them leave is also crucial because there are benefits in letting people resign, in good or bad economic times.
Our new research project focusing on the antecedents and consequences of performance in creative industries, shows that firms can actually benefit from losing employees.
To back our claims, we conducted an intensive study of the global fashion industry, including dozens of interviews with senior industry executives, and collected information on the career of thousands of fashion professionals. Using this wealth of data, we analysed the impact of losing designers to competition has on the performance of fashion houses.
Surprisingly, we found that designer departures can actually lead to greater performance of fashion houses that lose them. This can be attributed to the ability of source fashion houses to benefit from the social capital of departed designers.
Firstly, gaining information on what competitors are doing is critical because this is how houses can gain insights on the newest and hottest trends. When a designer comes to work for another fashion house, he or she maintains contacts at his or her former employer while creating new connections in the new place of employment. These contacts result in an informal communication bridge between the two houses and through this bridge the source house can learn what is going on at competitors.
The insights collected from different competitors can enable source houses to generate new ideas and produce more creative and critically acclaimed fashion collections. In the fashion industry, famous designers pay a lot of attention to where their assistants and apprentices go and keep a close relationship with them.
For example, Japanese designer Rei Kawakubo (who created the renowned brand Comme des Garçons) always kept a close eye and relationship with her protégés such as Junya Watanabe, who in turn provided Kawakubo with inspiration for further creative activities. This holds also true in many other industries where alumni keep close relations with their former employees: both the international consulting firm McKinsey & Company and global consumer products manufacturer Procter & Gamble maintain strong networks of departed employees that feed their former organisations on the whereabouts of clients or competitors.
Secondly, departed employees can be a basis of a source house’s influence in the industry. This is because departed employees expose competitors to the house’s operating philosophy and principles, which increases the industry’s perception of the house’s creative thought leadership.
Thus, fashion houses such as Prada or Marc Jacobs have become “platforms” of recognised creativity. Designers join these houses for a while, learn the trade of fashion there — generally with a clear focus, for example on knitwear or leather—and move on to work for the other fashion houses spreading the positive buzz about their prior employers.
Other top fashion houses such as Lanvin are generally well known to expend their influence on the fashion industry by letting designers work at other places, for example in the case of their recent collaboration with H&M, a way for them to expand their market. In other industries, companies like GE also rely on their past employees to showcase their thought leadership and spread their management methods which lead to new business for these companies.
Thirdly, designer departures enable organisational turnover. When designers leave, they provide room for new designers to come into the fashion house and bring their unique experiences from the outside. This brings in fresh ideas, positively impacting creative performance.
Moreover, some fashion houses purposefully let some of their people work for competitors in order to develop their careers. That is, as one of the fashion executives interviewed for this article said, “if our company cannot provide room for a designer to grow, we would prefer that they work for a competitor instead of staying with us and feeling unhappy”.
Unhappy designers are not very good contributors to organisational performance, but a designer left to work for the competition might return at some later point to the source fashion house and bring back the newly acquired expertise. Top consulting companies know this and do not hesitate to ask their young analysts to leave for a while before coming back as associates.
This is also the raison d’être of MBA programmes: provide high-potential employees with new horizons. Let them come back if they wish; some degree of turnover is good for employers and for employees.
Whole industries, beyond fashion, are based on the premise that letting people leave is not necessarily bad. High tech firms in the Silicon Valley rely on personnel exchange to grow and develop new ideas. This is also true of the Hollywood and Bollywood movie industries where temporary teams of actors, movie markers, producers, technicians, or script writers assemble temporarily and move across projects.
In banking, analysts and investment bankers do not hesitate to move around, to the benefit of their employers who can get them back later with better skills.
Obviously, too many departures to competitors can also be bad. After a certain point, losing designers disrupts day-to-day operations of the fashion houses. Learning from too many departures can lead to a painful reality of “information overload”. When too many people leave to too many places, the source fashion house simply cannot integrate all of the insights received from competition into its new collections.
Information can be full of contradictory messages and can paralyse decision-making. Also, losing too many people can be disruptive to a house’s day to day operations, increasing the uncertainty among the remaining designers and running the risk of the house losing “the soul of its brand”.
This is why companies have to develop strategies for managing departed talent, in addition to strategies of keeping the existing talent. Letting people leave does not mean firms should forget about caring for their talented people. On the contrary, they should pay extra attention to talented people long after they are gone, through developing and managing alumni networks (on line and informal) as well as outplacement strategies.
Letting some people leave is healthy and the biggest beneficiaries of talent loss will be firms which recognise that departed employees and their networks are important drivers of competitive advantage. Except that, in this case, competitive advantage is obtained not from the physical assets possessed by the firms, but rather from the social networks of the departed employees.
The bottom line is that in the 21st century the whole global economy should learn how to benefit from well-managed professional mobility.