The Hidden Dangers of Institutional Knowledge for Banks and Credit Unions
Many financial services organizations run on institutional knowledge. But it can be dangerous if not managed and archived properly.
The term “institutional knowledge” refers to the collective information, expertise, and skills that employees of an organization share. If that knowledge is closely held among only certain people in a group or organization, but not formally recorded, it’s also known as “tribal knowledge.”
Over time, organizations develop a significant repository of institutional knowledge. If properly documented and managed, this collective knowledge makes companies more efficient, agile, and competitive. However, when banks and credit unions rely on undocumented knowledge, housed within the brains of only a handful of people or teams, it introduces significant—and often hidden—risks to the organization.
Why Is Institutional Knowledge Dangerous?
When a company relies heavily on select individuals or teams for detailed information about how business-critical processes work, without making that institutional knowledge widely accessible, it can cause a range of problems.
The dangers associated with tribal knowledge are most impactful within core banking processes, such as ACH transaction processing, member/customer account updates, loan processing, account reconciliation, AML/KYC compliance, and fraud mitigation. Such critical processes are especially vulnerable to the risks of undocumented knowledge. These challenges include:
Loss of knowledge
When a key employee who holds important institutional knowledge leaves the organization or retires, the knowledge leaves with them. This is problematic, as attempts to recover or recreate this information can be costly and time-consuming, if not impossible.
This “brain drain” is becoming particularly acute as more than 11,200 Americans will turn 65 each day from 2024 to 2027. This exodus of long-tenured boomers from the workforce reinforces the imperative for organizations to capture and document the wealth of knowledge these workers have accumulated over their careers.
Knowledge loss also makes it harder to onboard a new employee, and in the short term, reduces the organization’s ability to complete business-critical processes that only the key employee knew how to carry out. The downstream impacts include lower operational efficiency, compromised member/customer experience, and reputational issues.
Wasted time and money
When a process exists solely in someone’s head, it becomes a “black box.” This lack of transparency results in unneeded and unseen complexity that can cost the firm time and money.
Information silos cause process bottlenecks
When critical information is housed in a single person, small group, or department, it becomes a process bottleneck and point of risk for the organization. This siloed knowledge makes it difficult for other workers to do their jobs effectively, which results in inefficiency, dissatisfaction, and frustration, fostering an “us vs. them” mentality that drives talented employees out of the organization.
Declining employee engagement
Key employees who are repositories of institutional knowledge may feel overworked or believe they can’t take time off from the job. This naturally causes burnout, leading to heightened frustration and dissatisfaction with the organization and leadership. Eventually, low employee engagement often leads to churn—disengaged staff are 42% more likely to be looking for a new job than happy employees. Considering it costs an average of $4,700 (and often, much more) to recruit and hire a new employee, banks and credit unions can’t afford to saddle key staff with the stress of holding institutional knowledge.
“With automation, people can actually take a vacation, which helps morale, too,” says Damien Burgess, IT System Analyst at Andrews Federal Credit Union. “Ultimately, automation impacts your employee experience as well.
Inadequate separation of duties
Financial services is a highly regulated industry, and has strict dual control and separation of duties requirements. When only certain employees maintain knowledge of key processes and infrastructure, it leaves financial institutions out of compliance and vulnerable to fraud.
Through cross-training, diligent documenting, and automation of key processes, financial institutions can ensure all proper dual control protocols are followed, helping them prevent fraud and maintain regulatory compliance.
“We’re able to enforce dual control for ACH uploads to the Fed, which is part of our due diligence and regulatory requirements,” says Erik Lubbock, Director of Core Applications Services at Oregon State Credit Union. “Whoever creates the ACH origination file from the core cannot also upload it to the Fed. We need to maintain a segregation of duties, and OpCon makes it seamless.”
Fixing the Institutional Knowledge Paradox
Tackling the dangers of institutional knowledge calls for more than a quick fix. But with some planning, foresight, and a collaborative mindset, you can set your organization up for long-term success. Here’s how to get started:
1. Prioritize process mapping: Survey all business departments to identify key processes and document the major steps. Keep an eye out for redundant or unnecessary workflows—they’ll inevitably come to light when you open the “black box” of undocumented institutional knowledge.
“When it comes to streamlining operations, with the flowcharting we can now visually see the flow of jobs running through our system, and that has exposed some complexity that was unneeded,” says Ed Watson, Systems Programmer at Ameritas. “For example, we discovered processes that have been around for years and people realized that we didn’t need to run those anymore.”
2. Convert tribal knowledge into shared knowledge: Once you’ve identified all the “hidden knowledge” buried around your organization, document it in an automation platform or upload it to a collaborative learning system accessible to all employees.
3. Automate manual and repetitive processes: One of the best methods for eliminating the dangers of institutional knowledge is through automation.
Automation enables the institution to download the expert knowledge that resides within the brains of one or a handful of individuals, ensuring it’s accessible to the entire organization.
“Organizations often rely on [institutional] knowledge over time—the passing down of information from [one] employee to [another],” says Robert Carter, Systems Engineering Manager at HAPO Community Credit Union. “When you’ve automated something within an organization like ours, you’ve documented that process for the future.”
4. Streamline processes while keeping control: Not only does automation help to protect institutional knowledge and reduce the risk of it being lost, but through innovative features like OpCon’s Self-Service buttons, it also empowers individual business functions to manage their own processes while ensuring control remains centralized.
“My experience with the self-service buttons is—they’re a big deal,” says Carter. “Because what those allow me to do is give very specific power and functionality to other individuals without giving them direct access to the tools that implement that functionality.
“For example, I can give our Tech Support team access to functions in Active Directory [AD] where I don’t want them in my domain controllers or I don’t want them in AD tools. I can build that functionality out in PowerShell and implement it with self-service buttons and they can perform those specific tasks with zero risk.”
5. Encourage cross-functional collaboration: Eliminating the dangers of institutional knowledge is an all-hands effort! Foster a culture of teamwork through the creation of cross-functional project teams, and make sure to include support areas like accounting, compliance, and HR. Consider creating a risk oversight task force to uncover caches of hidden knowledge and secret processes and help eliminate functional silos.
6. Recognize employees’ efforts: Automation can be a difficult change for some long-tenured employees. Find creative ways to recognize those staff who are change leaders, particularly those who make the effort to cross-train others inside or outside their department.
Taming the “Wild West” of Institutional Knowledge
Relying too much on knowledge locked up within the brains of a handful of key employees can be dangerous. The lack of transparency into existing processes introduces undue risk to an organization.
“Life before OpCon here at HAPO I would describe as the ‘Wild West,’” Carter says.
It doesn’t have to be that way. If harnessed properly, institutional knowledge can be a powerful driver of innovation, growth, and efficiency. It does take effort and commitment to identify, streamline, and document your most important processes. But once this is done, automation enables you to codify your processes and reduce risk, while setting up your organization for long-term success.
Looking to preserve institutional knowledge while reducing risk? The financial services automation experts at SMA Technologies can help! Contact us or request a demo of OpCon today.