How mobility of R&D workers opens new avenues

By Stefan Wagner and Martin C. Goossen

R&D employees moving from one employer to another is a frequent, yet controversial, event. On the one hand, inventor mobility is shown to positively affect overall innovative activity. The fast development of new technologies in regional clusters like Silicon Valley is driven by dynamic labor markets combined with the high turnover rates of engineers, programmers, and developers. At the firm-level, learning-by-hiring is a fast and efficient way to acquire external knowledge. From the perspective of a firm that loses key employees, outbound mobility, on the other hand, creates costs for finding suitable replacements and is associated with the risk of losing not only employees but also crucial knowledge, knowledge that potentially is employed by the hiring firm to compete in related markets.

There are, however, some cues that there is also a positive side to outbound-mobility. Mobile employees potentially create a beneficial link between their old and new employers that facilitates future collaboration between these two firms. In their recent study, BCCP Senior Fellow Stefan Wagner and Martin C. Goossen seek to better understand this phenomenon by focusing on the mobility of R&D scientists in the global pharmaceutical industry. Initial interviews reveal that it certainly is true that managers are concerned about leakage when their R&D scientists leave to join competitors. However, they also acknowledged that while mobile scientists might be out of sight, they are not out of mind. The interview partners highlight that mobile employees create new or additional touchpoints with the hiring company. This facilitates subsequent transactions between the two organizations, including licensing agreements or the formation of strategic alliances. This narrative is well aligned with the authors’ quantitative findings from a large-scale longitudinal study. The findings reveal that mobility of inventors is associated with a statistically significant increase in the likelihood of subsequent alliance formation or the start of a joint R&D program.

Decisions about R&D partnerships are notoriously tricky for firms. First, firms have a hard time assessing the technological capabilities of potential partners from the outside. Second, expectations about the strategic goals of potential partners and the actual management of R&D projects need to be formed before a partner can be selected. The authors find that mobile scientists impact the joint decision-making process at their new employer at both technological and organizational levels. First, they provide insider information about the technological capabilities of their prior employer, increasing the confidence that their new employer will have in a possible partnership. Moreover, they can envision how molecules, solutions, and other technologies of both firms can be combined into new jointly developed products. Both should facilitate the formation of R&D partnerships between their old and new employers.

Second, and different from the provision of technological information, mobile employees also help align organizational mindsets. Often, the formation of R&D partnership is aggravated by different organizational beliefs about which trajectory to follow in a partnership and the potential for opportunistic behavior of potential partners. Inventors with employment experience at both partners can bridge different perceptions. Their involvement is critical as it reduces misunderstanding and conflict in the negotiation of a partnership. Consequently, inventor mobility increases the chances of collaboration between their new and former employer compared to collaboration between their new employer and other firms.

This study adds to the larger understanding of the sociological context of business transactions and informs the debate on employee mobility. Some firms have called for more stringent non-compete agreements, forbidding employees to join competitors, or even participated in anti-competitive practices limiting the mobility of their employees. Yet, politicians have refrained from creating such legislation and courts often declared mobility-limiting contractual clauses invalid. This study reveals that employee mobility is not unilaterally negative for employers as former employees can generate new avenues of collaboration and the direction of business.

The full paper “Knowing me, knowing you: Inventor mobility and the formation of technology-oriented alliances” is published in the Academy of Management Journal, 2018, 61(6): 2026-2052.