Government leaders and CEOs want to create innovative environments. But what if the traditional approach to innovation is wrong? In the traditional approach to innovation, companies invest heavily in R&D departments and protect their ideas through patents, lawsuits and non-compete contracts. Companies can only profit from ideas—the thinking goes—when no one else has them. In Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids and Free Riding, University of San Diego Law Professor Orly Lobel relies on original behavioral experiments and case study analyses to argue against conventional notions about competition, innovation and secrecy. She posits that looser control of ideas and talent flow will spur innovation and creativity.
NerdWallet recently spoke to Prof. Lobel about how companies should approach innovation and hiring talent.
Was there an event or “Aha” moment that inspired you to write Talent Wants to Be Free?
There were a series of “Aha” moments – again and again I witnessed counter-productive tactics by businesses, managers, competitors, entrepreneurs attempting to control their ideas, to hide them, and to prevent their collaborators and former employees from working in the industry. I kept encountering people who became so convinced that they need to zealously go after anyone who left them, that they lost sight of how to actually win the talent and innovation wars. And it kept backfiring.
Take for example, the decade long litigation between toy companies Mattel and MGA (aka Barbie v. Bratz) over who came up with the idea for of a new line of dolls first – everyone lost from this downward spiral of endless expensive legal battles. Energy would have been so much better spent trying to be the better toy maker.
Companies engage in irrational practices of isolating their best people from the professional networks that could support their ventures, they develop reputations of suing their ex-employees, which naturally scare off new talent, and they spend resources and energy reacting litigiously to new competition rather than anticipating what the market wants and being the best they can, regardless of how many competitors are out there.
What are some misconceptions that companies have about innovation?
Usually we think narrowly about the factors that increase the likelihood for successful innovation: formal education, dollar investment, high quality labs. Rarely do we consider the importance of the external environment. And when we do, we think that we need to compete with other innovators by Willy Wonka-style high walls and bolted gates. But the reality is that these days, that model of innovation is unlikely to sustain itself.
Organizations and cities have characteristics that induce or inhibit growth. Environments with “innovation in the air” form a virtuous cycle: innovation accelerates when near innovation. Proximity to talent is a catalyst for more talent. Take for example the world renowned Motor Valley, near London, where most advanced, high-end racing and sports cars are invented. The region dominates the race car industry by producing Formula One cars, Indy cars, and the best sports cars in the world. Within this industry, leading engineers and designers move an average of eight times during their career, meaning that approximately every three years, they find a new employer. As the talent moves around the industry, it inevitably brings with it crucial information about what makes a race car. Insiders to the industry explain that some ideas get leaked and competitors employ people to extract information they were exposed to at another team – but this constant flow of people and ideas has helped all of the companies in the region to dominate the worldwide industry. Finding a place where innovation is “in the air,” and where there will be mutually supportive exchanges of knowledge is key. Even in this day and age, when distances have become shorter, where we can find most scientific knowledge online, geography matters. Knowledge transmission often requires face-to-face interactions and lengthy exchanges rather than just written correspondence. Knowledge is still bound by physical space.
One of your book’s main themes is the struggle between secrecy and innovation. How can companies create environments that inspire creativity?
Even with all the advantages to having competitors nearby, we naturally still fear that our secret processes, our brilliant talent recruits, or our soon-to-be-launched inventions will be stolen. Would it not be better to flee competition and find an isolated region where no one is likely to poach your talent or steal your secrets? Is it not wise to seek out new frontiers and evade contact with direct competitors? Even with the risks, the answer for the most part is no. Companies need to figure out what knowledge and ideas are worth sharing and what should remain secret and owned. We also need to know when to loosen the reins and when to manage more tightly. This will be different at varying stages of a company’s life.
We need to give employees a sense of ownership and pride over their work. Over-monitoring crushes that. Employees need secrecy to make sense; it has to be nuanced and targeted, so as not to choke the sparks of creativity. Of course this doesn’t include giving away R&D plans to a competitor, but the best thing companies can do is to distinguish between their truly confidential information and the rest of their ventures.
Many companies view the departure of talent negatively. What strategies can companies implement to make their departure a positive?
To win the talent wars you have to be willing to accept that key employees will come and go. Providing a stimulating work environment and proper financial incentives may go a long way in keeping your employees happy and loyal, but you can never stop every one of them leaving—nor should you want to. So while you need to do your best in recruitment and retention, you can also learn how to view the departure of talent a way to strengthen your company’s networks and create new business opportunities. Companies can begin to think of their ex-employees as goodwill ambassadors, or like universities, as alumni that showcase the success and value of having been part of your company. When they are out there in the world they can be advocates for you position in lobbying efforts and industry associations; they can help you recruit new talent; they can help you connect with new potential customers and business partners. Virgin’s Richard Branson takes pride in helping out his former employees start up new businesses. Raiding talent is a reciprocal game, so rather than reacting like an insulted “ex” – move on and raid others and at the same time keep in touch with your best people to reap the benefits.
Who are some of the winners in the so-called “talent wars”?
The businesses that realize that they need to be “a hell of a lot sexier” than other employers in order to recruit the best and the brightest. In the words of a former Googler and current Facebooker: “It’s not just about the money. Entrepreneurs want to work at the hottest place on earth and right now that’s Facebook.” And like with companies, similarly with regions: when comparing regions in their pace of growth and economic trajectories, economists now realize that economic growth relies not simply on competitive win-loss production, but on processes which transfer knowledge within industries and regions. So regions that support mobility gain twice: first they gain from their own intra-regional flow, but second, they gain from their comparative advantage – they signal to the best minds to come to the region from more controlling environments and to work where they can be confident that throughout their careers they will be able to move within the market to other jobs. Over time, the research shows that regions with open environments experience a brain gain, continuously drawing key talent from elsewhere.
In your book you write about California and its restriction of non-compete agreements. How can government help spur innovation?
California has a unique approach to the talent wars: it voids all non-competes between ex-employees and employers. In other words, if you work in California, you are always free to move to a competitor. California views its approach as not only part of the basic principle that people should be free to pursue their profession and livelihood, but perhaps more important, as part of its macro innovation policy. The empirics and data confirm what California policy has long intuited – that when government fiercely protects the ability of talent to move among competitors, the region will experience a surge of innovation and economic growth.
The Silicon Valley is legendary for stories of employees leaving stable lucrative positions, working out of their garage, and even moving back in with roommates (resuming the embarrassing practice of bringing dirty laundry to mom), to become highly successful industry leaders when the gamble pays off. These talented entrepreneurs, the creative and innovative workforce of the Silicon Valley, could not have moved with such ease in any other state. And yet, our most prized companies – IBM, Yahoo!, Google, Facebook to name just a few – have located in the Silicon Valley and have thrived despite, indeed because of its competitive spirit.
We have long been aware of the troubling features of information monopolies: information, by its very nature, demands openness. Without its natural flow, we cannot progress as a society, build on generations of creativity, or use knowledge to promote innovation. We want to allow companies and individuals to reap the fruit of their investment, but at the same time, we want to encourage the positive outcomes from the free flow of talent and ideas. The role of government policy is to help balance encouraging initial investment in human capital, training, and research and the encouragement of information sharing, further improvement, and growth. We don’t want to deprive firms of their returns from their investment in people – but as with information, even more so with people – the race for talent and innovation is a marathon, not a sprint.