Employee mobility, spin‐outs, and knowledge spill‐in: How incumbent firms can learn from new ventures
| DOI | http://doi.org/10.1002/smj.2625 |
| Published date | 01 August 2017 |
| Author | H. Kevin Steensma,Ji Youn (Rose) Kim |
| Date | 01 August 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 1626–1645 (2017)
Published online EarlyView 17 January 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2625
Received 20 May 2015;Final revision received16 October 2016
EMPLOYEE MOBILITY, SPIN-OUTS, AND
KNOWLEDGE SPILL-IN: HOW INCUMBENT FIRMS
CAN LEARN FROM NEW VENTURES
JI YOUN (ROSE) KIM1,*and H. KEVIN STEENSMA2
1Department of Management, Gatton College of Business and Economics,
University of Kentucky, Lexington, Kentucky,U.S.A.
2Department of Management and Organization, Michael G. Foster School of
Business, University of Washington, Seattle, Washington, U.S.A.
Research summary: We consider conditions in which incumbent rms are particularly poised
to benet from knowledge spilling in from new ventures that employ individuals previously
employed by the focal incumbent rm. Wedistinguish between inventors who leave their incumbent
employers to found spin-outs and those who become non-founding employees of existing new
ventures. Using a sample of new ventures and incumbent rms in the U.S. information technology
(IT) sector,we nd that incumbents are more likely to benet frompatented knowledge that spills in
fromtheir spin-outs than from new ventures that employ non-founding inventors formerly employed
by the respective incumbent. Any advantage that parent rms have in reaping such knowledge
quickly dissipates, however, when these parents have a history of misappropriating the intellectual
property of others.
Managerial summary: It has long been acknowledged that new ventures can acquire valuable
knowledge from their larger and more established counterparts by hiring away their talented
employees. We consider the possibility of a reverse ow of knowledge where established rms
learn from those new ventures that have poached employees from them. We nd that established
information technology (IT) rms are more likely to learn and build on the technology of their
spin-outs (i.e., new venturesfounded by their former inventors) than from new ventures that simply
employ non-founding inventors formerly employed by the respective IT rm. Any advantage that
these IT rms had in reaping technical know-how fromtheir spin-outs quickly dissipated, however,
when they had a history of misappropriatingthe intellectual property of others. Copyright© 2016
John Wiley & Sons, Ltd.
INTRODUCTION
With their cutting-edge expertise, new ventures are
central players in the process of creative destruc-
tion, and can turn market leaders into has-beens
(Christensen and Rosenbloom, 1995; Henderson
Keywords: employee mobility; spin-outs; knowledge
spill-ins; new ventures; knowledge misappropriation
*Correspondence to: Ji Youn (Rose) Kim, Gatton College
of Business and Economics, University of Kentucky, Room
323P, 550 S Limestone, Lexington, KY 40506, U.S.A. E-mail:
rosejykim@uky.edu
Copyright © 2016 John Wiley & Sons, Ltd.
and Clark, 1990). To avoid becoming obsolete,
incumbent rms often need to renew their internal
knowledge by tapping into state-of-the-art external
knowledge, much of which is held by new ventures
(Chesbrough, 2006; Dushnitsky and Lenox, 2005;
Helfat, 1997). Thus, although new ventures can lead
to the demise of incumbent rms, they also can
be sources of revitalizing knowledge for incumbent
rms that help to avert their downfall.
Incumbents can access new venture knowledge
through various types of formal agreements,
including strategic alliances (Ahuja, 2000),
Employee Mobility, Spin-outs, and Knowledge Spill-in 1627
minority equity stakes (Wadhwa and Kotha, 2006),
and acquisitions (Ahuja and Katila, 2001). Despite
their potential to form these mutually benecial
agreements, incumbents and new ventures often
battle over sourcing the other’s knowledge at
a granular level. Specically, incumbent rms
frequently lure new venture employees to secure
their knowledge (Tzabbar, 2009). Likewise, new
ventures can poach talented employees from
incumbent rms, or these employees may leave
their incumbent rms to create their own start-ups
(Campbell et al., 2012b; Ganco, 2013).
