V-Accenture - A Strategic Framework for Organizational Knowledge Retention

Institute forStrategic Change

Confronting the Chemical Industry Brain Drain:A Strategic Framework for Organizational

Knowledge Retention

David W. De Long

This report describes how global chemical

companies are responding to changes in their

workforce demographics caused by downsizing,

an aging workforce, and a shrinking talent

pool. It also identifies the organizational

barriers to effectively capturing knowledge

from its aging workforce and presents a

framework for creating an effective long-term

knowledge retention strategy. This study is

based on interviews with 75 chemical company

executives, managers, and industry experts in

26 companies in the US, Europe, and Japan.

Executives in many global chemical companies todayrecognize that their firms face a wave of retirementsfrom the ranks of R&D, engineering, and manufacturingprofessionals in the next decade. The exodus oftechnical specialists, research scientists, engineers, plantmanagers, and first-line supervisors represents a majorloss of expertise and experience that is likely to impactcompany performance. And, according to a study by theAccenture Institute for Strategic Change, retirementsare just part of the problem reflected in these changingworkforce demographics. At the other end of the talentpipeline, a younger cohort of engineers, researchscientists, and plant operators are joining up with adifferent set of values and expectations, which createsnew recruiting and employee retention issues. Indeed,the evolution from an older, traditional, highly-experienced workforce to a younger, more mobileemployee base poses major challenges for chemicalcompany leaders, particularly when set in the context ofongoing pressures to cut costs in this increasinglyconsolidated and technology-driven industry.

Both recruiting and employee retention issues arepretty well understood, however, and although noteasily solved, chemical company executives seem tohave a good idea of what they need to do. But

Confronting The Chemical Industry Brain Drain · Page 2©2002 Accenture · Institute for Strategic Change · April 2002

according to our research, the problem that remainsenigmatic for most chemical firms is how to create anenvironment that supports capturing and sharing theexperiential or tacit knowledge of its aging workforce.Interviews with dozens of chemical companyexecutives in the US, Europe, and Japan reveal thatfew firms have developed a coordinated response tothis problem�in part because they lack a frameworkfor addressing it. Leaders also don't necessarilyrecognize the barriers that are conspiring toundermine action on organizational knowledgeretention, which is a demographic time bomb for somecompanies.

This report has three objectives:

(1) to describe how global chemical companies areresponding to changes in their workforcedemographics caused by downsizing, an agingworkforce, and a shrinking talent pool;

(2) to identify the organizational barriers to effectivelycapturing knowledge from its aging workforce; and

(3) to present a framework for creating an effectivelong-term knowledge retention strategy.

Exhibit 1: About Our Research

This exploratory study was designed to identify what business problems global chemical companies are experiencingas a result of changing workforce demographics. Our research team at the Accenture Institute for Strategic Changeinterviewed more than 75 chemical company executives, managers, and industry experts in 26 companies. Thecompanies where we conducted interviews are listed below. Because this problem has broad implications for manyparts of the organization, we sought out people in a variety of roles, including: VP of engineering andmanufacturing, R&D general manager, R&D planning manager, research lab director, VP of HR, manager of recruiting& retention, and manager of global HR processes.

� Air Products and Chemicals� Akzo Nobel� Asahi Chemical� BP� Buckman Laboratories� ChevronTexaco� Dainippon Ink and Chemicals� DuPont� ExxonMobil Chemical

� Kyowa Hakko Kogyo� Huntsman� Lyondell Chemical� Mitsubishi Chemical� Mitsui Chemicals� Monsanto� Nippon Sanso� Nippon Paint� Quaker Chemical Corp.

� Quest International� Shell Chemicals� Showa Denko� Sumitomo Chemical� Teijin� Toray Industries� Tosoh� Ube Industries


Retirement Trends in the ChemicalIndustry

The vast majority of US and European chemicalcompanies are concerned about problems posed bytheir aging workforce. Estimates that 50% ofemployees will become retirement eligible in aparticular function in the next decade are notuncommon in the US and European firms we spokewith. Here are some examples:

�Within the next five years, at least 50% of ourengineers across the company will beretirement eligible. This function is made up ofpredominantly white men in their 50s."

� HR leader, diversified US chemical company

"We've already lost 10-20% of our seniorscientists in the last three to four years. And westand to lose another 10-15% in the next fiveyears. A lot of these people are back now on aconsulting basis."

� Petrochemical company executive

"About 35% of our employees are in their fiftiesand will retire in the next ten years�There's anoverwhelming number of people in their fifties(45%) in our production areas.�

� Personnel manager, diversified Japanese-based chemical company

"In our process engineering group, more than50% of the engineers are new to the companyin the last three years because our experiencehas been walking out the door."

� Manager for recruiting & retention, diversified chemical company

"We expect a 16% retirement rate over the nextfive years."

