The Other Talent War: Competing Through Alumni

Much has been said about the fact that companies are constantly fighting a war for talent. Given the importance of skilled human capital for competitive success, it is not surprising that companies dislike losing good people and expend considerable resources on attracting and retaining the best talent. However, if there’s one thing that businesses have learned in the ongoing talent war, it is that they don’t own their human capital — and many employees will eventually move on to new jobs.

Companies and managers must embrace this reality and reimagine how best to create and capture value with their former employees, whom many companies now refer to as “alumni.” Businesses increasingly have come to recognize the numerous advantages that their alumni can provide, and some companies, such as the management consulting firm McKinsey & Co., have well-organized alumni networks. In knowledge-based service businesses, in particular, it is common to look to former colleagues for referrals and even business, especially when those alumni work for a client of their former employer.

A company’s alumni can be valuable ambassadors for their previous employer and open up opportunities in other areas. For example, former employees can provide unique information about new pools of talent and about opportunities in geographic and product markets that managers might otherwise have missed. Former employees may themselves want to rejoin the company at a future date, becoming so-called “boomerang” employees. Although some companies distance themselves from former workers in order to discourage employees from leaving in the first place, others have developed and are expanding their alumni programs.

But even when companies are savvy about the value of their own alumni, rarely do they think about how their competitors’ alumni might affect their own business. To explore the dimensions of this hidden talent war, we studied outsourced work carried out by patent law firms for Fortune 500 clients in technology-driven industries over five years, focusing on how the law firms were impacted by their own and their competitors’ alumni when competing for business from clients. In our research, we uncovered systematic evidence that a competitor’s former employees can damage a firm’s client relationships. In our study of patent law firms, we found that a law firm’s competitors’ alumni — when placed at a client firm — can have significant, negative effects on the amount of business obtained from that client, whereas employees hired by the client from other sources have no such impact. Our findings show that a law firm’s patent work for a given client decreased about 11% for each alumnus that the client hired from the law firm’s competitors. This number jumps dramatically when the competitors’ alumni have an easier path to power and influence in the client organization: Law firms experience a 50% decrease in business from a client when a competitor’s alumnus joins the client amid a reshuffling of client staff. (Detailed findings from our research were published in the Academy of Management Journal. See “Related Research.”)

Location matters, too. Competitors’ alumni who move locally exert a more negative influence on the firm’s relationship with the client (a 17% versus 6% drop in business), in part because it may be easier for a competitor’s alum to convince a new employer to shift work toward his or her former firm if that firm is nearby. Perhaps our most interesting finding is that a company’s own alumni can act as a shield against a competitor’s former employees. When a law firm already has alumni working at a client organization, we find that the firm loses very little business when that client hires an employee from the firm’s competitors.

Though our results focus on competition for clients, competition waged through a company’s former workers is not limited to client relationships. In many industries, corporate alumni working for key suppliers can represent significant competitive assets. For example, a big retailer needs suppliers to cooperate and work jointly on initiatives that are mutually beneficial, which might be facilitated by its previous employees if they occupy important positions at its large suppliers. Thus, while our study focused on patent law firms, the logic of competing through former employees may apply to any sphere in which a company’s alumni can make valuable resources available to their former employers and, by extension, deny the same resources to competitors.

Our research highlights this second front in the war for talent, where businesses can compete by leveraging relationships with former employees and perhaps even by strategically placing their employees. Many companies have more former employees than current ones, and many of these people are in positions of influence that can help or hurt companies in myriad ways. Yet many managers don’t typically think of previous employees in competitive terms (if at all), and have virtually no tools or frameworks to help them wage this talent war. Though our research was focused on understanding the impacts of this new type of competition, it allows us to provide some suggestions for thinking about strategies to win the new talent war being waged through alumni.

Take Advantage of Competitive Intelligence

Companies develop and use competitive intelligence about their rivals in several areas — R&D projects, product introductions, advertising, pricing moves, foreign market entry, alliance formation and even hiring. However, even when companies keep track of their own former employees, they rarely collect and analyze competitive intelligence about their competitors’ alumni. Some managers already understand this imperative. For example, one of our interviewees, a relationship manager at an IT services company, keeps track of changes in client personnel, since the hiring of competitors’ alumni may signal that the client relationship is at risk. Such information is essential if managers are to wage the alumni talent war successfully.

