Cost of Organizational Knowledge Loss and Countermeasures

0 11 min read Business Process Optimization, Corporate Innovation, Project Takeover


Tech & Business

Imagine you run a company, and some crucial data about your finances, product innovation, new techniques, and sensitive information disappears. Your first guess? A data breach that has led to organizational knowledge loss.

Unfortunately, that’s not the case.

Sometimes companies lose the knowledge that develops through learning. This can happen in many ways, but one of the greatest reasons for organizational knowledge loss is labor turnover. Others include employees’ reluctance to share knowledge.

So, in times of extreme employee turnover, having a strategy to protect organizational knowledge is more crucial than ever.

However, what does organizational knowledge actually mean? How does organizational knowledge loss start? How can it be avoided, and how can you ensure that even in the face of employee turnover, you maintain the information you need to run your business successfully?

Let’s dive into this article to learn more.

What Is Organizational Knowledge?

cost of organizational knowledge

Like an elephant’s memory spanning up to 50 years, your company captures valuable information throughout its life. This knowledge can be valuable to a business and is known as organizational knowledge.

It can be acquired via various sources, including intellectual property, product knowledge, lessons learned from failure and success, conferences, or customer communications, to mention a few.

Human resources (HR) has the primary task of assisting in acquiring, transmitting, managing, and preserving information.

Successful knowledge-gathering, storing, and sharing organizations can foster a culture of cooperation and curiosity. It can help companies increase productivity, employee satisfaction, and ROI.

Using effective knowledge management practices, employees can easily access industry best practices, details on previous projects, and other crucial data to inform their decision-making and perform better work.

Types of Organizational Knowledge

types of organizational knowledge

Let’s look at the various types of organizational knowledge:

Tacit Knowledge

Tacit information is frequently referred to as the “know-how” an organization possesses. Most tacit information is based on experience and is present in employees’ minds. It’s also regarded as the most priceless knowledge source.

It’s the innate knowledge that’s challenging to explain and is firmly entrenched in action and commitment. As a result, it frequently calls for the participation of a particular person or group of people.

Tacit knowledge includes, but isn’t limited to abilities learned through custom, common knowledge or understanding, etc.

Explicit Knowledge

Procedures and policies, the functionality of products and services, step-by-step tasks, research, and content all fall under the category of explicit knowledge, which is simple to document and incontrovertible.

Professionals most likely to document it are technical writers, instructional designers, content strategists, and information architects.

Sources of Knowledge

organizational knowledge sources

Now that we know the different kinds of knowledge to watch out for, let’s look at some prospective knowledge sources. Knowledge can be found in various tangible and intangible forms in your organization. For instance:

  • Individual — It includes a person’s diary, unorganized papers, and files, customer feedback and grievances, or memory. These are dependable sources of unwritten information.
  • Group/Community — It includes communities of practice, communities of excellence, internal project teams, training groups, and mentorship programs. These are excellent resources for explicit, implicit, and tacit knowledge.
  • Organizational Memory — It refers to your entire organization’s knowledge. Guidelines, regulations, reports, market research, records, and data can all contain it.
  • Structural – It includes routines, culture, processes, traditional methods of doing things, IT systems, and suppliers.

Fortunately, organizations realize the value of knowledge management (KM), which helps support various crucial operations and innovative actions and gives them the capacity to develop and respond to rapidly changing customer expectations.

However, most managers struggle to grasp the application of knowledge management. And due to inadequate knowledge management, employee productivity can suffer from not receiving the appropriate information at the appropriate moment. This can affect your company’s operations, leading to knowledge loss.

What Is Knowledge Loss?

Organizational knowledge loss is the deliberate or accidental loss of knowledge that develops through learning and individual and group actions.

When employees leave a company, information is permanently lost. If their knowledge isn’t shared as a resource with individuals still working for the organization, rebuilding will probably be a drawn-out, ineffective, and frustrating process for everyone involved.

So, knowledge loss is the loss of some of that common understanding or information. In other words, it is when a business can no longer access the information it previously possessed.

According to an analysis, the average U.S. enterprise-size company may lose $4.5 million in productivity per year only by failing to share and preserve information, which makes onboarding new employees less effective.

So, the consequences of knowledge loss can be drastic.

What Are the Causes of Lost Knowledge?

organizational knowledge loss costs

Let’s look at the causes of lost knowledge in organizations:

1. Employee Turnover

The main factor contributing to knowledge loss is employee turnover. Every time employees leave a company, they take their institutional knowledge with them. And even if they try to share their knowledge before leaving, they may find the process challenging.

In fact, 60% of participants in a survey said it was difficult or almost impossible to get essential information from their colleagues. And in a time where everyone is an authority on something, that puts the majority of enterprises in a vulnerable position.

