04 June 2008

Gaining Advantage By Letting Your People Go

Currently I'm busy writing a thesis for my master's on the relationship between knowledge management and sustained competitive advantage. Taking the perspective of the resource-based view I try to find emperical evidence that firms using unique knowledge will perform better than their competitors. The past months I've been reading a lot of scientific articles on the subject, most of which, though some are dated, were very interesting. Some of this stuff I like to share with you.

People quit

Besides reading scientific articles I also read a fair amount of blogs. A while ago I read an interesting piece about employee turnover in IT by Alex Papadimoulis of the dailty wtf fame. Alex argues that employers and employees should face the fact that someone won't work for the same boss ad infinitum and be comfortable with that. He even thinks that embracing this fact will be beneficial for companies for three reasons: employees leave with a positive attitude and their they have not engaged in less productive behaviour, an alumni network is created and unskilled personnel is flushed out.

Paradox

This is a really interesting point of view that unveils a paradox. Making it easier for employees to leave the firm increases the risk that valuable knowledge is drained from the firm, since the knowledge assets a firm owns mainly reside in the people that work there. When you see knowledge as the most important source of competitive advantage (as a lot of scholars do), this means that advantage might decline or even disappear when this strategy of embracing quitting is used. So, what should an employer do?

Building a network

I think that acknowledging that people do not stay forever is a good thing, but to put this inevitable fact to their advantage, firms need to take action. An alumni network builds itself, but organizations need to actively put the network to use. A great example of a firm that does this is ThoughtWorks in my opinion. Not only do they display blogs of their employees on their website, there is also an alumni section. ThougthWorks' current and ex-employees stay in touch, read eachother's blogs and so share knowledge. ThoughtWorks has created a network of ambassadors and champions consisting of both employees and alumni. Another example of a company that endorses employee transfers is Toyota. They often let employees transfer to their suppliers, sometimes permanent and sometimes temporary. This way they can build a network identity and share knowledge within this network. Both Toyota and their suppliers benefit from this approach.

Minimizing risk

The risk of losing valuable knowledge can be minimized in a few ways. First, a lot of knowledge is context specific and loses its value outside the firm. Also firms aquiring knowledge by hiring away personnel face adjustment time and consequently can't put the newly acquired knowledge directly to use.

Second, a lot of knowledge isn't articulate. This tacit knowledge, as it's often called, is problematic to transfer, because it can not be documented or codified. It requires face-to-face interaction to be transfered. It will not leave the firm quickly, but it is also difficult to transfer within the firm.

What to do?

So what companies should do is integrate the knowledge of their employees, making it more context specific and creating collective, organizational knowledge instead of individual knowledge. Although the trend is to document and codify all knowledge in the organization, firms should leave some valuable knowledge tacit. Which knowledge to keep tacit is a key question. When specific knowledge needs to be transfered within the firm, it should be codified, or externalized to be able to speed up the transfer. But beware, speedy transfer could mean speedy disappearance!

Letting people leave the firm in a good way, building an active alumni network, while at the same time keeping valuable knowledge inside the firm is in my opinion a way to gain and sustain competitive advantage.