Knowledge Gains and Efficiency Losses: Member Turnover and Organizational Performance

Abstract

In order for organizations to avoid the fate of becoming rigid and obsolete over time, they need to update their knowledge base in a changing environment. One potential tool for this is member turnover that enables bringing in new knowledge. In this study, we model the effect of member turnover on organizational knowledge over the organizational life course with March’s [March, J. G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2: 71–87] model of mutual learning and extend the estimation to broader organizational performance by including also the negative aspects of turnover, the diminishing internal cohesion and the shortening member tenure. The results show that there is a trade-off between knowledge gains and efficiency losses in the member turnover process. The balance between the positive and negative consequences of the process is also context dependent and changes over the life trajectory of an organization. The present work contributes to employee mobility literature by elucidating the twofold consequences of member turnover and to the studies on organizational aging by taking a temporal view on the process.