Advantages of Losing Employees to the Competition

Despite conventional thinking, losing employees to competing organizations is not always detrimental to companies, and employee departures actually can help with recruiting by enhancing employer status. New research examining Am Law 200 firms over a span of nine years reveals there is a strategic tradeoff in employee retention – when employees leave a firm for a higher-status position, the organization’s competitive position in the labor market can improve.

“Let Them Go? How Losing Employees to Competitors Can Enhance Firm Status,” a forthcoming publication in the Strategic Management Journal, shows there is a silver lining in letting good workers get away. The collaborative study is co-authored by Christopher Rider, associate professor of strategy at Georgetown University’s McDonough School of Business, and David Tan, assistant professor of strategy and entrepreneurship at the University of Washington’s Foster School of Business.

“Our research is the first to show that while employees leaving a firm may impact the organization’s economic performance, it could improve competitiveness in the labor market,” Rider said. “Even though we examined law firms for this particular study, the findings can be applied to corporate America as well.”

In today’s marketplace, employees are changing jobs more frequently than previous generations, and they value a workplace where they can launch their careers. The study shows executives and managers may attract better candidates by publicizing open positions as gateways to even better career opportunities. Increased rates of highly-visible personnel departures can result in an increase in an employer’s prestige if employees depart for promotions with high-status competitors.

When employees leave an employer to advance their careers, the departed organization becomes known among potential hires – especially early-career ones – as an attractive stepping stone. Rather than enforcing non-compete agreements or rushing to match competing offers, for organizations that offer a prestigious employment experience, executives and managers should consider letting some employees go to attract an even better pool of early-career, eager applicants with new areas of expertise and innovative ideas.

“By taking this stepping stone recruitment approach, there is potential to attract better applicants at lower wages and there could be a reduction in recruiting costs,” Rider said. “Firms often invest substantial resources in employee retention without considering there are likely recruiting advantages to letting people go.”