Overcoming the Loss of Tribal Knowledge
Outsourcing Can Prevent the Decline of Corporate Memory in the Building Industry

May 15, 2009 (SAN DIEGO, CA) –There is an old Dakota Native American proverb…when you discover you are riding a dead horse, it is best to dismount.

Simple wisdom passed on from father to son. It is a continuous legacy of lessons learned and best practices. It is tribal wisdom. And it directly applies to today’s building industry.

It’s no secret that the building industry was deeply hurt by the recent ongoing economic recession. Hard times were felt up and down the industry. Divisional consolidations, massive downsizing (right-sizing), job reassignments and departmental fusions were an economic reality and no one was immune: presidents to purchasing; customer service to land acquisition; project managers to warranty administrators; every department has been impacted.

It’s not an issue of doing more with less—that’s a given—but now companies are doing more with less with one arm tied behind its back…why? The loss of tribal wisdom; that corporate memory that creates and maintains not just the understanding of operation processes and responsibilities, but a working grasp of the global picture and the nuances of lessons learned.

In this right-sized corporate paradigm, many companies are on the precipice of losing their single greatest intangible asset. The loss of tribal wisdom has the potential of setting a company back years. And given the current market, many of the people who blazed the trails, who learned the lessons and who understand the landscape are not only gone from the company, but are lost from the building industry as a whole.

But what about the dead horse? Without that tribal wisdom, that indefinable nugget of institutional knowledge, a company might buy a stronger whip, change riders, apply a committee to study the horse, or modify the standards to ride dead horses. How many hours and dollars are wasted trying to recreate a best practice?

Yes, sometimes a fresh perspective within a changing strategic paradigm will create positive results. As Einstein points out doing the same thing and expecting different results is the definition of insanity. But this article is not challenging those principles. The building industry must adapt to this new market…and for the time being they must do it as smaller, more efficient entities. On the other hand, a builder is not going to replace nails and lumber with Elmer’s Glue and cardboard.

Despite the progress through the information age to retain documented processes, the loss of tacit knowledge is having and will continue to have a significant impact on the building industry for some time to come. At some companies, 75% (from peak to trough) of the company is gone; and with it, all the experience. In many cases, these experienced managers, sales staff, administration leave the building industry all together.

Think of the loss in these terms. When you use an online program to map driving directions, the system provides those turn-by-turn instructions. However, someone who knows the neighborhood, understands the traffic patterns, is familiar with more direct or alternate routes and shortcuts will more effectively and efficiently reach the destination.

There are many solutions to prevent such a problem from happening, but in the case of the building industry, market forces have left the barn door open and the horses have already escaped. The question remains how to deal with the erosion of institutional knowledge, the loss of relationships, and the reduced internal capacity.

REINVENTING THE WHEEL

In boom times, production builders had big staffs. They had people who specialized in each niche of their organization. There were turnover document specialists, warranty administrators, legal compliance officers, contract auditors and customer concierges whose job was to attend to every detail of that job.

Now, with division closures and job fusion, those remaining with the company have absorbed those additional responsibilities despite their lack of intimate familiarity with the details. This lack of corporate memory causes a snowball effect. The job either gets done with lesser quality based on lack of comfort and experience or it is “back-burnered” because of time, attention and perceived priority.

Problem is, the end results of many of these tasks are still important requirements; things for which the builder is still ultimately accountable or liable. This is true despite the issue that a builder’s activity level is down to its lowest production rate on record.

Corporate memory has a direct correlation with productivity. According to Arnold Kransdorff, author of Corporate DNA and Corporate Amnesia. This is not about loss of talent or skill (which has never been higher), but despite the downturn, the corporate attrition and budget cuts, the biggest issue of a loss of corporate memory is the misalignment of processes and procedures and their negative effect on productivity.

Simply said, you can’t have your Vice President of Warranty sitting in a back room coordinating the legally mandated maintenance and warranty manuals for homeowners. It is a necessity, but is it the best use of his time, and talent? Is it even a priority when there are other “fires” to be put out? Furthermore, when the market bounces back this VP will not have been engaged in activities and strategies that puts you in a position for long-term success.

It’s about working smarter, not cheaper. Builders are caught in a viscous circle. It is understandable that a builder must keep costs at an absolute minimum; not wanting to add any expenditures if it is perceived that the same job can be done in house or not at all. But the cost of that job, performed by a person wearing multiple hats, who may not have the necessary experience, needs to include the risk of not doing that one function correctly.

This is one key reason builders need to look outside their organization. By outsourcing to companies that specialize in a specific function, builders will retain the benefits of a result that meets their high standards as well as fill in the blanks from lost corporate memory.

Outsourcing allows for precision budgeting that eliminates variable and fluctuating costs. It reduces operating costs and other intangibles and hidden costs, and it allows you to expand your resources, maintain product/process consistency and is consistent with the best of breed model builders have always favored.

POSITIONING YOURSELF FOR THE REBOUND

This depressed market won't last forever. In fact, there are some signs that indicate the industry might have already reached its nadir. The low productivity versus the expanding population is at its widest gap in recorded industry history. This gap is simply not sustainable.

The point being as the market rebounds, builders will not be quick to staff up. Based on new discipline regarding expenses and the greater scrutiny of SG&A (sales, general and administrative) costs will prevent builders from falling back to their previous unsustainable hiring model. It will not support the previous threshold of FTE (Full Time Equivalents). But as demand and volume increase, the ability to maintain a consistent perfomance (taking into account the lost tribal knowledge) becomes exponentially difficult.

Ah! But doesn’t outsourcing require an expenditure of capital? If I was going to spend money, I might as well hire internally.

This is discovering you are riding that proverbial dead horse. It's that old unsustainable, unpredictable model. With strategic outsourcing, you remove the risk of market fluctuation. The money you spend using an outsourced company (whose purpose it is to maintain corporate memory for their niche) is a set, predictable cost. Typically it is significantly less when you calculate the economies of scale and the human resource investment.

And if you hire companies with niche expertise and experience, you practically neutralize the loss of corporate memory. In fact you hire them specifically because their processes, their deeper understanding of that niche, their core competencies serve your needs. Their tribal wisdom de facto becomes your own without the cost-laden downside of self-production. Therefore as the market rebounds, you are in a more advantageous and flexible position to grow again.

The vision of the future is about responsible management of assets (financial, capital and human). We may never see the kind of market we enjoyed in 2005-06, so builders need to explore alternate paradigms rather than fall back into their habits. To those builders and developers already using the outsourcing methodology for key niches like the development and distribution of maintenance and warranty information or document retention, rebate administration, data collection, you've already taken the first step. To others, it's time to reevaluate and realize the return on investment and wise growth strategies discovered through the cost savings of outsourcing...and start riding a fresh horse.