From Strategy Review:
As the talent wars raged in recent years, companies began to spend a lot more time managing their so-called human assets. Attracting and retaining the top talent in a market, they came to realize, is one of the best ways to forge a durable advantage over competitors. But even as businesses have showered attention and rewards on potential recruits and current employees, they’ve continued to ignore another key component of their human assets: their ex-employees. That’s a costly oversight.
It’s true that smart professional services firms have long courted their former employees, viewing them as potential future customers. McKinsey & Company, most famously, invests considerable sums in cultivating its far-flung alumni network, knowing that former consultants often become buyers of big-ticket consulting services as their business careers progress. Outside of professional services, though, most companies hardly give a second thought to employees once they’ve left.
But there are exceptions. Companies like Agilent Technologies have joined their professional services counterparts in launching programs to manage alumni relations. These companies have come to understand that former employees can benefit their old employers in many ways. Yes, they can be buyers of products and services, but they can also be:
Companies used to go out of their way to avoid recruiting ex-employees. But that was always shortsighted. The facts are, it costs half as much to rehire an ex-employee as it does to hire a brand new person; rehires are 40% more productive in their first quarter at work; and they tend to stay in the job longer. Research suggests that the average Fortune 500 company could save $12 million a year by actively recruiting alumni. Perhaps even more important, alumni are known quantities; the risk of a costly mishire is almost completely eliminated. Alumni are also a growing source of referrals. Some companies even offer alumni compensation for referrals who are hired.
Former employees can be great sources of ideas and intelligence, helping their old companies to stay abreast of new trends, technologies, and even investment opportunities. In fact, one Fortune 100 technology company invites its alumni to submit business plans so that it has first dibs on promising ideas. Other companies find that keeping in touch with alumni helps them understand what competitors are doing and what’s going on in the world of start-ups. One major financial services company hires alumni as temporary workers during periods of high demand, and another company taps into the expertise of former employees as market research sources.
Former employees are just as likely to influence outside opinions about an organization as current employees—especially if they haven’t been gone from the organization for very long. So building and maintaining goodwill with alumni can fortify the company’s reputation, brand, and influence. One company was so successful at keeping up ties with former employees that it got them to lobby government officials on its behalf. Other companies are starting to use their alumni networks as low-cost test beds for new products and marketing campaigns.
When employees leave a company, they frequently hold shares of its stock, in retirement plans or in their own investment portfolios. Fostering good relations with those employees can significantly increase the odds that they will hold on to those shares for the long run—and maybe even buy more.
Unquestionably, launching an alumni program can sometimes be complicated, requiring a company to gather and manage large amounts of information. But by using new data-processing technologies and the Internet, successful programs can today be launched faster and more cheaply. The best programs, I’ve found, build on three foundations:
A company can’t expect to maintain a relationship with an employee who was escorted to the door by security when his employment ended. Effective alumni relationships are seeded at the moment of departure, when HR executives communicate the benefits of staying in touch and capture valuable information, such as the reasons for leaving, views about the company, future plans and aspirations, and, most important, contact information.
If a company expects former employees to keep it updated on where they are, what they’re doing, and what they’re thinking, it has to offer them a compelling quid pro quo. Sometimes, just the networking value of an alumni program is enough: If former employees participate, they benefit from staying connected with their former colleagues. But the most effective alumni programs offer additional benefits, such as access to semi-proprietary intellectual capital, free or subsidized training programs, and invitations to events and social gatherings.
The Internet lets companies push content to the alumni population—and also makes it imperative that the information is personalized and relevant. Good alumni networks segment the alumni population in order to tailor messages. What a retired senior vice president wants to hear and learn about is probably different from what a 26-year-old former associate who has gone back to school for an MBA is interested in.
As more companies come to realize the value of their ex-employees, alumni programs are sure to proliferate. It seems likely, in fact, that employers may soon need to compete with one another for the attention and allegiance of their ex-employees. You may want to start preparing yourself for the alumni wars.