Profits Crumble When Institutional Knowledge Walks
I just finished reading about the retirement of a well-known journalist who has been at his craft and with his employer for 46 years. Think about that--Forty-six years of evolved understanding, of knowing what works and what doesn’t! Knowing how to get things done that need doing vs. figuring it out. Now, think about the long term employees you rely on to keep things running smoothly. Think about the investment you’ve made and that they’ve made in your business.
What would happen if they walked out the door?
The Problem Facing our Family Businesses
As transparency in our family businesses gains traction and the internet erodes advantages we’ve enjoyed for years, as margins become slimmer and market forces commoditize our offerings, what is it we have left to offer? I would argue it is our people and the experience they provide to our clients, our customers. How are you ensuring the good will of a positive experience will endure?
According to the Pew Research Center, about 10,000 Boomers will hit retirement age of 65 every day for the next 15 years. When they retire, they will be taking with them a wealth of knowledge and know-how often gained from decades of working for the same company.
All of us have experienced the high of good customer service and the low of indifference on the other end of the line or across the counter. All of us have experienced the efficient handling of a problem as well as the inept handling of the same problem. What did you feel in each of those moments? Those are the feelings that can make the switching costs to change too high or very easy. One you win, one you lose.
Good governance where knowledge and capabilities are reduced to policies and procedures is one way to memorialize the knowledge and capabilities developed over time, but that’s rarely what happens. Most of this stuff is carried around in the heads, hands, and hearts of individuals.
People move on, new leadership takes the firm in new directions, or cultures are absorbed by acquiring firms without preserving the institutional memory that made the company an attractive acquisition in the first place.
This people-based institutional memory, an intangible, but very real, asset of the company, has a shorter and shorter shelf life as described by Ron Ashkenas in his HBR article How to Preserve Institutional Knowledge. The problem, he says, is exacerbated as companies grow, become acquired, and people move on. It doesn’t have to be that way though. In this article, Ron points to three simple yet effective things you can do right now to reduce the risk of lost institutional memory.
Implications on Profits are Enormous
That experience I described above can make or break the relationship that stands between us and our bottom lines. When turnover is high institutional knowledge that supports the experience doesn’t exist. When long time employees leave they take what they know with them.
There may be few metrics for measuring the loss of institutional knowledge, but we know it is reflected in turnover, recruitment, replacement, and training costs faced by many organizations.
What are you doing to ensure a culture they won’t leave and the preservation of the competitive advantage baked into their knowledge? How are you ensuring the survival of how you do things in your operation for the next generation or to increase the value of the company for sale?
Family Business Leaders Must Decide
While the information in Dr. Andrew Pena’s article in HigherEdJobs was gleaned from academic institutions, it is nevertheless spot on. He cites today’s five-generational workforce and the probable loss of baby boomer knowledge at the expense of Gen X, Millennial workers and organizations as a whole.
In Pathfinder Group’s work with a large healthcare system, we see an organization that is dearly focused on identifying the core competencies needed to compete in tomorrow’s healthcare marketplace. At the same time they are working very hard at preserving the institutional knowledge they’ve amassed-- all while developing tomorrow’s leaders today. Dr. Pena could not be more emphatic about the importance of doing that now if you expect to avoid the organizational inefficiencies attributed to the high cost of turnover and accompanying loss of institutional knowledge.
Oftentimes we find clients who understand the ramifications all too clearly but struggle with their sense of the enormity of this challenge. It doesn’t have to be that overwhelming. The Society for Human Resource Management (SHRM) published a white paper, Preparing for an Aging Workforce and it provides some worthwhile guidance. Northpass also provides their insights in an article that provides four explicit guidelines for avoiding the loss of Institutional Memory.
Whichever set of steps you decide on to manage this very real risk, decide on it sooner rather than later.