� Global recruitment and HR planning manager, European-based petrochemical company

Of course, not every firm is looking at such dramaticlosses. And executives recognize that a modest levelof turnover is good for every organization, presentingpromotion opportunities for younger employees and achance to bring in fresh ideas. Still, for most chemicalcompanies the impacts of an aging workforce is aserious concern, and the problem is complicated byits patchwork quality. "The average age in someplants is rising a lot and in others it's dropping," saidone Shell Chemicals manager. "It depends on whereyou are in the cycle. It also depends on when unitscame up and when you laid people off. We've got oneplant where the average age is quite young and inothers it's the opposite." In reality, retirement rateswithin one company can vary significantly byfunction, business unit, and geographic location.

Regardless of which units are hurt, however, theaverage age and level of work experience in manychemical companies�and other industries, as well�isgoing to drop significantly in the next decade. "Wecould lose as much as 50% of our total population inthe next five to ten years, where the averageemployee has twenty-five years of experience," saidthe senior executive of one major oil company. "And,even if we can hire replacements, in ten years ouraverage work experience will drop considerably andthat probably has an impact on our NPV."

Implications of Changing WorkforceDemographics

Our study shows that changing workforcedemographics are of concern to chemical companyleaders for three reasons (see Exhibit 2):

I. Increased Retirements Cause Lost Knowledge, Which Effects Organizational Performance

Losing expertise and experience from key managersand professionals can decrease innovation, increasecostly errors, reduce efficiency, and undermine growthstrategies.1

For example, losing critical knowledge, particularly inR&D, can slow down and reduce the quality of

organizational performance. Finally, chemical companiespursuing growth strategies that don't rely solely onacquisitions will find that losing knowledge throughretirements and turnover can seriously reduce theirability to support expanded operations.

Savvy executives recognize that, given currentretirement rates, if nothing is done to slow the loss ofknowledge, some of their units could be headed for apoint of no return in a few years. Because once a criticalmass of human experience and expertise is gone incertain parts of the business, it will be extremelydifficult to recover. "Most managers won't address thisproblem until there's a crisis," said a veteran researchscientist. "But when that happens it will take years tostraighten the situation out because you can't bringpeople in and get them experience overnight."

II. The Shifting Talent Pool Hurts Recruiting

Retirements have also become a major concern forchemical companies because recruiting younger workersis increasingly difficult, especially in Europe. Here aresome examples of the recruiting challenges reported:

� "The problem we have is there are fewer peoplegetting into the curriculum and we have greaterrequirements of the people we want. Our hit rate is25-40% in the Netherlands, where in the past it was80-90%."

� "Last year we needed twenty-five chemical engineersin one country. But of the total pool of graduatesthere who have the leadership capabilities, technicaldepth and knowledge, and the breadth of thinking tosupport global work, there are maybe eighty , and wegot only three."

� "We've got a recruiting target out there, but we'vefallen short by 25-30% for the last three years. Ifyou have a position open and have an opportunity tofill it, usually it's been no problem to fill it. But nowit's not a given we can hire."

According to the executives we talked to, chemicalcompanies are having more trouble recruiting for avariety of reasons:


innovation, which is central to many firm's businessstrategies today. "You just can't be as innovative withonly young Ph.D.s. The experience really matters," saidHenk Bonouvrié, HR manager for the Chemicals R&DInstitute at Akzo Nobel.

And no one likes to talk about it, but having lessexperienced people working in increasingly sophisticatedcomputer-controlled manufacturing operations increasesthe risks of serious and costly mistakes. Theinvestigation into an explosion in one US chemical plantlast year found that the engineer in charge had onlybeen out of college a year, and the operators in thecontrol room at the time of the accident all had lessthan a year of experience in the unit. Not surprisingly,the explosion was attributed to operator error. "We haveso many people who are not familiar with our units, youhave to wonder if we're not going to see more of this,"confessed one executive. And even when errors are notcaused by inexperience, diagnosing and fixing themoften takes more time when veteran employees are nolonger around to help.

Lost knowledge can also have another important impactin an industry focused on cost cutting and productivityimprovements. "What you really lose through peopleleaving is efficiency�knowledge of how to get a jobdone faster and better. But, of course, that's hard toquantify," said William Litschgi, a retired researchdirector at Monsanto, who had returned to work for hiscompany as a per diem employee. Repeatedly in ourinterviews it was clear that management's main concernwas the loss of experience and tacit knowledge thatcould affect the quality of decision making and


(1) The long-term orientation toward downsizing andcost cutting means many firms have been out of thehiring market and lack the more sophisticatedrecruiting networks and processes needed today.

(2) The industry has a serious image problem. Youngpeople often see the chemical industry asenvironmentally unfriendly, and it suffers bycomparison to other opportunities presented toyoung graduates. "We're trying to hire people thatwant to come work in a dull, boring, steel and mortarcompany, where they have no opportunity to be amillionaire by age thirty," lamented one executive.

(3) Chemical plants are often located in rural sites lessattractive to young people.

