Hiring at the tip of the funnel: Externalizing the work of integrating and coordinating diverse human capital

Abstract Research Summary We adopt a network‐based perspective to examine the effects of hiring strategies in terms of the diversity of hiring sources. Considering the transferability of general and firm‐specific skills, we propose that firms can reduce integration costs while gaining diversity benefits when they hire from a focused set of firms that themselves hire broadly. We suggest that occupying this position in the mobility network enhances both innovation and productivity outcomes. Moreover, we posit that a strong cultural orientation, characterized by high intensity and consistency, further amplifies these benefits. Our analysis of mobility data from US public firms between 2005 and 2021 uncovers the pathways through which firms attain this position. Evidence from the panel matching method and fixed‐effects regressions provides support for our hypotheses. Managerial Summary We take a network perspective to understand how firms' hiring choices—particularly the range of companies they recruit from—shape their performance. We argue that firms can benefit when they hire from a small, consistent group of companies that themselves draw talent from many different firms. This approach allows firms to gain a wide variety of skills and experiences while keeping integration and onboarding challenges low, leading to more innovation and higher productivity. We also suggest that firms with a strong and consistent culture are even better positioned to take advantage of these benefits. Using data on employee movements among US public firms from 2005 to 2021, we show how firms attain this position, and find evidence in support of our hypotheses using panel matching and fixed effects models.