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When many experienced mechanics left Delta Air Lines Inc. in the mid-1990s, the company was able to reduce compensation costs in the short term, but the remaining, less-experienced employees took much longer to diagnose and repair airplanes. The result: flight delays and cancellations, unhappy customers and an overall increase in Delta’s cost-per-seat mile. After the 9/11 terrorist attacks, Delta had to substantially reduce its workforce to remain competitive. This time, though, management was keen to ensure that critical knowledge wasn’t departing with the 11,000 employees who were leaving.1 In addition to retaining those who were high performers or were in positions with few backups, Delta also focused on employees identified as “go to” people during crises as well as workers who had substantial relationships both inside and outside the organization.2 In doing so, management recognized that critical knowledge loss is not simply what the departing employees know about their job tasks, but also who they know and collaborate with to get work done on time.
As Delta has learned, knowledge loss resulting from employee turnover is becoming a critical issue that cannot be ignored. In terms of broad demographics, aging baby boomers present a major challenge, with nearly 20% of the American workforce holding executive, administrative and managerial positions set to retire by 2008.3 In certain sectors, these departures are nearing crisis proportions. In the oil and gas industry, for example, the average employee age has risen dramatically — current estimates suggest that roughly 60% of experienced managers will retire by 2010.4
In addition, critical knowledge loss also occurs more subtly via job mobility and alternative work arrangements. Specifically, substantial but often unrecognized knowledge loss takes place when established employees quit or contract employees (representing one in six American workers5) move to another organization. In a recent survey of 5,000 executives, 46% indicated that they expected to remain in their positions for only two to five years.6
These dynamics represent a large and growing concern that most companies have failed to address. In a recent study, only half of the organizations surveyed had identified a list of critical skills needed for future growth. Moreover, more than one-quarter viewed defining critical skills as “unimportant.”7 But the cost of losing important expertise can be enormous. General Mills Inc.,
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1. D.W. DeLong and T.O. Mann, “Knowledge Management: Stemming the Brain Drain,” Outlook Journal, no. 1 (January 2003): 39–43.
2. D.W. DeLong, “Lost Knowledge: Confronting the Threat of an Aging Workforce” (Oxford: Oxford University Press, 2004).
3. H. Beazley, J. Boenisch and D. Harden, “Continuity Management: Preserving Corporate Knowledge and Productivity When Employees Leave” (Hoboken, New Jersey: John Wiley & Sons, 2002).
4. S. Poruban and J. Clark, “Managing Data & Knowledge: Oil, Gas Industry Makes Advances in Managing Data, Knowledge,” Oil & Gas Journal 99, no. 50 (Dec. 10, 2001): 74–82.
5. Beazley, “Continuity Management.”
7. Deloitte & Touche, “Retiring Workforce, Widening Skills Gap, Exodus of ‘Critical Talent’ Threatens Companies: Deloitte Consulting Survey,” Feb. 15, 2005.
8. L.C. Lancaster and D. Stillman, “When Generations Collide: Who They Are. Why They Clash. How to Solve the Generational Problem of Work” (New York: Harper Business, 2002).
9. An overview of the importance of social networks is provided in R. Cross and A. Parker, “The Hidden Power of Social Networks: Understanding How Work Really Gets Done in Organizations” (Boston: Harvard Business School Press, 2004).
10. D. Leonard and W. Swap, “Deep Smarts: How to Cultivate and Transfer Enduring Business Wisdom” (Boston: Harvard Business School Press, 2005).
11. K. Rollag, S. Parise and R. Cross, “Getting New Hires up to Speed Quickly,” MIT Sloan Management Review 46, no. 2 (winter 2005): 35–41.
12. Pfizer information obtained from interviews and from C. Vollhardt, “Pfizer’s Prescription for the Risky Business of Executive Transitions,” Journal of Organizational Excellence 25, no.1 (2005): 3–15.
13. R. Smith, “Learning and Development’s Critical Role in Successful Mergers and Acquisitions” (presentation at American Society of Training and Development [ASTD] Southern Connecticut Chapter, Oct. 24, 2005).