(4) The increasingly diverse population of jobcandidates, primarily in the US, may be reluctant tojoin what have traditionally been homogeneouswhite male-dominated cultures.

(5) There is much more competition for top-ratedengineering and science graduates who receiveoffers today from a wider variety of potentialemployers, such as investment banks, largeconsulting firms, and high technology companies.

(6) Finally, as chemical companies expand their globaloperations and develop increasingly complexcomputerized production processes, they need tohire more sophisticated and skilled employees."Different than in the past, being a scientist is justnot enough," said Akzo Nobel's Henk Bonouvrié."We need researchers who are able to communicate,which also means being able to listen, to seethrough things, and get into the plants. They mustbe able to sell their ideas and relate to others."

Thus, increased retirements only exacerbate the newuncertainties present in this recruiting market. And,even when companies can attract promising new hires,considerable resources are required to assimilate them,and retirements have stretched those resources eventhinner by removing potential mentors. "We're going torun into a bottleneck in the future because there is alimit to how many new people we can bring in," saidone manager in a major petrochemical company. "Wedon't want to lower our standards in the quality of thepeople we hire, and we want to develop them into

employees we can use long term. The question is howmany people we can bring in and assimilate at once?"

Barry Leskin, GM for learning and development atChevron Texaco, also recognizes the resource issuearound assimilation, saying, "It's a struggle to sustainlong term mentoring. We have wide spans of control. Sowhen you bring two new people in where there arefourteen direct reports that's a potential productivity hitfor the manager."

The irony is that getting new employees into theorganization is a key to transferring knowledge from theolder to the younger generation. "Problems ofknowledge transfer can't be divorced from supplymanagement. If there's nobody there to tell the story tothe knowledge dies," says John Sumser, CEO ofInterbiznet.com, a firm that monitors the electronicrecruiting industry.

III. "Generation Gaps" Increase Focus on Employee Retention

The challenges posed by the aging workforce contributeto a third problem guaranteed to give any HR strategicplanner nightmares. Some US and European managerswe spoke with are very concerned about increasedattrition among younger workers and experienced hires.The chemical industry has historically been blessed withvery low rates of voluntary attrition among professionalsand managers. This is still true in Japan, where peoplerarely leave organizations voluntarily before retirement.But in Western industrialized countries there iswidespread recognition that Generation Xers (age 26-37)and Generation Y's (under age 25) have significantlydifferent values than their Baby Boomer bosses (ages 38-56) and are much more impatient and willing to leavetheir companies for a better opportunity elsewhere.

"Generation Y is different," said one staffing director."What we've got to understand is people want to comein to learn and grow. And the faster they do that thebetter. Today we hire students who took college classesin Six Sigma. The culture shift for us is we've got tochallenge people more when they come in, and givethem more opportunity to grow. They don't want to waitto apply their skill sets. They're ready. But our culturesays: 'wait, you're turn will come.' So people leave toapply their skills somewhere else."

Implications of Changing WorkforceDemographics

The Accenture study found that changes in thecharacteristics of the workforce contributesignificantly to three challenges facing the chemicalindustry-knowledge transfer, recruiting, andemployee retention. These three issues are bestaddressed through an integrated strategy (Exhibit 3).Trying to tackle only one or two will seriouslyundermine the skills and knowledge needed toachieve long-term business objectives. Organizationsthat focus only on recruiting, for example, won't besuccessful in sustaining effective HR capabilitiesunless they also deal with the elements in theirculture that encourage things like turnover andknowledge hoarding. Interviews also revealedsignificant barriers that undermine effective actionin capturing and sharing knowledge before peopleretire. The last section will outline a framework thatprovides an integrated approach to all threeproblems. But first we'll examine the obstacles thatmake it particularly difficult to confront the problemof organizational knowledge retention in chemicalcompanies today.


Another HR executive was more critical of some newhires, saying, "We have people who come in with a viewof entitlement, that we should do everything we can tomake sure their existence is as good as it can get. Wefind many young people have no idea what struggle isall about. Most have been successful in school and feelthey should succeed equally well here. Many youngpeople don't seem to understand that this is anenvironment of competition, not entitlement."

This values clash between older and younger workers hasserious implications as global chemical companies try toexpand business capabilities for the future. First, unlesscompanies reconcile the differences, this values conflictwill result in increased attrition among younger workers.Some chemical companies are already seeing this trend.Losing promising young employees is an even moreserious problem when retirement rates are high becausethis attrition requires additional resources to find alreadyscarce replacements. Thus, increased retirement rates puteven greater pressure on companies to address theproblem of turnover among Gen-X and Gen-Y employees.To accommodate the changing expectations of youngerworkers, some chemical companies are reexamining theircultures to see what must be changed to improveretention. "We need to be listening to the people webring in," said one HR manager. "All of us need to startlistening to those new voices."