2. Outdated Knowledge

Information might occasionally become outdated or useless, which is also regarded as knowledge loss. For instance, if your business formerly used PCs but has subsequently switched to using MacBooks, all data related to using your business’s PCs would be irrelevant.

Similarly, if your company has stopped producing a product, all the information related to its production and ideation-to-product cycle is going to become useless.

3. Physical Loss

Sometimes, business data is misplaced, such as when you lose an old contract between you and a client. Or when you may have all your client files saved on the fixed network of your business, but a computer error destroys that network.

Sometimes failure to transfer data from one place to another can also result in knowledge loss. For instance, if you don’t save files on the cloud, you might lose important documents if your SSD becomes corrupted or your computer is hacked.

4. Uncaptured Knowledge

Knowledge might be lost if it isn’t recorded. For instance, a project manager can overlook documenting the justification for decisions taken in the context of a project. Any potentially important knowledge that isn’t retained can be regarded as lost.

What Are the Costs of Organizational Knowledge Loss?

organizational knowledge loss costs

The effects of data loss can be severe for companies trying to streamline operations, adapt to the changing market, and stay one step ahead of clients and rivals. These effects range from operational disruption to reputational damage, intellectual property exposure, loss of client loyalty, and even complete business failure.

1. Decisions Will Have to be Made Again

Imagine posing a question in a group setting and finding out that no one knows the answer once a team member has left. How can businesses utilize their most valuable source of inside intelligence—access to the predecessors—without that access?

It often turns out that someone has to put in countless hours of going back to the drawing board to obtain that information once more. But the truth is businesses don’t have the time to ask their employees to spend hours searching for lost data.

The data search is even worse when the employees who collected it in the first place have also left. This can slow down decision-making and, in some situations, lead to ill-informed action with substantial opportunity costs.

2. Employees Will Spend More Time Re-creating Previous Knowledge

When employees can’t obtain the required information, they ultimately resort to collecting and capturing data on their own to finish the task.

According to IDC, up to 50% of corporate knowledge can’t be found centrally. This indicates that most employees spend more time re-creating previous knowledge than learning new information. Because of that, employee productivity is reduced.

3. Faulty Decisions Are Made

The problems caused by inadequate knowledge management become increasingly serious and challenging to overcome as businesses grow. Employees may not have access to complete, accurate, or consistent information when knowledge isn’t handled effectively.

To make data-driven decisions, top management and staff both rely on this information. The effectiveness of your firm is impacted by poor data quality, which impairs both long- and short-term decisions.

4. Information Searches Can Waste Time

Organizations lose competitive intelligence as employees change jobs or leave at the same rate that teams are producing it. Consider all the documents, PowerPoints, PDFs, films, and audio files produced throughout the years. These assets from previous workers contain priceless knowledge.

Have you ever tried using your computer to search for something? Consider the PowerPoint deck you made six months ago. That would be useful for the project you’re working on, but it’s impossible to find. How hard will it be to search for the data someone else generated if it’s so tough to find something you created yourself?

Managers and existing employees lose significant time searching for knowledge and frequently end up empty-handed. The typical employee at companies with more than 10,000 workers spends more than 100 minutes each day looking for the information they need to execute their jobs. As teams look for solutions that are frequently not documented, this can cost more than $70 million over an entire year.

Efficiency losses can have an impact on your entire organization. For instance, in R&D, teams may unknowingly duplicate each other’s findings. This indicates a lack of productivity and can increase time-to-completion rates.

5. The Opportunity Cost for Your Business Increases

Employees won’t have access to most knowledge if it’s badly arranged. They won’t also have access to crucial data, including research insights, user comments, and client requirements. However, when you go searching for this information, you may incur unintended side effects.

For instance, if you ask customer-facing employees to search for marketing information collected during the past year, they may not be able to capitalize on new leads or increase your reach as expected.

Similarly, if employees are dedicating their time to searching for lost information instead of doing their work, they may not be able to meet deadlines.

Contextual Factors That Might be Related to Organizational Knowledge Loss and Retention

One of the biggest problems in preventing knowledge loss is that employers frequently are unaware of how crucial tacit knowledge is to the success of their business until it has been lost in the form of increased employee turnover.

In fact, there were 4.4 million job resignations in September 2021. With a 2% increase from the previous month and a 22% rise over pre-pandemic levels, that figure represents 3% of the American workforce. Many people have theorized about its underlying origins, given how great employee turnover is.