The resources for collecting competitive intelligence about former colleagues are already in place in some industries. For example, directories of skilled professionals available from professional associations and third-party providers can help companies keep track of their own and their competitors’ alumni. Indeed, our own research was facilitated by one such professional directory. In industries lacking these resources, companies can rely on vendors that codify press releases announcing the movement of key individuals from one firm to another. Old-fashioned methods are also likely to remain effective: Companies can obtain proprietary intelligence about their own and their competitors’ alumni by having their frontline employees monitor changes in key stakeholders’ personnel. However, managers need to emphasize and incentivize this kind of monitoring for it to be done consistently and effectively.

Nurture and Leverage Relationships

To unlock the potential embedded in their former employees, companies and managers must understand how and why alumni may provide resources to them. The key reason that employees channel valuable opportunities to their former organizations is the mutual relationships they share, which are built during the period of employment, nurtured as the employment relationship ends and after the employees leave, and leveraged later when the former employees are in a unique position to help.

Alumni are certainly motivated by personal friendships and mutual reciprocity with former colleagues and managers, as well as by a sense of identification with their former company. It may be harder to appeal to a former employee if he or she did not form lasting relationships with colleagues, or if the company does not have a unique culture and socialization process. At the same time, maintaining the relationship when the employee leaves is important; acrimonious separations that seed feelings of ill will and mistrust will likely undermine the employee’s relationship with his or her former employer. The relationships built during employment must be retained and nurtured, in particular through programs or processes that add value for the former employee. This is why some companies that find a mismatch between employees’ abilities and the organization’s needs — in particular, employees who do not make the “up or out” hurdle in professional services — help such employees find a new job. By severing their employment on a more positive note and creating value for the employee, such companies increase the likelihood that these alumni will retain a relationship with their former organizations.

However, when it comes to leveraging relationships with alumni, it is important to recognize the rational and calculative reasons that drive alumni to favor their former employers in their actions at their new organizations. Consider the situation faced by an employee who has moved into a new organization. The employee wants to demonstrate value to his or her new employer, which often involves a need to leverage external partners. Evaluating external parties can be time-consuming, complex and uncertain, so a decision to work with one’s former company, a known quantity, may be mutually advantageous. While personal allegiances and feelings of loyalty certainly motivate workers to transact with their former companies, the ability to provide value to their current employers is critical. Our research on patent attorneys highlights this effect, where we found that competitors’ alumni who move locally to join a client firm are particularly impactful, at least in part because it is easier for them to convince their new employer to do business with a nearby partner.

Employees who are motivated to work with their former employers can serve both offensive and defensive competitive purposes. An important finding of our study is that having your own alumni working for a client reduces the ability of your competitor’s alumni to shift business away from your company. A former employee may thus act as a de facto guardian of the relationship between current and former employers, reducing the opportunity for a competitor’s alumni to harm valuable business relationships.

Understand Opportunity

Maintaining positive relationships with former employees is necessary for winning alumni-driven competition, but it is not enough. The second key dimension is opportunity. Employees must have the opportunity to provide their previous employers with key advantages. Understanding whether or not an alum has the opportunity to help can prevent a scattershot approach to alumni-based competition and allow companies to zero in on their most valuable former workers and their competitors’ most dangerous alumni.

Clearly, an employee’s rank and responsibility at a new employer will play a crucial role in determining his or her importance. While almost any position can provide information on referrals and the like, so-called “exchange manager” roles, where the person is in charge of external relationships, are particularly valuable when occupied by a company’s alumni, and particularly harmful when occupied by its competitors’ alumni. Individuals in these roles have the authority to initiate and nurture supplier or vendor relationships and so are uniquely positioned to send business and other resources back to their prior employers. Where the former employee now works is also important. Not surprisingly, employees who work for potential partners or collaborators are more likely to be beneficial than former colleagues working for competitors.

Shifting dynamics at their new employers can also determine whether workers have the opportunity to help their former companies. In our research on patent attorneys, we found that competitors’ alumni were more harmful when they joined a client organization that had recently experienced significant turnover on its attorney staff. These departures likely opened up power vacuums that the competitors’ alumni could readily fill, allowing them to send more business back to their former employers. Other types of changes, such as shifts in lines of authority and changes in strategy, may similarly create openings for employees to alter their influence within the organization — and subsequently use that influence to help their former employers.

In short, winning alumni-driven competition requires maintaining positive ties with departing employees who have the opportunity and ability to capitalize on their relationships with their former company. This new talent war requires companies to know where to target their relational efforts with former employees to generate the highest value. Because today’s skilled knowledge workers are unlikely to spend their entire careers with one company, companies and managers should think of themselves as responsible custodians — rather than owners — of valuable talent. When employees depart for other destinations, relationships built with them can be nurtured, expanded and leveraged to help the company garner key resources in the future. Companies that neglect this approach are likely to lose clients and supplier relationships to competitors that do not and miss other unforeseen opportunities.