Increased retirements also contribute to anotherretention-related issue that must concern functionaland business unit leaders. The loss of veteranresearchers, technical specialists, and engineers isleading to an increase in experienced hires. One majorcompany has seen that number jump from 10 percent to35 percent of its total new hires. Experiencedprofessionals and managers, who have been socializedelsewhere, are more likely to challenge their new firm'scultures, to question the way things are done, and toleave if they don't like their new work environment. "Thetoughest thing for us is the integration of mid-careeremployees into our culture, which impacts retention,"said one manager. "Historically, retention has not beenan issue for us. But now we're seeing people we hirecome for four or five years, build a tool kit, and thenleave." The issue is how welcoming is a firm's culture toemployees who join in mid-career. This will become amore serious concern in the future, as companies haveto replace more and more retiring professionals with"outsiders."


3. No Clear Ownership of the Problem

In our interviews it was apparent that no group hasclear responsibility for addressing knowledge retentionissues. Knowledge managers were interested but oftenseemed preoccupied with other initiatives. IT managersbelieve they own the capability and enabling technologyto drive knowledge capture. And HR owns the processesfor recruiting and retaining people. But it is functionaland line managers who must create the values andculture that supports behaviors needed to share,capture, and apply tacit knowledge derived fromexperience. In practice, then, improving knowledgeretention must be a line management concern becausethat's where the challenges of transferring knowledgeare best understood. But even these stakeholders areoften uninterested. One manager from a diversifiedchemical company noted:

The VP of engineering operations gets it. Heunderstands we're losing our knowledge baseincrementally, and if we don't do somethingabout it we'll be in trouble. But his directors aresaying, "Yeah, it's a problem, but other things aremore of a priority." They're minimizing it becausetheir vision is more short term. And they're closeto retirement, too, so for them it doesn't matter.

One battle top management will have to fight in thenext few years is gaining middle management supportfor knowledge transfer initiatives. Most of thesemanagers have been conditioned so long by thedemands of cost cutting that they won't respond tomessages that appear to conflict with that objective.Another challenge will be the cultural barriers toknowledge sharing that have grown up as a result ofextensive downsizing. The idea that knowledge is yourpower base and that hoarding knowledge will keep youemployed is a difficult belief to overcome, but itspresence can't be ignored.

4. No Slack Left for Knowledge-Sharing Activities

"We're never going back to the protégé/mentor modeland the cast of thousands where less experiencedpeople all have mentors," said Ron Carrick, businessinformation manager in DuPont's engineeringorganization. "We can't afford that in time or money,

Barriers to Organizational KnowledgeRetention

1. Lost Knowledge is a Problem Whose Costs are Largely Hidden

This was a consistent theme in our interviews. Whilesome executives intuitively recognize the threat oflosing intellectual capital when people retire, othershave a harder time seeing the problem. "Obviously, thereis a cost, but it's not recognized," lamented one researchscientist. "Cuts, like early retirements, are often madewithout serious consideration of how things are goingto run with fewer people."

We found no companies that had tried to developtraditional business cases for knowledge retentioninitiatives, primarily because it is seen as so difficult.Firms that are better positioned to address thechallenges of retaining knowledge from an agingworkforce seem to have senior executives whointuitively recognize the problem and are willing toinvest resources in addressing it. Those who lack topmanagement support must start collecting stories toillustrate the costs and lost opportunities incurredfrom the failure to retain the knowledge of veteranemployees. For example, what is the cost of delayingthe introduction of a new product that was beingworked on by a recently retired scientist? And what isthe cost of reduced efficiency or increased errors in aplant where two first-line supervisors just retired?Answering questions like these can provide a startingpoint.

2. Uncertainty About Where the Firm is Most Vulnerable to Lost Knowledge

"First, you must identify where the real risks are of nothaving the knowledge or expertise the organizationneeds," says Akzo Nobel's Henk Bonouvrié. "Then youtry to analyze the chance those risks will develop."Often managers can't get support for pursuingknowledge retention efforts because no one is clearwhere the greatest risks are for the company. A morestrategic approach to workforce planning can help afirm identify these risks and see where they are mostvulnerable to the loss of specialized expertise.

Like firms elsewhere, Japanese companies reportedsignificant variations in anticipated retirement rates. Morethan half of the firms surveyed reported an M-shapedcurve in their age distribution with peaks coming amongthose in their 50s and 30s. Many Japanese companies havesmoothed out their age distributions by offering earlyretirement packages in recent years. These programs mayhave reduced concerns about the large wave of retirementsexpected in some US-based companies, but they don'teliminate the ongoing need to transfer knowledge toyounger employees. Where there is concern about highretirement rates in Japanese firms, it centers mostly in themanufacturing area. One company, for example, expects 45percent of its production workers to retire within ten years.

