Preserving Institutional Knowledge: The Role of Succession Planning

Employee transitions — whether due to retirement, resignation, or otherwise — are an inevitable part of an organization’s lifecycle. No matter the cause, each transition poses challenges.

In addition to the costs associated with hiring and onboarding a new employee to fill the vacant role, when experienced employees leave, they take with them a wealth of institutional knowledge — the wisdom, practices, and insights that define an organization — accumulated over years of service.

Succession planning is a powerful tool for preventing the loss of institutional knowledge and preserving your business’s culture.

Impacts of Institutional Knowledge Drain

Think of institutional knowledge as an organization’s collective memory. This can encompass not only technical skills and information but also insights into company culture, processes, relationships, and unwritten rules. Possessing this knowledge can help businesses operate more efficiently and improve relationships with vendors, investors, customers, and more.

However, when a long-standing employee leaves, a substantial reserve of these insights may be lost at a significant cost to the organization. Consider these examples:

An engineer who has worked alone with a narrow focus on production leaves the firm unexpectedly. His deep technical understanding goes with him, leading to substantial production delays.

With the retirement of a tenured sales executive, a company loses insights into the nuances of a particular client relationship. As a result, the company is unable to meet expectations and ultimately loses the client’s business.

An executive director who has overseen multiple successful fundraising campaigns transitions to a new nonprofit, taking her institutional knowledge about donor relationships and campaign strategies with her. The organization struggles to maintain donor satisfaction and growth.

The average large U.S. business loses $47 million in productivity each year as a direct result of inefficient knowledge sharing.

Prevent Knowledge Loss with Succession Planning

Institutional knowledge includes both tangible information (found in records, data files, etc.) and tacit knowledge. Retaining tangible information is time consuming, yet straightforward: document the data and procedures and digitize them in an easily accessible format.

But what about the less tangible knowledge, such as a key client’s communication preferences or proven problem-solving approaches? This kind of institutional knowledge is extremely valuable, yet more difficult to communicate, making it easy to lose in times of transition. Succession planning, when performed correctly, can help prevent this loss.

Succession planning isn’t just about filling positions; it’s about ensuring continuity and preserving valuable expertise within the organization.

To preserve institutional knowledge through succession planning, focus on the following:

Identify Key Roles and Successors:

Succession planning involves identifying roles within the organization that significantly impact operations and possess a large amount of highly specified knowledge. These may include executives, department heads, or specialized experts. Once these key roles have been identified, start developing action plans for high-performing individuals to fill them. This can help minimize the knowledge gap when transitions inevitably occur.

Implement Continuous Improvement Strategies:

Cultivating a culture of continuous improvement and adaptability will help you develop a pool of qualified internal candidates before the need for a successor arises. Provide comprehensive leadership development programs tailored specifically to middle managers, focusing on communication, conflict resolution, and strategic decision-making skills.

Document Critical Information:

Organizations must create and maintain up-to-date SOPs, manuals, and knowledge repositories. These documents capture critical processes, workflows, historical context, and unwritten rules, and serve as references for successors. Regularly update this documentation to ensure it remains relevant.

Mentorship and Knowledge Transfer:

Implement mentorship programs and job shadowing opportunities to facilitate knowledge transfer. Through these programs, experienced employees can mentor newer colleagues, passing on their expertise and insights before transitions occur. When a worker is promoted, for example, give them the time to train their successor. Similarly, if an employee shares their intention to leave the company altogether, have them train their replacement if possible.

Helping You Preserve the Past and Safeguard the Future

Institutional knowledge is a valuable asset for any organization. Succession planning safeguards this knowledge, ensuring that transitions don’t lead to knowledge gaps.

Eide Bailly’s trusted advisors can help your organization proactively address employee transitions and implement effective succession planning strategies, mitigating the costs associated with knowledge loss and maintaining your collective memory.