Reducing the Cost of Knowledge Loss

Reducing knowledge loss will provide competitive advantage for your organization.

One of the bigger challenges in the modern business environment is calculating the cost of knowledge loss. This topic is frequently discussed, especially in HR and operations circles, but it can be tangibly hard to calculate. Oftentimes, people are viewed as connected to their salary, but their salary can be a gross misrepresentation (in either direction) of the knowledge they bring to the organization.

Losing Knowledge Can Cost How Much?

Think about it this way: there’s probably one person on your floor at work that everyone goes to with basic issues like printer, supplies, and the context of who a new person is. If that connective-tissue person leaves, his or her salary may have been $50,000, but without someone providing basic context and knowledge to the workday, other employees could suffer. The value of their loss could far exceed the $50,000 salary.

There are more specific examples on a larger scale. BP (the oil company) lost a senior corrosion engineer named Richard Woollam in the mid-2000s. In late February 2006, there was corrosion in their Prudhoe Bay pipeline. The quarter-inch hole in the pipe resulted in 250,000 gallons of crude oil spilling across 1.9 acres. BP didn’t discover the hole until five days later. Prudhoe Bay is one of the largest oilfields that serves the United States, and the spill caused close to 1/10 of available gas to be off-line for days. By fall of 2006, Congress was involved, wanting to know what exactly happened in Prudhoe Bay. The simple answer is that someone with a high degree of knowledge left the organization, the position wasn’t immediately filled due to competing priorities, and ultimately it cost the organization millions of dollars.

The two examples above represent different ends of the potential fallout from knowledge loss. There’s a broader societal issue here, at least within the United States: the baby boomer generation, who represent a great deal of the knowledge and expertise of many different industries, is aging and soon-to-retire.

The Changing Landscape of the Workplace

As HR publications have pointed out, the eventual mass retirement of Baby Boomers creates a huge knowledge gap issue in most organizations. One central issue here is explicit knowledge versus tacit knowledge as we’ve discussed before. Explicit knowledge — such as the location of files or cost codes for certain projects — is fairly easy to capture and access. Tacit knowledge — including experience and context — is much harder to capture and pass along because it involves personal connections (and the current structure of most meetings is not designed to bring out this type of tacit information).

Some have put the hidden costs of knowledge loss as even higher than the bottom-line costs: things such as an inability to plan and strategize, less effective workplace behaviors, and more costly errors. In one study, in 66% of the cases, true knowledge is lost to the organization when a specific person departs. In that same study, 73% of managers said they had identified employees who were they to leave, it would be a major threat to the organization’s short-to-intermediate term future.

Minimizing the Cost of Knowledge Loss

Clearly, then, the true cost of knowledge loss — while perhaps not easily measured in a financial reporting sense — is very high. (General Mills has said that a single marketing manager leaving can represent $2-3 million in lost revenue.)

If you clearly understand that knowledge loss is an issue, what can you do?

Thankfully, you have a couple of different options herein:
1.  Succession Planning and Staggered Retirement

If you are in an industry with a lot of baby boomers, some of whom may be angling to retire soon, consider focusing more on succession planning (the idea of who will replace who) and staggered retirement. These things tend to roll up through HR, but other areas (Operations, Information) can become involved as well. Often this involves discussions about deep benches and the like — how good your talent one to two levels down from the retiree is — and it should be approached in a thorough way, talking to co-workers and managers of people potentially ready to step up. If you have a plan in place and can start some of that knowledge transfer, that’s a good initial step.

2.  Employee Engagement

This is a hot almost buzzword of the moment in business, but it has a good deal of validity. If you think you might lose high-knowledge performers to other companies or other opportunities, you need to figure out what connects them to the work and attempt to more deeply involve them with that aspect. It could, potentially, be salary. Obviously, there would be upper limits there based on finances. But it could involve the desire for flex time or new assignments or something relatively simple to grant. There are literally millions of articles out there on employee engagement ideas and models, but it ultimately comes back to a simple question: What can you offer an employee to make their time with you more rewarding for them.

3.  Knowledge Management System

This is where we come in and can really help you out. Our whole goal is to make your teams as smart as possible. We want to foster collaboration and make sure that the vital knowledge each individual has is then universalized to the team. We provide integration with your current systems, enterprise-level security, and a repository for all the knowledge in your organization. Our forums and threads are highly interactive, easily searchable, and tie in gamification to foster more involvement.

We’ve seen teams from major companies to 10-person startups use our systems to share knowledge from one person with the brains of everyone else on their different project teams. Once you’re regularly doing that, you’re inherently minimizing the potential cost of knowledge loss. And even though knowledge loss might not be a number on a quarterly report, focusing on it and reducing it will still be a major competitive advantage for your organization.