Only a few Japan-based chemical firms are activelyseeking global markets. As one company president noted,"True globalization has not occurred in Japanese chemicalcompanies." The "wall of language" still makes joint workoverseas difficult for these firms. Some of the culturalfactors that clearly differentiate how Japanese companiescan address changing workforce demographics issues are:

� "On the job training" was the most frequentlymentioned method of knowledge transfer. Conceptsof informal mentoring and face-to-face knowledgesharing still seem to be more deeply embedded inthe Japanese culture. The Japanese notion oflifetime employment has meant firms have cut backstaff more slowly than in the West, where extensivedownsizing has made informal knowledge transferthrough practices like mentoring more problematic.At the same time, there is a growing recognitionamong some in Japan that the traditionalunstructured forms of knowledge transfer between

generations are too slow and ineffective to bringyounger workers up the experience curve in thecurrent environment.

� Retaining workers is not a concern in Japan.Retention rates among younger and middle-agedemployees remain high. There is little indication ofincreased mobility or job switching among youngerworkers, and no sign of the increased attrition thatis evident in some US-based firms.

� Given the low mobility of mid-career workers therehas also been little recruiting of "experienced hires."The idea of "head hunting" is still quite alien inJapanese chemical companies. This will make itmore difficult to replace expertise lost to retirementand puts increased pressure on firms to develop thecapabilities of younger employees more quickly.

� The hiring of foreign-born employees remains verylimited in Japan. And a number of executivesmentioned that women still face the challenges ofgender bias in the industry. Thus, unlike US-basedcompanies, which have actively recruited foreignnationals for some positions, Japanese firms have amore limited labor pool to draw from.

� The legacy of a seniority-based wage systemcombined with deflated chemical prices has thrownlabor costs out of line with foreign competitors.Many firms we interviewed are in the process ofmoving to a merit-based wage system. Thistransition, which is currently a dominant concern formanagement, is likely to impact knowledge sharingbetween employees in ways that are still unforeseen.


Japanese Culture Affects the Approach to WorkforceDemographics Issues

Japan-based chemical companies are currently mired in a severe business recession thatmakes it difficult to pay attention to longer-term demographic issues, which are just asmall part of a larger constellation of economic problems facing the industry.Nevertheless, the cultural forces shaping behavior in Japanese firms suggests that solu-tions to the challenges created by changing workforce demographics will be stronglyaffected by country cultures and local economic conditions.


and we can't get that many people." Even when theproblem of knowledge transfer is recognized, theresources needed to allow younger employees to learnfrom older ones are virtually gone. One challenge forcost-driven chemical companies is going to be figuringout how to improve knowledge transfer in anenvironment where interactions between retiringprofessionals and managers and their replacements arevery limited.

5. Capturing Knowledge Is Not Enough

Finally, as mentioned earlier, transferring knowledgewithin an organization is useless unless thoseacquiring it have the ability to learn from others andmake improved decisions. More than one company inour study has found that its younger employees lackthe problem solving skills�and sense ofempowerment�to make decisions based on knowledgepassed on by more experienced employees. "There isalways more than one cause to a complex event. Sowhat you want is managers who know how the hell tothink," said a manager at Shell Chemical. Companiesconcerned about knowledge retention also need toevaluate the quality of the problem solving skills theiryounger employees have. Capturing knowledge is of novalue unless those who have access to it have theability to interpret it effectively.

A Framework for OrganizationalKnowledge Retention

The five barriers described above reflect the contextwithin which most leaders must address the problemscreated by an aging workforce. To reduce the effects ofthe three challenges identified earlier�lost knowledge,more competitive recruiting, and higher attritionamong younger employees�organizations need both aframework for action and a strategy forimplementation. We will outline the framework ofcritical success factors first. All of the eight elementsdescribed here (see Exhibit 4) are essential for creatingan effective approach to capturing and sharingknowledge before it is lost to the organization. Noneof them will do the job alone.

Evaluating Human Intellectual Assets

The first step in diagnosing where an organization ismost at risk for lost knowledge is having a detailedprocess to track current skill inventories and futureneeds for all essential professional and managementroles in the organization. This enables extensivesuccession planning for professional as well asmanagerial positions. And, most important, it helps theorganization to identify future knowledge gaps that arelikely to emerge, given retirement eligibility andhistorical retirement patterns. This allows more effectiveresource allocation around knowledge retentioninitiatives. Two of the companies in our study hadelaborate processes for tracking skill inventories andsuccession plans, and several others were in the processof developing them.

Career Development/ Succession PlanningProcesses

One of the most important elements for retainingemployees�or at least slowing turnover�and buildinglong-term workforce capabilities is the existence ofextensive career development and succession planningprocesses to complement the skills inventory system. Ifa skill management process monitors the current andfuture state of resources needed, a career developmentprogram helps build the knowledge and competenciesprofessionals and managers need to prepare for future

roles. And succession planning and career paths showemployees the opportunities that lie ahead. Experiencehas shown, of course, that formal career developmentand succession planning processes are not enough.While the quality of career programs sends animportant signal about the organization's realcommitment to its employees, it is functional andbusiness unit managers who create the day-to-dayworking environment that still has the greatestinfluence over knowledge-sharing behaviors and thatultimately determines the rate of employee retention.

