Does your firm suffer from memory loss?

19 Jun 2006

Does your organisation want to stop repeating its mistakes and/or reinventing the wheel, even not learning from successes? This is also a call to academics who, supposedly, are teaching the next generation of managers how to do things better than their predecessors.

In Ireland’s case, the problem of productivity growth is not as critical as elsewhere in the OECD, where its average figure now languishes at around 0.8pc a year and countries like Italy, Luxembourg, Holland, Spain and Switzerland are already in negative territory. From a very low base, Ireland’s efficiency has shown the most consistent improvement over the past 40 years, closing the productivity gap with the US, the world’s most productive country, from 37pc to 89pc in 2003 and making it the 10th most competitive country in the world.

But productivity for all OECD countries — including Ireland — is becoming increasingly difficult as the benefits of the computer revolution tail off. How, then, can it maintain its momentum ahead of nanotechnology and genetic engineering’s arrival? By reducing through better decision-making the pandemic of wasted productivity in the workforce.

Independent research shows the extent of workplace inefficiency: the cost of lost productivity in the US is at 7.6pc of its gross domestic product. Using currency conversion rates that enable international volume comparisons of GDP by taking into account the differences in price levels between countries, a similar percentage in Ireland would throw up a figure of €8.56bn.

In my book I devote a chapter to the workplace inefficiencies in five countries: the US, the UK, New Zealand, South Africa and Israel, to provide illustrative comparisons of a wide range of modern industry with relevance to most economies.

The traditional explanation for low productivity is the dearth of worker skills but I suggest that it is also modern managers who are not giving full value to their employers. Among an embarrassment of less-than-flattering credentials, they are responsible for wasting a massive 37pc of time in medium- to large-sized organisations, with senior managers in the UK admitting that at least one in four of their decisions is wrong.

Their performances, which the managers themselves would likely not tolerate among their vocational subordinates, have not been helped by organisations and business education overlooking two important factors of modern business life.

The first is the single biggest change in workplace practice for more than a century: the actively-encouraged flexible labour market. With the relationship between knowledge and power intimately linked, the corporate body has — deliberately and entirely unwittingly — allowed the ownership of knowledge to pass to the transient individual. No longer are individuals an aggregate part of an established institution. Individuals are the institution for as long as they remain in situ. Then, when the face changes — as it’s doing every four or five years in most developed economies — the institution changes, or, more accurately, tries to change, bereft of its continuity and at the mercy of new brooms.

Ordered evolution has become a shapeless revolution with little regard for the one corporate asset that represents the organisation’s life form — its institution-specific knowledge and experience. The absence of so-called organisational memory (OM) has, simply, restrained the institution’s ability to learn from its own experiences. Ireland’s employee churn in most business sectors is now well above the levels where productivity starts to be adversely affected.

And over in business education, which supposedly instructs how to do things efficiently, decision-making’s instruction is questionable. It is still not taught as a dedicated subject, leaving individuals to depend on feel, political expediency, subjective thinking, experimentation and delay, a process that is little more than guesswork coupled with an ability to play the game of corporate politics well. After more than 30 years of dedicated business instruction in many parts of the world, how is it that productivity growth scores are lower than they were prior to formalised business education?

For businesses and other organisations to substantially raise the quality of their decision-making, they urgently need to be taught to be much better experiential learners; particularly from their employer’s own experiences. And for experiential learning to take place, companies and other institutions have to better manage their corporate DNA, which comprises the institution-specific knowledge and experiences otherwise known as OM. This is the mind-resident knowledge and experiences that are subject to inherent memory lapse and departure emanating from the flexible labour market.

Many institutions think their OM is, or can be, housed in the minds of one or two key individuals or in expensive and sophisticated IT systems. Unfortunately not. The volume and diversity of OM that individuals can retain is minimal while the type of data, information and knowledge that most IT systems store and dispense is explicit. However useful this is for the decision-making process, missing is the more valuable component of OM: the tacit and other related lost knowledge, the ‘how’ of know-how that characterises an organisation’s ability to perform. Without it, it is like running a gearbox without oil.

I would argue that experience is a factor of production that has been paid for at great expense, yet is readily discarded in the mistaken belief that job flexibility is a wholly positive aspiration. In reality it is a key component of any organisation’s intellectual capital and, consequently, should be better managed. On the educational front, I similarly contend that decision-making is a manager’s most important skill. As such, its absence as a dedicated subject alongside an awareness of how best to teach experiential learning is an oversight that needs to be rectified.

So that educators can teach it and organisations can use it, my book outlines an adaptation of expert David Kolb and others’ experiential learning models to the modern workplace through a six-point systemic routine that takes decision-making away from its theoretical appliance. By injecting an institutional-specific component into the methodology, it also accommodates the problem of short and selective memory recall and the defensiveness of individuals who remain with their employers as well as the exodus of knowledge from key transitory individuals. Specifically, it explains how organisations can pre-select their learning opportunities, effectively capture their elusive OM (particularly their tacit knowledge) and reduce the unlearned lessons that litter modern living.

All told, it also gives knowledge management an IT role beyond traditional data collection and distribution. In so doing, Irish organisations, both in the private and public sector, could continue their productivity gains and not risk giving away their hard-won competitive advantage.

By Arnold Kransdorff

A business historian and management consultant, Arnold Kransdorff is the originator of the concept known as corporate amnesia, what happens when businesses and other kinds of co-operative organisation literally lose their memory. He is an expert in knowledge management, the leading UK authority on the consequences of the flexible labour market and a fervent proponent of experiential learning, for which OM is the indispensable evidential base for good decision-making.
His new book, Corporate DNA: Using Organizational Memory to Improve Poor Decision-Making, (ISBN 0566086816) is available from Gower Publishing, Price €79.52. Arnold can also be reached at: and