When Does Institutional Knowledge Become Institutional Inertia?

There is a wealth of expertise and historical insight buried within organizations, collectively known as institutional knowledge. There is also a growing recognition of the important role institutional knowledge plays in ensuring continuity and enhancing operational efficiency. It provides the organizational undertone that sets the stage for a collective and often unspoken understanding of the systems, processes, and practices that have been developed over time. Preserving institutional knowledge is essential to organizational resilience, as it ensures that valuable insights and skills are not lost, particularly when experienced employees retire or leave the organization.

Few would argue that there is tangible, lasting value to sharing wisdom and lessons earned through experience. But before we capture, preserve, and pass down institutional knowledge, we must understand what it is – and what imposters lurk in the shadows.

What is Institutional Knowledge?

A company's collective memory.

Understanding why certain decisions were made in the past, knowing the best ways to approach recurring issues, or being familiar with long-standing customer relationships can all be examples of institutional knowledge. It is the wisdom that seasoned employees bring, wisdom that helps organizations operate smoothly, solve problems, and adapt to challenges.

What isn't Institutional Knowledge?

Habits, biases, and resistance to change.

Deeply entrenched patterns or behaviors may disguise themselves as institutional knowledge, resulting in organizational stagnation.

When we stop asking why, we stop improving. When phrases such as, "we do it this way because this is the way we've always done it" are mistaken for institutional knowledge or memory, we keep ourselves stuck. This often signals a resistance to change, which can mask inefficiencies and stifle innovation. Markets are now adapting to new norms faster than ever before, and organizations that cling to outdated methodologies out of tradition risk falling behind.

The key to preserving valuable institutional knowledge while abandoning obsolete practices lies in fostering a culture where questioning is encouraged, hypotheses are tested, and improvement is expected.

1. Questioning is Encouraged

The extent to which an organization's leaders are open to receiving feedback about processes may itself be a part of its institutional knowledge. Someone, once upon a time, was scolded or rewarded in a very memorable way for questioning a process, leading to either a culture of openness, or one that is closed off.

Encouraging employees to ask "why" invites critical analysis, which can lead to more efficient and innovative ways of operating. This culture not only supports the evolution of practices but also empowers employees to contribute to the organization's growth and adaptability.

2. Hypotheses are Tested

The act of questioning the way work is done is only the first step. Improvements must be carefully designed and thoroughly tested. Otherwise, you are not embracing a path of improvement but remaining on a cycle of failed initiatives. The institutional knowledge contained within the organization combined with the practice of building prototypes and testing change before implementing it organization-wide can help leaders to distinguish between methods that are truly innovative and ones that are simply old theories dressed in new buzzwords. Prototyping allows these distinctions to be made beforea trusted methodology is dismantled.

3. Improvement is Expected

Institutional knowledge can sometimes mask status quo bias (commonly known as, "if it ain't broke, don't fix it") or success bias, the tendency to rely on past successes or the success of others as a guide for future actions. These biases can lead individuals or organizations to believe that replicating past successful strategies will automatically lead to future success, potentially overlooking other important factors or changes in circumstances.

There is inherent risk in trying something new. It comes with inevitable bumps in the road and people may be quick to perceive these bumps as a failure instead of the road to innovation. In reality, innovation is iterative and takes a lot of time, effort, planning, and experimentation. This may sound like a lot of work – work that is accompanied by an unknown outcome. In a culture that does not innovate often, these obstacles may stop the proverbial wheels in motion.

Developing a culture of continuous improvement requires that everyone in the organization learns to be comfortable with the uncomfortable. It is a state of constant acceleration. Continuous improvement isn't just about tools and processes—it's about making adaptability second nature.

While the wisdom of the past anchors us, we must not let it weigh us down. To thrive in the current business climate, organizations must actively and continuously question, test, and improve. Fostering a culture that values insight and experience without clinging to outdated habits can help to secure forward momentum without rattling the foundation on which success was built. The balance lies in knowing when to honor history, and when to rewrite it.

About the Authors:

Betty Warchol is a Director and Partner at Carpedia International, where she works with companies across the globe to develop and implement strategies that improve alignment and organizational performance. Betty has deep expertise in the financial services industry as well as experience in healthcare, manufacturing, and retail operations. She works with the leadership teams of global organizations to implement large-scale transformations.

Jacques Gauthier, Executive Vice President and Partner at Carpedia International, is recognized for his collaborative leadership style and dedication to operational excellence across industrial sectors and private equity. With expertise in operations, sales, and workforce management, he drives sustainable growth for organizations across diverse industries. Before joining Carpedia, Jacques led the operations of a top-tiered BPO services firm spanning 15 sites across two continents. During his tenure, he successfully integrated acquisitions - streamlining processes, fostering operational consistency, and aligning cross-departmental teams to achieve strategic goals.