Knowledge-Sharing Practices

To address problems of knowledge retention created byan aging workforce, chemical companies will have toinstitutionalize an elaborate set of knowledge-sharingpractices that become embedded in the culture andaccepted as the way work is done. Of course, the firststep in developing these practices is to inventory andevaluate those that the organization already has inplace. As indicated above, an integral part of thetechniques used for knowledge transfer will also be thecultural values and norms needed to supportknowledge-sharing behaviors.

The companies in our study varied significantly in theiruse of the many potential knowledge-sharing practices,such as mentoring programs, knowledge networks orcommunities of practice, after-action reviews, etc.Japan-based chemical companies were notable for theirfrequent espousal of "on the job training" as thestandard way that knowledge is transferred in theirfirms. Face-to-face interaction between mentors andprotégés appears to still be the norm in Japanesecompanies, whose leaders also readily acknowledge thattheir labor costs are too high compared to theircompetitors in the West. Several US-based firms weinterviewed clearly felt they had a long way to go todevelop the type of knowledge-sharing culture thatwould be needed to cope with the retirement of somany experienced professionals and managers.

Using Information Technology to Capture andShare Knowledge

IT resources will be an important part of any knowledgeretention strategy, but executives must be careful not

to view technology as the solution to their knowledgeretention problems. IT applications are only enablers.They cannot meet knowledge transfer objectives alone.To retain knowledge for the organization, lineexecutives must make certain that IT applications are apart of a comprehensive effort that also changespractices, processes, and behaviors. The technologyapplications mentioned in our interviews were almostall still in the pilot stage. Those that can supportknowledge retention objectives include:

� Databases to track skills and competencies�ShellChemical is building a talent management databaseto help identify current and emerging gaps, as wellas future technical skill needs.

� Lessons-learned repositories�This is a solution thatholds promise in some settings, but such databasesalso require considerable behavioral change to makesure they are kept up to date and actually used.

� Communication and knowledge-sharing systems�These applications support distributed organizationsor virtual communities of practice. BuckmanLaboratories has been among the most successful atbuilding a global knowledge-sharing infrastructurewith its K'Netix system, which combines electronicbulletin boards, virtual conference rooms, libraries,and email. But Buckman's investment has also beensupported by major culture change to encourage useof the technology.

� Systems to support diagnostic and problemsolving behaviors�One Louisiana plant was pilotingsoftware that leads users through a highlystructured diagnostic process to solve productionproblems and capture the solutions. Combined witha culture change initiative, this application helpssurface the tacit knowledge of veteran operatorsand transfers it into the system for future use.

� Automation of more routine informationprocessing tasks�DuPont has been piloting a Web-based tool that can collect data from plant personneldescribing a production problem to consultingengineers. Prompting plant workers through adiagnostic process helps them learn how to thinkabout future problems, and over time provides abroader set of canned solutions to consider, freeingengineers to work on the most difficult problems.



Applications like this one that take over orsupplement more routine information processingtasks are one way to leverage limited expertise andalso build repositories of consistently appliedsolutions.

� E-learning applications�Several chemicalcompanies in our study were working to captureexpert knowledge into computer-based coursesbefore a particular specialist retired. These Web-based applications are still relatively new, and theyare proving more difficult to build than originallyanticipated.

Phased Retirements

Early retirements have been standard practice in thechemical industry for years, but as knowledgeretention and recruiting problems become more acute,companies may begin to look for ways to extend thetenure of their most valuable employees. The mostcommon practice is known as "flexible phasedretirement," which means allowing older employees tocreate more varied and shorter work schedules.Unfortunately, a range of legal barriers restrictingpension payments still makes it difficult for privatesector companies to implement formal phasedretirement programs in the US. Experts, however,expect these laws to be eased over time.

The problem of keeping experienced managers andprofessionals on the job is especially complicated forglobal firms, which must contend with a variety ofmandatory retirement laws that are continuallychanging. For example, mandatory retirement in theNetherlands recently dropped from 65 to 62, creatingmajor succession planning headaches for companiesoperating there. In Japan, meanwhile, the currentmandatory retirement age is 60, but executives areexpecting it to be raised to 65 to help ease thecountry's labor shortage. These changes add additionalcomplexity to the challenges of knowledge transferand succession planning.

Programs for Effectively Utilizing Retirees

The easiest knowledge retention tactic to employ whenthreatened with losing expertise is hiring recent retirees

back as contractors or consultants. Retirees not onlyhave the skills needed, but they also know the cultureand organizational history, and have the extensive socialnetworks necessary to get their jobs done, even whenthey are different from those they left. Given thelooming shortage of specialized technical andengineering talent in certain organizations, it seems thatbringing retirees back as contractors is going to be awidely used short-term tactic for knowledge retention inthe years ahead.