The following are some of the most frequent justifications:

  • The Competitive Labor Market – The market has given workers additional opportunities. People have more faith in their capacity to get a job with a greater income, more room for promotion, perks like health insurance and flexible hours, etc.
  • Pandemic Situation – Many people were left wondering how they felt about their jobs and how they affected their daily lives due to the pandemic. Employees are reassessing whether their job is personally satisfying and whether it advances their long-term life objectives.
  • A Younger Workforce – Most of the workforce now comprises Millennials and Gen Z. Compared to other generations, millennials and members of Gen Z have different attitudes toward work and demand a better work/life balance.

As a result, in an era of significant staff turnover, companies need to establish a strategy for preserving information that might be lost. Plus, they must use all resources at hand to pass that collected knowledge and expertise to newer workers.

Knowledge Retention Strategies

Knowledge loss can be disastrous for your company. The good news, though? Organizational knowledge loss is easily avoidable if a proper plan is put in place.

organizational knowledge retention strategies

Let’s look at the approaches and tools you absolutely need to know to prevent losing organizational knowledge:

1. Decide Ways to Capture Knowledge

Determine all the information sources that exist inside your company. Gaps can be found by understanding the knowledge flow inside your business. Since 63% of employees take too long to find a solution, you could contract other firms to do it for you.

Once you know your information flow, find out the locations and methods for mapping new and existing knowledge, as well as the required security measures. Although information may come from various sources within your company, you should always try to rely on only one reliable source.

2. Encourage Knowledge Sharing

You can also promote knowledge sharing to improve operations and overall company performance. Different HR procedures, like network development and expert seminars, encourage information sharing inside your organization.

Taking care to hire the proper people contributes to a pleasant environment that fosters relationships that allow knowledge sharing among your employees to be simpler. Reward systems can encourage workers to interact, collaborate, and spread knowledge.

However, you don’t need to do everything. In certain firms, phased retirement programs are implemented, requiring prospective retirees to work part-time jobs before retirement. Others hire their retirees as advisors or even add them to their board of directors so they may continue to use their advice, knowledge, and experiences.

3. Invest in Knowledge Management

The correct knowledge management tool can help decrease unintentional expenses and boost worker productivity.

An effective knowledge management solution will centralize knowledge and expertise gleaned from various sources and ensure that it’s accessible to all employees, offering a platform to encourage ongoing knowledge sharing in your organization.

Professionals don’t need to waste time looking for or developing information when the proper solution is in place. Plus, a knowledge-sharing culture where employees and company leadership can make use of information to drive your business can be facilitated with the correct learning management system.

4. Avoid Getting Rid of Employees

To minimize the loss of skills and expertise during economic downturns, you can lower salaries rather than lay off workers. Even if you have to implement a downsizing strategy, you can reallocate your employees to keep their knowledge of core competencies while reducing costs.

Remember: employee retention is crucial to organizational knowledge retention. And the longer you retain your employees, the more knowledge you’ll be able to conserve or transfer to other employees.

5. Document Knowledge in Real Time

If you discover that some teams or people have exclusive access to certain systems, processes, or other sorts of information, it’s time to develop a plan for preserving knowledge in real-time.

You might, for instance, request that your sales staff record all of their sales calls before creating a paper explaining the procedure. In this method, if a salesperson leaves the company, you can easily train new sales representatives by handing them the call recording and the document.

6. Develop a Culture of Teaching

Before implementing knowledge management practices, you shouldn’t wait for essential subject matter experts to quit or for frustration to set in. Instead, you should work to develop a “culture of teaching” by helping employees share and preserve their knowledge.

When an employee develops a new procedure, establishes a more effective workflow, or otherwise gains knowledge that would be helpful to others, you can make it a requirement to keep that information so that it will be simple for others to access.

Tips to Prevent Knowledge Loss in Your Organization

Here are some tips to prevent loss of knowledge in your organization:

  • Understand Where Knowledge Is Kept – Examine the locations where employees produce and keep documents to make sure you can still access them.
  • Assess the Risk of Knowledge Loss – Analyze the knowledge loss situation at your firm as it stands right now. Where are there knowledge silos? When you are aware of the most vulnerable information, you may develop a plan to safeguard that information.
  • Make Sharing Information a Part of Your Off-boarding Procedure – Making your staff start recording events as they happen will stop knowledge from leaving your company with departing personnel.

The Takeaway

Knowledge truly is power. Although tacit knowledge can develop over many years, as long as one person only holds it, companies risk losing it quickly. And as we know by now, knowledge loss can seriously harm your company’s production, efficiency, and operations. So, you should take every precaution to prevent it.

Encourage a knowledge-sharing environment, capture knowledge, and invest in knowledge management. With these three strategies in mind, along with the others we have mentioned above, you have everything you need for knowledge retention within your organization.

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