Employee turnover and tacit knowledge diffusion: a network perspective.

An enormous amount of information and knowledge resides in the minds . . . of key people, but this material is rarely organized in a fashion that allows for its transmission to others (Powell, 1998: 237).

Just as the apprentice learns the tools of the trade from a master, businesses gain from the knowledge shared by mentors, supervisors, coworkers, project team members, and long-tenured employees. Yet the business world is in the midst of an era characterized by the boundaryless career (Arthur and Rousseau, 1996)-- one where median employment tenure is just four and a half years, new job creation accounts for only one tenth of all career moves, and large firm decentralization is a regular occurrence.

"I know I can't stop people from walking out the door--but how do I stop them from taking their knowledge with them?" (Labarre, 1998:48). That is, when employees leave, companies lose not only human capital, but also accumulated knowledge. This is a common problem firms face in the knowledge economy and the central issue addressed in this article. As consulting, research, and information technology firms are realizing, their "whole business is pretty much locked away in the minds of employees" (Koudsi, 2000: 233), yet this knowledge is rarely shared, swapped, traced, and fertilized to ensure that it remains, at least in part, with the firm when employees leave. The problem's significance is shown by the fact that many businesses are spending millions of dollars each to develop and purchase solutions to combat knowledge exodus (Koudsi, 2000; McCune, 1999). Companies, recognizing knowledge as a valuable asset, are busily devising ways to capture it, from narrative re-creations of past triumphs to rewards for in formation gleaned in exit interviews (Branch, 1998).

Organizational knowledge and employee turnover have been studied extensively. Our contribution is a link between the two, whereby social networks explicate the connection between employee turnover and tacit knowledge loss. Closely related to social networks is the concept of social capital. We adapt the meaning suggested by Tsai and Ghoshal (1998) in defining social capital as resources embedded in social relationships as well as the norms and values inherent in such relationships. Others (e.g., Dess and Shaw, 2001) have suggested that employee turnover can negatively affect firm performance through loss of social capital. We expand this by taking into account the tacit knowledge that firms lose when employees leave. In light of employee turnover, we focus on social network structures likely to lead to retention of the tacit knowledge embedded in employees' minds. We offer propositions concerning the problem of tacit knowledge loss and encourage the development of solutions that take into account the social n etwork structure of organizations. Specifically, we posit that 1) tacit knowledge can be preserved, in part, when firms promote employee interaction, collaboration, and diffusion of non-redundant tacit knowledge, and 2) characteristics of a firm's social network, including density and an optimal mix of weak and strong ties, promote interaction, collaboration, and non-redundant tacit knowledge diffusion.

This paper is divided into three major sections. First, we introduce the general theoretical background, followed by more specific theoretical discussions of the tacit knowledge, knowledge-based view of the firm, and employee turnover literature. Second, we frame our propositions in the context of a firm's social structure, highlighting the interplay among diffusion, interaction and collaboration, and non-redundant information. Third, we provide a summary, implications, and future research directions.

BACKGROUND

A major challenge facing organizations is uncovering the most effective methods of gathering and applying knowledge en route to economic value creation (Miles et al., 1998). In our technological, global society, this need for knowledge is more salient than ever before. Organizational knowledge is "relevant, actionable, and based at least partially on experience" (Leonard and Sensiper 1998: 113), implying that a firm's accumulation of knowledge is expressed through the cognitive processes and actions of its employees. However, one should not confuse knowledge with facts; facts without insight are simply data, not knowledge (Fahey and Prusak, 1998). Knowledge involves human actions and decisions representing interpretation and application of data. As data are interpreted and applied, new knowledge is often developed (Baumard, 1999). For example, research and development activities frequently require not only codified knowledge such as technical manuals, but also tacit knowledge to apply the codified knowledge. As new products and processes are developed through knowledge application, the firm captures the tacit knowledge inherent in the products and processes (Quinn et al., 1996). To illustrate, Chaparral Steel has used innovative product and process designs to improve rolling mill equipment, electric arc furnaces, and other steel manufacturing processes and products (Leonard-Barton, 1992). Many individual employees were involved in the design, yet as these workers leave the company, their contributions--the application of their knowledge--to processes and products remain. In this way, through the ownership of product and process designs, a firm is able to capture at least a portion of employees' tacit knowledge prior to the end of the employment relationship.