Indeed, one of the most consistent findings in ourstudy was the extent to which global chemicalcompanies have already become dependent onbringing recent retirees back to work on a part-timebasis. "We have a very rigorous process to make surethere's a good business reason for bringing them backin," explained one chemical company planningexecutive. "But if an edict went out tomorrow thatsaid, 'No retirees can be used as contractors,' thatwould be quite a challenge for us. You never wantyour business dependent on people who can go playgolf."

Using retirees as contractors is a double-edged sword.It helps retain access to irreplaceable expertise, but itcan also create a false sense of security that theorganization still controls that knowledge. Moreimportantly, when older workers are routinely hiredback as contractors they have much less incentive toshare their knowledge with others before retiring."Your knowledge is your security here. If you didn'thave the knowledge they wouldn't want you back,"said one retired research scientist, who was backworking as a consultant.

In practice, chemical companies are bringing retireesback in a variety of ways. In some cases, it remainsstrictly an informal arrangement with individualmanagers. In other cases, firms have implementedpolicies to dictate in what situations retirees may beretained as contractors, in an attempt to limit thepractice. Monsanto, on the other hand, was the onlycompany we studied that has created a formal processto actually encourage the re-employment of retirees.Sooner or later, chemical company executives will haveto make practical policy decisions about how best touse this essential resource without letting contractingopportunities become a deterrent to knowledgetransfer.


1. Loss of knowledge due to retirements notconsidered a problem by management.

Only about 10% of the chemical companies wetalked to fell into this category. Whenmanagement's assessment is accurate, the firm ischaracterized by a legacy of robust successionplanning for all key management and professionalroles, as well as an elaborate career developmentsystem. In addition, downsizing in the last decadehas been carefully orchestrated to minimize theloss of valuable veterans, and mentoring behavior isstandard practice in the culture. Finally, thebusiness strategy does not include such aggressivegrowth goals so that every retiree is a critical lostasset.

2. Companies in a good position to improveknowledge retention despite retirements.

About 30% of the firms in our study had alreadyundertaken a relatively broad set of initiatives toaddress the problems created by changingworkforce demographics. Although they all still facemajor hurdles, they also share an important asset.These companies seem to have a culture oriented toknowledge sharing and organizational learning. Thistype of culture will be a critical asset not only incapturing knowledge from retirees, but also inattracting new and experienced hires in a shrinkinglabor market.

3. Companies facing serious challenges in copingwith an aging workforce.

Firms in this category, which represent about 40%of our sample, have several things working againstthem. First, senior management has not yetrecognized knowledge retention or recruiting asmajor issues worth investing in. Second, they havecultures that have historically not rewardedknowledge sharing. Third, they are highlydecentralized, which makes it harder to developbroad-based knowledge retention and recruitinginitiatives. Finally, initial solutions are heavilytechnology-focused, which ignores the fact thatfundamental issues in knowledge retention arebehavioral.

4. Companies too distracted by other businessevents to focus on the problems created bytheir aging workforce, e.g., downsizing andmergers.

In about 20% of the firms studied, topmanagement was too preoccupied with the short-term operations of the company to be thinkingabout these longer-term strategic issues. While thismay be understandable given specificcircumstances, the dilemma is that these short-term challenges often contribute to the problem,since they encourage older, experienced workers totake early retirement. And the short-termdistractions just divert leaders' attention fromissues they must address in order to survive.

What's Your Company's Situation?

Ironically, we found only two chemical companies that showed clear signs of an inte-grated approach to coping with the changing workforce demographics in the industry.The companies in our study generally fell into four categories:


Implementing a Knowledge RetentionStrategy

The first step in designing a knowledge retention strategyfor your firm is to understand your options. Organizationscan choose from three basic approaches to the problemof capturing and sharing knowledge from their agingworkforce. Basically, these approaches are driven by theseriousness with which leadership views the problem. Thethree options most likely to be considered are:

"Hope is a method, isn't it?"

Top management in at least one large company we studiedhad not yet come to terms with the threat posed by theloss of critical technical and engineering knowledge. "Atthis point, we're not doing anything about it," confessedone executive. "But six months from now that will have tochange because our hand will be forced. If we're going togrow the company, we'll have to do something different."The demographic changes facing global chemicalcompanies pose real threats to continued success for somefirms, and just hoping these problems will go away is agood approach only for executives who are not concernedabout the long-term viability of their organization.

Pursuing Programmatic Change�Seeking ThatSilver Bullet

Given ongoing resource constraints, it is tempting tothink the answer to the problems posed by an agingworkforce can be addressed by implementing a coupleof programs�a little contracting here, a knowledgerepository there, and some culture change should do it,right? Wrong. Programmatic change will be the pathmany companies will be tempted to take. ImplementingIT "solutions" is likely to be the most popular approach.But imposing standardized solutions across an entireorganization won't be enough. Previous research onimplementing the type of complex organizationalchange required in this situation would predict thatstarting with programs to build a knowledge-sharingculture or a large technology-based infrastructure willbe unsuccessful.2 These initiatives invariably focus ononly one aspect of the problem, such as skill inventories,rewards, culture change, or technology support. That isnot enough to sustain the types of broad-based, butalso locally adapted, changes that will be needed.

