After more than a decade of corporate downsizing and growing employee turnover, some companies are feeling the impact of lost institutional memory, says B.T. Novations, a Memphis, Tenn., consulting firm.

        Senior human resources executives at nearly half of 86 organizations surveyed by the firm complained of losing employees who have valuable intellectual property or institutional memory.

        “In many cases, organizations introduce policies which have been tried before and failed, alter processes that have already proved their intrinsic value, enter vendor relationships ... that were found incompatible or pursue other costly initiatives which could have been prevented if longtime employees had still been with the company,” said Brad Federman, senior vice president for B.T. Novations, a unit of Provant.

        Senior managers are now only too aware that, when certain people leave the organization, facts and figures and history leave with them, he said.

        “They've learned the hard way the cost of some careless downsizing as well as inattention to keeping key people,” he said. “As a result, we're seeing organizations begin to take precautions so they don't find themselves in this situation again.”

        Mr. Federman said many organizations recognize past efforts to evaluate an individual's performance and bottom-line contribution weren't very sophisticated.

        “Companies tended to view intellectual property in one-dimensional terms ... like, "Will this person join a competitor and hurt us?' What they seldom took into account was the organizational impact of losing the people who knew what goes on in the organization, how it works, the history of the products and services, and so forth. Every company has such people, and even if they aren't revenue producers they can have a real impact on the bottom line.”

        What must be done to prevent such losses?

        “First, the company has to find out who the key people are — and this may be difficult because the organization has taken them for granted in the past,” Mr. Federman said. “Then, there's the challenge of getting this knowledge out of their heads, which may also be hard because such people are sometimes "unconsciously competent.'

        “Finally, a process must be developed so people can learn how to share what they know. That goal will only be met when organizations themselves learn to recognize, reward and develop the keepers of the institutional memory.”
       

Get house in order before business sold

               Thinking of selling your business?

        Here are some tips from valuation expert Chad Simmons' publication Business Valuation Bluebook:

        • Secure the location. Location is an important driver for many businesses, so you need to develop assurances this won't change after the sale.

        If the property is leased, renegotiate the terms with options to renew. This will provide added security to the potential buyer.

        If the property is owned, withdraw your equity and refinance. Increasing your cash reserves will be helpful during the selling process and, if the buyer wants to acquire the real estate, too, the financing is already in place.

        • Clean up and fix up. Make your business shine, both fiscally and physically, by selling off dated inventory, attending to repairs or equipment needs, and releasing nonessential personnel and replacing them by outsourcing, if possible.

        • Prepare to transfer the know-how and how-to. A buyer may be unsure of his or her ability to run your business after the sale. You can assure him or her by offering a training program. This includes a timetable to explain the basics of how your business works and a plan for the seller's involvement, which should gradually cease, usually within about 60 days.

        • Institutionalize intellectual capital. In today's service economy, traditional “bricks and mortar” assets are being replaced by intangible assets. Location gives way to branding and brand protection. Inventory is replaced by people with the skills to serve. Convenience is replaced by relationships. Take steps to insure these intangibles.

        • Increase visibility. Increase revenue and a larger market share are key to attracting a buyer's attention. You can do this by increasing advertising and marketing, and present information to your community via press releases, talks or visits with local clubs.

        • Conduct a due diligence. This can be a brief summary or an extensive business review. Either way, it must be done in preparation for a sale. You can hire a business valuation analyst or do it yourself.

        • Determine the business price and exit strategy. Price affects the desirability of your business more than anything. Price is what you control. If you want to sell for the highest price in the shortest time with the least effort, be realistic about your business value; then select the most tax-efficient transaction structure. Together with price, you are set to achieve best results.

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