Capturing all types of employee knowledge equates to the retention of wealth within firms (Branch, 1998), and numerous theorists have identified organizational knowledge as a valuable asset (e.g., Floyd and Wooldridge, 2000; Zack, 1999). Strategic management of knowledge contributes to competitive advantage (e.g., Appleyard, 1996; Teece, 1998) and "provides a synergistic advantage not replicable in the marketplace" (Brown and Duguid, 1998: 90) when converted to organizational competencies (e.g., Mowery et al., 1996). Further, a firm's knowledge is a resource that does not decrease with use; rather, the more it is used, the more it is created (e.g., Nonaka and Konna, 1998). Tangible resources typically are available outside the firm; it is intangible resources such as tacit knowledge that add value above market prices to these incoming factors of production. Competitive advantage is more likely to develop when firms use intangible resources such as tacit knowledge to combine tangible resources in unique ways ( Spender, 1996).

Organizational knowledge is comprised of two broad categories: knowledge that is explicit codified knowledge--and knowledge that is not codified but exists primarily within the minds of employees--tacit knowledge (e.g., Fahey and Prusak, 1998; Nonaka and Konna, 1998). The distinction between the two is the difference between "know-what" and "know-how" in which organizational "know-how" puts "know-what" into action (Brown and Duguid, 1998). Codified knowledge, such as Financial Accounting Standards Board (FASB) requirements, is easily shared between individuals (e.g., Fahey and Prusak, 1998; Nahapiet and Ghoshal, 1998). That is, because FASB standards are in a codified format, the knowledge is available to anyone with a copy of the standards. Similarly, employee training manuals and standard operational procedures manuals contain knowledge that has been documented and detailed, and is therefore easily shared with others. As such, a downfall of codified knowledge is that it is more easily copied by competitors, providing competitive advantage only when it is protected (e.g., through patents) (Almeida, 1996). Tacit knowledge, in contrast, is less easily replicated (Leonard and Sensiper, 1998).

TACIT KNOWLEDGE

Zack describes tacit knowledge as "subconsciously understood and applied, difficult to articulate, developed from direct experience, and usually shared through highly interactive conversation, storytelling, and shared experience" (1999: 46). Tacit knowledge is thus intuitive, difficult to express, gained through experience, and shared with others through interaction. Because tacit knowledge is embedded, in part, in the psyche and intuition of individuals (Brown and Duguid, 1998; Grant, 1996), it is not readily articulated and resists codification (Baumard, 1999). Thus, it is more apt to be lost through employee turnover. Baumard illustrates tacit knowledge sharing with the story of a woman apprenticing with the best bread baker in an area of Japan. The apprentice learns by scrutinizing the actions of the master, yet this bakery observation process is not at all conducive to detailed note-taking with its floury and greased hands and messy worktables. Hence, the "know-how" is transferred but not, for example, i n the form of specific written instructions. Rather, it is learned and shared through practice and observation. Indeed, organizations maintain their overall culture and structure through the tacit knowledge that is engrained so deeply in organizational routines that few individuals understand it completely (Nelson and Winter, 1982). In sum, tacit knowledge is the information about work processes and products that individuals hold above and beyond what the organization has documented. These are the "tricks of the trade" that promote smooth organizational functioning, overall know-how, and competitive advantage.

Compared to tacit knowledge, codified knowledge is not at risk when employees leave. Although the efficient use of codified knowledge may reside within the mind of the employee, codified knowledge is held simultaneously within the employee's mind and within the organization in explicit formats such as employee handbooks and company databases. Thus, when employees leave the firm, codified knowledge remains, whereas tacit knowledge can be lost. Moreover, because codified knowledge frequently originates as tacit knowledge (Fahey and Prusak, 1998), the potential for creation of new codified knowledge is at risk. New knowledge is created through the ongoing interaction between tacit knowledge embodied in the individual and the explicit knowledge possessed by the organization (Spender, 1996).