Tapping a wealth of knowledge

Companies that cut costs by laying off senior workers risk giving up valuable expertise.

If this is a knowledge economy, why are many employers eager to push knowledgeable workers out the door? That's the question raised by reports on retailer Circuit City, which is trying to contain costs by laying off some of its longtime workers.

At first glance, these well-paid veterans may make attractive targets for cost-cutters. Some have had 30 years on the job and have worked their way up to a relatively high hourly rate. But they're the employees with the deepest knowledge of the company, its products, and its customers.

Circuit City's action may be a troubling sign of things to come in the future of the American workforce. The issue here isn't just preserving career options for seniors. The question is whether shortsighted managers are endangering their own companies by disregarding a significant corporate asset: their own employee knowledge base.

It's a problem that's likely to get worse as baby boomers retire.

Imagine a point where three lines come together on a graph:

One line represents a steady rise in the pressures on a corporation to cut costs, to run "lean and mean."

Another line represents the "knowledge content" of the work performed in the economy. In the retail sector, as at Circuit City, having knowledgeable workers is desirable. In other sectors, knowledge is the essence of the work.

That's why the second line of the graph rises across the page and then angles sharply upward to represent the postwar technology explosion – computers and electronics, of course, but also nuclear engineering, aerospace, plastics, and so on.

The third line represents the coming tidal wave of baby boomer retirements. These will take millions of people and their expertise out of the workforce.

David DeLong has studied the point where these lines intersect and written about it in his book, "Lost Knowledge: Confronting the Threat of an Aging Workforce."

He compares the situation to hurricane Katrina – "a predictable surprise." Even though "you'd have to be living on the moon" to be unaware of the demographics, he says, businesses tend to remain focused on quarterly financial results rather than long-term investment in their employees.

Firms often have a very shallow "bench" – only one senior worker who is the sole contact with a group of big customers, or knows how to operate a particular machine – and often not a particularly old machine at that. A senior em­ployee's memory may be a better source of information on some issues than a company's written records.

The contributions of veteran workers may be important to businesses' capacity to innovate. Some recent research suggests that great innovations are being achieved by older people.

It's one thing to make current products faster and cheaper. It's another to come up with whole new products and processes – what the late urban theorist Jane Jacobs called "new work."

As work is relentlessly outsourced, it tends to be sliced and diced into discrete tasks spread around the world. It can be hard or impossible for people to maintain a sense of the whole, especially without the institutional memory and expertise of senior workers. That, in turn, constrains a company's ability to grow and develop through significant innovation.

And that is a serious concern.

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