News Column

Knowledge Capital Loss: Collateral Damage from Layoffs

April 2, 2009

Ivonne Chirino-Klevans, Ph.D., Program Director, International Programs, Walden University, for HireDiversity.com

workplace issues, layoffs, Knowledge Capital



Consider this scenario: Brian, one of the people in charge of payroll at a large company, is laid off. He was an expert in a database system that processed payments for the whole organization. His co-worker, Sandra, is put in charge of the whole payroll system, but she has little knowledge of the database. During the first pay period that she oversees, Sandra has to do the payroll twice. Once, she miscalculated some severance packages, costing the company several thousand dollars, as well as some media exposure and embarrassment. The company must invest in training to get her up to speed, and make up for the knowledge capital that Brian took with him when he left the company.

Does this sound familiar?

Nearly 300,000 people were laid off in February 2009, according to the U.S. Bureau of Labor Statistics, as companies try to stay afloat in turbulent times. Workers are also leaving their jobs as they age: By 2020 a member of the baby boomer generation will leave the workforce every 20 seconds (Beazley, Boenisch, and Harden, 2002). When they leave, they, like Brian, take with them the knowledge and expertise each has accumulated throughout his or her working life. Taken together, the struggling economy and changes in workforce demographics are leaving companies with a huge loss of knowledge capital, which will affect productivity.

What exactly is "knowledge capital"? One definition describes it as the wealth of information and skills that are collectively accumulated within an organization; each employee carries with him or her some part of this knowledge. Knowledge capital, also known as intellectual capital, represents a competitive advantage for organizations, and as an asset it should be operationally defined, measured, and enhanced. Only when the impact of losing or gaining talent can be measured is it possible to identify preventive measures and incorporate such measures into policies and practices.

The problem with measuring an intangible concept such as intellectual capital is that no consistent standards exist in organizational management science. It is clear, however, that knowledge that is not stored, retrieved, transferred, and used in decision-making is lost knowledge. Re-learning such knowledge every time an important decision must be made is like reinventing the wheel—or having to do payroll twice in one pay period.

The challenge is how to capture knowledge capital or, as Kankanhalli and Tan (2004) define it, how to capture organizational memory. This memory includes knowledge related to the individual and his/her particular expertise and experiences.

One way to do so is to use Organizational Memory Information System (OMIS), which captures knowledge by codifying it. Take, for example, introducing a new product in the European Union marketplace. OMIS provides a blueprint where the individual in charge of the project stores information such as: knowledge needed before entering the market (e.g., tax laws, barriers to entry, how to market to the different EU countries, etc.); cultural dimensions that influence negotiation (e.g., concepts of time, decision-making processes); successes (e.g., a narrative of how a new price was agreed on), failures (e.g., a narrative of how a deal was lost); best practices; outcomes; and even personal memories from the project (e.g., "In Spain, be prepared to eat dinner at 10 p.m.").

This organizational memory system can be classified by project or by product so that the next person involved in the process can access the information and better understand how decisions/policies came to be. Information sharing does not depend on an individual and his/her availability. Instead, information can be accessed by anyone who might participate in the project in the future or is interested in entering a similar market. The use of OMIS requires commitment and discipline, but the benefits of keeping this knowledge within the organization far outweigh the effort in storing it.

If organizations are forced to lay off staff, they must bear in mind the impact that such loss of knowledge capital carries. Implementing an organizational memory system can help organizations retain knowledge capital, because each employee's competencies and know-how are the key to successful organizational performance.

Sources
-- Beazley, H., Boenisch, J., and Harden, D. (2002). Continuity Management: Preserving Corporate Knowledge and Productivity When Employees Leave. Hoboken, N.J.: John Wiley and Sons.

-- Kankanhalli, A., Tan, B. (2004). "A Review of Metrics for Knowledge Management Systems and Knowledge Management Initiatives." Proceedings of the 37th Annual Hawaii International Conference on System Sciences.

-- Massingham, P. (2008). "Measuring the Impact of Knowledge Loss: More Than Ripples on a Pond?" Management Learning, 39 (5), 541–560.

-- U.S. Bureau of Labor Statistics. (2008). Mass Layoffs in February 2009, on the Internet at http://www.bls.gov/news.release/mmls.nr0.htm (viewed online March 26, 2009)


Dr. Ivonne Chirino-Klevans joined Walden University in 2005 as a professor of organizational psychology and currently serves as Program Director for the Center for International Programs. The International Management Certificate is a post-bachelor business certificate designed to give business professionals in Latin America international business acumen and English language skills.

Her extensive experience includes years of working with Fortune 500 companies in designing training and development programs and serving as Program Director for Duke Corporate Education.

Dr. Chirino-Klevans received her Ph.D. in Psychology from Universidad Iberoamericana, and also holds an MBA from Universidad de las Americas, and a Masters in Psychology from Georgia College and State University. Earlier in her career, she also served as the psychologist for the Mexican national rowing team, and contributed to the team winning a silver medal at the 1991 Pan Am Games. She herself is a Pan American games medallist in gymnastics.




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