Member of the Department of Managerial Economics & Decision Sciences from 2005 to 2016
Charles E. Morrison Professor of Decision Sciences; Professor of Operations; Co-Director of MMM Program
Poaching employees has never been easier or more attractive. Websites like CareerBuilder and LinkedIn make it simple to scout talent. Rather than just looking for an employee among those who apply for a job, firms can now use these sites to search among those who are the best fit for the job.
The companies on the other end of the poaching, of course, lose knowledge and skills when their employees leave. Moreover, replacing employees creates labor competition and drives wages higher, and the fear of losing employees forces a firm to plan ahead for something that may or may not happen. So some companies have responded with aggressive, or even illegal, antipoaching strategies. In April 2015, a judge approved a $415 million settlement between several technology companies—including Apple and Google—and the approximately 64,000 tech employees they conspired not to hire from each other.
But recent research suggests that, under some circumstances, poaching can benefit both sides of the equation, the poacher and the poached. Poaching can aid the transfer of knowledge, with turnover spreading best practices throughout an industry. Poaching also lets firms share the burden of maintaining a highly skilled workforce—making it easier for growing firms to cheaply acquire workers and stagnant firms to shed them. New research suggests yet another benefit: when a less productive firm in the supply chain poaches from a more productive one, even the firm losing employees can experience boosts in productivity and sales revenue.
Poaching allows firms to reallocate resources even without a formal agreement.
“If the benefit is high in terms of [an increase in] the number of products that can be sold, or the quality of products or the price that can be charged, then there’s a much greater incentive for the firm to let their workers go, and allow them to be poached,” says Evan Barlow, a Ph.D. candidate in operations management at Kellogg.
Most research into poaching focuses on how it affects companies that compete with each other. But Barlow and his coauthors, Gad Allon and Achal Bassamboo, professors of managerial economics and decision sciences at Kellogg, focus instead on companies that are part of a supply chain. Within many supply chains, there is a “bottleneck,” or company that restricts the production of the overall chain because of its limited resources. In those cases, says Allon, poaching “allows firms to reallocate resources even without a formal agreement.”
The researchers devised a model in which a supplier and a manufacturer in the same supply chain compete with each other for employees while attempting to maximize profits. Firms must balance the revenues gained from greater supply-chain productivity with the costs of finding, recruiting, and hiring new employees. It is a challenging balance to strike, because while the more productive firm is tempted to poach employees from the less productive firm, doing so erodes the less productive company’s capacity even more, amplifies the bottleneck, and lowers both firms’ revenues from sales.
But poaching in reverse—when the less productive firm lures employees away from the more productive one—has the opposite effect. It helps the bottleneck increase its production capabilities, thus increasing the supply chain’s potential overall output and increasing both firms’ sales revenue.
For an example of symbiotic poaching in action, consider the shale oil and gas industry.
The industry has grown dramatically—Forbes puts it at 51 percent per year since 2007. This growth has had important consequences for consumers, with the average household saving somewhere between $425 and $725 each year on energy costs. The impact has also reverberated throughout the supply chain. “The customers of the shale oil and gas industry are actually expanding their operations to try to handle the extra availability of natural gas,” Barlow says.
Companies that make plastics, for instance, depend on the productivity of oil and gas companies; the dramatic increase in production has sharply driven down their costs and increased their supply of raw materials. With the productive capacity of two industries so tightly intertwined, poaching can be a win–win. A plastic company whose employees have been poached must replace the lost employees—but the increases in productivity and revenues almost immediately outweigh the costs of hiring new employees.
“Yes, they’re losing workers. Yes, they’re experiencing some worker shortages,” says Barlow. “But at the same time, they’ve never had a higher availability of natural gas. From that perspective, having their workers poached has been very beneficial.”
By contrast, for technology firms like Apple and Google and their supply-chain partners, the costs of poaching outweigh the benefits. There is little immediate payoff; there is stiff competition for qualified high-tech engineers (a “war for talent”); and the profit increases from greater productivity are low compared with the upward pressure on wages and the costs of hiring and training new employees. As a result, tech firms go to great lengths to prevent poaching.
The research suggests that companies that are connected in a supply chain can benefit from being part of a “manufacturing hub”—a relatively small geographic area in which institutions representing multiple sectors (including government, private industry, and academia) collaborate on research and product development. Just as such hubs facilitate the free flow of ideas, they can also facilitate poaching, as employees do not need to relocate to switch employers.
The research also has implications for policy makers who hope to reduce unemployment. In an effort to spur job creation, the stimulus package passed by Congress in response to the Great Recession, for example, included funds to reimburse companies for hiring employees But in actuality, only 42 percent of employees hired by companies that received stimulus funds were unemployed at the time—suggesting that instead companies were reimbursed for poaching.
Given that reality, policy makers who hope to stimulate the economy could devise incentives targeted at the companies that have the biggest potential effect on the broader economy: bottleneck firms. “If [policy makers] can target those firms in a smart way,” Barlow says, “then all of the other firms have an incentive to hire workers as well. So the government could actually make an investment in reimbursing hiring costs for one firm and amplify the effect on hiring from that single investment. That’s the benefit of targeting the bottleneck firms.”
Barlow, Evan, Gad Allon, and Achal Bassamboo. 2015. “Poaching Workers in a Supply Chain: Enemy from Within?” Working paper.