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Advice and Information for Finance Professionals

How Tribal Knowledge Can Leave High-Growth Companies Floundering

Christiane Soto
Marketing Manager - SMB
This is a syndicated post, view the original post here

It seems that many (if not most) small-to-medium businesses (SMBs) run on tribal knowledge. In many cases, it is the foundation of growth. When you start out, everyone knows everything about everything. But then growth happens. New employees join, and others move on to different opportunities.

At some point, there is one employee left standing ― that one person who really understands how things get done. He knows the history, what works and what does not work, and can show you any shortcut you may (or may not know you) need. That is fine when your company is small. Having a go-to guy gets things done. But as you grow, your go-to guy goes from being a fountain of knowledge to a bottleneck.

But what exactly is tribal knowledge, and why is it a problem? Tribal knowledge is any unwritten information that is not commonly known by others but is needed to accomplish quality work. It is the proven methodologies (the little tricks, if you will) that are forged over time. It has tremendous value, but in order to utilize that value, it cannot be held in one single place (an employee’s head). 

It is the fact that it is not commonly known that makes tribal knowledge a problem. It must be documented and cataloged and made available to others so that bottlenecks don’t form, processes don’t grind to a halt, decisions get made, and growth happens.

Tribal Knowledge Impacts Financial Planning and Decision-Making

Tribal knowledge can be a particularly tricky issue for finance, especially if the majority of data is held in and most of the analysis is done primarily through spreadsheets.

Spreadsheets (especially those used for planning and forecasting) and tribal knowledge are inextricably linked. A spreadsheet’s very structure, naming conventions, and (in some cases) back-end calculations may only be known to the person who created it. That means that (more than likely) there is only one person in the finance department who really understands the spreadsheets used for planning and budgeting, and where the data to populate them is located. Therefore, as their use across the department/company spreads (excuse the pun), other employees may load data incorrectly or not recognize when a calculation is incorrect, or a link is broken.

The repercussions to decision-making are serious. On the surface, all looks well. Management is making all the right decisions, given the information they have on hand. But they are the wrong decisions based off of inaccurate data. Research shows that there is only 47 percent of the required knowledge in the average organization that is needed to make timely and accurate decisions. 

And this is where technology can solve your problems. When you take away spreadsheets and consolidate the tribal knowledge into one enterprise performance management (EPM) cloud solution, your management team can make better decisions, processes run smoothly, everyone trusts the data, and every single employee has all of the information they need to innovate, expand, modernize, streamline, transform, and grow. 

Tribal Knowledge Equals Dependency Which Negates Growth

When your entire organization is dependent upon spreadsheets, your entire organization is dependent upon one person ― the spreadsheet creator. The issue may only come to light when necessary changes or updates are needed, and the person is out of the office (or worse, no longer with the company). Think about that for a moment. If that person goes on vacation, you may not be able to run any long-range planning scenarios. You may not be able to accurately close your books and prepare all the required managerial and/or revenue reports. In addition, decision-making will be impeded until your key employee comes back with tons of beach pictures on her smartphone. In short, a vacation has halted growth.

Now, think about what happens if that person decides to build a house on that beach and quits suddenly. This is not just a hypothetical. Baby boomers are retiring at record rates, and they are taking their expertise with them. In fact, 40 percent of companies said that they lose specialized knowledge and expertise faster than they gain it. And when you lose anything faster than you gain it, your company is just sliding back down the growth curve.

It is established processes, automated workflows, trusted financial data, and the ability to pivot quickly towards new opportunities (which, in turn, requires the ability to gather needed data and make quick decisions) that differentiates an SMB from a start-up. Dependency is not the foundation of growth. It is the foundation of stagnation.

Learn more in the ebook "Confessions of a Finance Manager".

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