Outsourcing Lost Capabilities

In some situations, retaining knowledge adequate tosustain acceptable performance levels is going to proveunrealistic. In those cases, looking at new businessmodels may be the only choice executives have.Outsourcing non-core capabilities has been a trend inthe chemical industry for years, and most companies feelthey have done what is practical in this area. But somefirms are going to face another round of outsourcingdecisions when it becomes apparent that the loss ofsubstantial expertise in specialized areas is too difficultand costly to replace or sustain.

One executive thought his firm had already reached thatpoint, saying, "Given our growth strategy, if we're 2,000people short, we can't just go hire them. We don't havethe supervisors. To get where we want to go we'll haveto move to much more outsourcing of services andengineering." Outsourcing what have traditionally beencore capabilities for a company presents a whole newset of partnering and knowledge management issuesthat will have to be addressed. But, given demographictrends and the inevitable retirement of so manyexperienced employees, senior managers may be betteroff if they begin thinking about outsourcing optionsnow, instead of waiting until they have no choice.

Reinventing Recruiting Processes

The last element in our framework is the recruitingprocess itself. Many chemical companies are revampingtheir efforts in this area today, recognizing the majorchanges in the employment market described earlier.The competition for professional talent in the yearsahead is going to be so fierce that companies are nowrecognizing the need to rethink their presence oncollege campuses, their image among potentialcandidates, and what they actually have to offer thosethey want to hire. Firms that aren't proactivelyrethinking and investing in their recruiting efforts arelikely to find it harder and harder to catch up. Weinclude recruiting as part of an organizationalknowledge retention initiative to re-emphasize theinterdependence of both ends of the human capitalsupply chain. The effectiveness of a firm's recruitingefforts in an increasingly tight labor market will have atremendous impact on the options a firm has fortransferring knowledge and its ability to do so.

Comprehensive, Integrated, Long-termInitiatives

Unlike the challenges posed by the eBusiness boom, theproblems created by changing workforce demographicsare not going to subside. The issues of building andsustaining HR capabilities with a very different kind ofworkforce in a global marketplace will require ongoingattention from functional and business unit managersfor years to come. The problems of knowledge transferand knowledge retention require simultaneouslyaddressing three areas: (1) building a commitment toshare and retain knowledge; (2) installing practices todo so; and (3) freeing up the resources (i.e., time)needed to exchange and absorb knowledge.

This means engaging multiple elements of theframework outlined earlier. Skill inventory and careermanagement processes need to be put in place, orenhanced, because management must know whatcapabilities are most at risk and have a plan to replacethem. At almost the same time, knowledge-sharingpractices and IT applications need to be customized tomeet the special requirements of individual functions orbusiness units because knowledge retention is ultimatelya problem that must be solved at the unit level. It is notsomething that can be delegated to HR or ITdepartments. To complement other efforts, programs forretaining access to the skills and knowledge of olderworkers, e.g., phased retirement, should also beimplemented where practical, and, if necessary,outsourcing strategies should be considered.

The problems created by changing workforcedemographics did not spring up over night. They havebeen in the making for years, and they will take sometime to resolve. What we are advocating is a multi-pronged, coordinated approach to addressing the issueswe have identified in this study. Anything less will leaveglobal chemical companies unable to sustain the humanperformance needed to prosper in years ahead.

Notes:

1. See David W. Delong, "Uncovering the Hidden Costs of 'LostKnowledge' in Global Chemical Companies," Research Note, theAccenture Institute for Strategic Change, 10 January 2002.www.accenture/isc

2. See, for example, Michael Beer et al., The Critical Path toCorporate Renewal (Boston: Harvard Business School Press, 1990).A



About the Author

David W. De Long is a Research Fellow at the AccentureInstitute for Strategic Change. His current work focuseson two problems: knowledge retention in the face oflooming baby boomer retirements and managingorganizational change to get real business value from ITinvestments. He may be reached [email protected].

About Accenture

Accenture is the world's leading management andtechnology services organization. Through its network ofbusinesses approach-in which the company enhances itsconsulting and outsourcing expertise through alliances,ventures and other capabilities-Accenture deliversinnovations that help clients across all industries quicklyrealize their visions. With more than 75,000 people in 47countries, the company generated revenues of $11.44billion for the fiscal year ended August 31, 2001. Itshome page is www.accenture.com.

About the Institute for Strategic Change

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The ISC conveys its ideas through Research Notes, WorkingPapers, articles, books, conferences, and hosted client visits.Each of these products shares a common goal: to provideactionable insights and ideas for addressing strategicbusiness issues.

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V-Accenture - A Strategic Framework for Organizational Knowledge Retention