Human Capital Mobility, Firm Strategy, and Innovation

Human capital is at a pivotal position in the knowledge creation and diffusion paradigm; it is the fount of knowledge while being critical to firms’ absorption and amplification of knowledge. A firm’s sustained competitive advantage calls for organizational knowledge, which entails the integration of individual-specific knowledge embedded in employees. Yet, human beings possess attributes such as mobility and intrinsic motivation, whose implications conflict with the firm’s strategic objectives (e.g., sustaining a competitive advantage) and challenge the firm’s decision to invest in R&D. Further, given the dynamic nature of the technology market driven by constant innovation and competition, policymakers have an ongoing dialogue on how to establish sustainable innovation policies that protect the innovators’ interests without risking society’s welfare. As a result, it is of interest to managers, policymakers, and researchers to further understand the human capital position in the creation and diffusion of knowledge as well as the strategic and policy implications. This thesis contributes by exploring the reciprocal interrelations between human capital mobility, firm strategy, and innovation.
Chapter 1 distinguishes voluntary from involuntary (forced) mobility and investigates the effect of forced mobility on the skilled workforce’s innovation performance from the perspectives of the source and recipient firms. We exploit the sudden fall of Nortel Networks as a natural experiment in a difference in differences event study. We construct a unique, comprehensive dataset by matching patent data from the United States Patents and Trademarks Office and online CV information from LinkedIn. We follow inventors’ careers with various employers between 1985 and 2010 and identify voluntary and involuntary (forced) movers while observing the innovation output measured by the annual number of patent applications. Our analysis shows that forced mobility distinctly affects inventors’ innovation performance when analyzed from the perspectives of the source and destination firms. Relative to voluntary mobility, the effect is insignificant, though negative, from the destination firm’s perspective. And relative to no mobility, the effect is negative, though insignificant from the destination firm’s perspective. These findings contribute to the literature on skilled workforce mobility as a driver for knowledge creation and diffusion, particularly forced mobility which has so far received very little attention. We also provide insights to policymakers and managers in the knowledge-intensive industry.
Chapter 2 investigates human capital mobility behavior when unconstrained. How is the inter-firm mobility behavior of the skilled workforce altered when mobility constraints are lessened or are in favor of employees? Considering the sensitivity of knowledge sharing in the technology-intensive industry – driven by competition, constant innovation, and human capital capabilities
– the mobility behavior of the skilled workforce when unconstrained is not explicit. We use changes in trade secrets protection regimes to identify mobility constraints and investigate the mobility behavior of the skilled workforce when these constraints are lessened. In a difference-in-differences setting, we find that establishing an employee-friendly trade secrets protection environment – lessening mobility constraints – reduces the likelihood of skilled workforce mobility. Further, we show that the negative effect is conveyed through the firm-specific innovation-related skills acquired by the skilled workforce. These findings align with our postulation on the increased skilled workforce’s intrinsic motivation to perform in response to the reinforced possibilities of applying the acquired technological know-how elsewhere. We illustrate the managerial dilemma of imperfect intellectual property protection and contribute to the research on intrinsic motivation as a catalyst for the observed mobility behavior and innovation output of employees working in R&D.
Chapter 3 analyses firm strategy regarding R&D search and patenting while taking into account the dynamic shaping of the technology landscape by patent protection. Scholars have considerably explored the implications of patent protection and strategic patenting on innovation and R&D investment. Yet, we are still without a nuanced understanding of how firms should search the fragmented technology landscape, considering the various motives to patent and the dynamic shaping of the technology landscape by patent protection. Offensively? Defensively? Or adaptively based on payoff? We model innovation as a process of building technological bridges where new technological discoveries combine elements of new and precedent technologies. Simulation results of our model show that when patent protection shapes the technology landscape dynamically, it is advantageous for firms to search around “own” technologies globally in a complex product industry. In contrast, in a discrete product industry, it is advantageous for firms to search locally based on the payoff and globally either around “own” technologies or based on the payoff. We show that the search distance, appropriability regime, and adaptiveness of the payoff-based search influence the firms’ ultimate performance. Our study contributes to the existing research on organizational search and provides a distinct approach to modeling the structure and evolution of the technology landscape using network representation. We also provide managers and policymakers with insights regarding strategic R&D investment, patenting, and the implications on consumers and innovation welfare.