Losing employees to new ventures can be par-
ticularly disconcerting to incumbent rms. Not
only do they suffer the loss of valuable human
capital that could be used to assimilate external
knowledge, but this human capital also may ulti-
mately be deployed by new ventures to compete
against the same incumbent rms from which they
poached employee talent. To protect the inter-
ests of incumbents and to discourage employee
mobility, certain states have laws that enforce
employee non-compete agreements (Marx, Strum-
sky, and Fleming, 2009). In their efforts to limit
how attractive their employees are to competi-
tors, some rms establish reputations for enforc-
ing their patents (Ganco, Ziedonis, and Agarwal,
2015). Despite these and other constraints, employ-
ees maintain substantial discretion regarding their
employment trajectory, and the risk for incum-
bents of losing valuable employees is considerable
(Coff, 1997).
Nevertheless, losing employee talent to others
may not be all bad. Recent research has shown
that, when employees move between rms, not only
can they facilitate knowledge ow from their for-
mer employers to their new employers, but also
from their new employers back to their former
employers (Corredoira and Rosenkopf, 2010). One
explanation for this reverse knowledge ow is that
employees maintain social ties with their former
colleagues and share information with them. Thus,
losing employees to new ventures could poten-
tially provide incumbents with avenues by which to
attain the new venture knowledge that they need to
thrive.
As noted by Agarwal, Gambardella, and Olson
(2014) in their review of employee mobility and
entrepreneurship, few studies have provided a
nuanced understanding of how and when rms are
more likely to benet from knowledge spill-in, that
is, a ow of knowledge from those organizations
that employ their former employees. We con-
sidered conditions in which incumbent rms are
particularly poised to benet from knowledge
spilling in from new ventures that employ individ-
uals previously employed by the focal incumbent
rm. Todo so, we distinguished between two routes
by which employees leave incumbent rms and
join new ventures within the same industry. One
route is to become employees of already-existing
new ventures. Alternatively, individuals may take
advantage of what they have learned from their
prior employers by founding start-ups (Agarwal
et al., 2004). These new ventures, commonly
referred to as spin-outs of their parent rms, are
independent from their parents.1
We argue that, for two reasons, incumbent
rms are generally more likely to benet from
knowledge spill-in when their former employees
become entrepreneurs and start new ventures (i.e.,
spin-outs) as compared to when they become
non-founding employees of existing new ventures.
First, founders have greater discretion and incentive
to share proprietary knowledge of their start-ups
with their former colleagues. Such sharing may lead
to partnering opportunities (e.g., licensing) that are
particularly rewarding to highly-vested founders.
These prospective partnering opportunities are
likely to be especially salient when parent rms
signal a proclivity for partnering with new ventures
by having active corporate venture capital (CVC)
programs. In comparison, non-founding employees
of new ventures are typically subject to nondisclo-
sure agreements that impede sharing information,
and have relatively little to gain from doing so
compared to founders. Second, because spin-out
founders tend to have been high performing incum-
bent rm employees (Campbell et al., 2012b),
incumbent rms may pay greater attention to the
activities of their spin-outs relative to the activities
of new ventures that simply employ their former
employees.
Any advantages that parent rms may have in
sourcing knowledge from their spin-outs through
social ties with their founders, however, are far
from assured. Although spin-out founders have
1Spin-outs differ from internal corporate venturing, which occurs
when a company spins off sections of its existing business as a
separate entity, while maintaining ownershipin the new business,
and appoints the management team of the newbusiness. Employee
movementin such cases is not typically considered to be employee
entrepreneurship or mobility events (e.g., Agarwal, Ganco, and
Ziedonis, 2009; Campbell et al., 2012b).
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 1626–1645 (2017)
DOI: 10.1002/smj
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