In brief
- Institutional knowledge retention is a challenge in the financial industry, as critical knowledge often resides in the minds of a few key employees, risking loss upon turnover.
- Common approaches to addressing this issue include maintaining documentation, proper code commenting, training programs, and succession planning. However, these approaches require constant effort and can diminish over time due to lack of focus.
- An effective solution involves leveraging external IT service providers who specialize in knowledge retention and transfer. These providers focus on learning and documenting client processes, updating knowledge bases, training new staff, and providing proper documentation as part of their core competencies. This helps financial firms mitigate knowledge retention risks and focus on their core strengths.
The problem: Knowledge retention
If you are an IT manager at a financial firm, you may have seen this situation. You’ve got a
20-year-old app, it’s business-critical, and the documentation is somewhere between hopelessly
outdated and non-existent. You have 1 or 2 employees who have been around for a long time and who
know everything about the app, but if they left, you and the business you support would be
completely stuck. Sound familiar?
This is an example of the problem of institutional
knowledge retention. An enormous store of intellectual capital resides only in the heads of key
employees, and when there is staff turnover, this knowledge can be lost with potentially serious
consequences for your business. In the current environment, with the Great Resignation accelerating
attrition combined with ever-increasing regulatory scrutiny of operational risk, how can you hedge
your exposure to knowledge retention risk?
The usual answer: Fix it yourself
There are several common approaches:
Maintain documentation, perhaps in an internal knowledge base or wiki
Ensure that code is properly commented and has a full complement of test cases
Establish training programs for new joiners, including mentoring by the most experienced employees to spread the knowledge
Define succession plans, not just for key workers, but for the key elements of their
knowledge
These are all worthwhile practices. Documentation and training should certainly be encouraged. The
problem is that they take constant effort to maintain and big companies tend to have short attention
spans. There may be a burst of enthusiasm among management to implement knowledge retention plans,
but after a while (and perhaps after a change in management) they wind down and wither away. The
institutional knowledge of what it takes to maintain institutional knowledge is itself vulnerable to
deterioration and loss.
A further factor is that at a financial firm, there are typically no
employees whose job function is to be a custodian of institutional knowledge, or a guardian of good
knowledge transmission. Documentation isn’t part of anyone’s KPIs — it's just overhead. There may be
experts, but they see any key-man dependency as job security. We are probably all familiar with
cases of key people who were let go, only to be brought back as expensive consultants once it became
clear that their knowledge was never properly transferred to others. And managers always have more
pressing concerns until they panic when a key person leaves the firm. There is no one with a real
incentive to invest the required (and substantial) effort in the day-to-day maintenance of
institutional knowledge.
A better approach: Get some help
What to do? If there is no one in the firm with the right incentive, it stands to reason
that one may have to look outside the firm. I have seen this in my own experience. When I
worked at big banks, nobody wanted to document the business-critical legacy apps, least of
all the few real expert developers. There was always more interesting work to be done. What
really changed things at one major global bank where I worked, was when we brought in an IT
service provider (Luxoft) to take over the backlog of maintenance and small enhancements for
a suite of front-office trading and risk-analytics applications. At first glance, you might
think that turning over an app from an internal team to a service provider involves a total
loss of institutional knowledge. But in fact, the opposite turned out to be the case. Let me
explain why.
At a good IT service provider like Adaptix Solutions, knowledge
retention and
knowledge transfer are core competencies. These firms know that they don’t know the internal
processes of their clients, so they make it their business to learn and document these
processes up front. Service providers are also used to staff moving flexibly between
projects at a client, so they don’t allow themselves to develop key-man dependencies, which
are the greatest source of knowledge-retention risk. They commit themselves to constantly
updating their knowledge bases, and constantly training new joiners to do the work of more
experienced mentors. And they do this because it’s their job; it’s what they get paid for.
If the contract is drawn up correctly, it’s part of their KPIs and SLAs. In particular,
creating and updating proper documentation, including the results of extensive interviews
with the incumbent experts, is a major deliverable of the initiation phase of any proper
managed-service engagement.
I saw the same thing at another tier-one bank, in this
case, from the other side of the table as a Adaptix Solutions consultant. We were brought in
to look
at
industrializing a business-critical desk dev app, components of which were no longer
vendor-supported. There were key experts who ran the system but no documentation to speak
of. So the first thing we did, before anyone proposed to write a line of code, was to bring
in a small team of senior consultants to spend a couple of months interviewing the experts
and then writing up a proper BRD, both for the current state and for the desired future
state. And that BRD ended up being a valuable deliverable itself, in terms of hedging
against the loss of institutional knowledge, even when the business decision was made not to
replace the legacy app after all.
If we look at this like economists, the question of
who should manage knowledge risk is really about comparative advantage. Financial services
firms are good at financial services. Most of them would like to be good at financial
technology as well, since they see technology as a key differentiator. But knowledge
management is not a core competency of financial services firms (neither is technology
recruitment but that’s a separate topic). By hiring a professional IT service provider like
Adaptix Solutions, the financial firm can effectively swap its institutional knowledge risk
to a third
party, for whom it is a core competency, and who therefore has a comparative advantage in
managing such risk. That can be profitable all around. It can also make your employees
happier as they get to concentrate on strategic projects, doing what really drives
profitability at your firm.
Next steps
So if you are the hypothetical manager of that undocumented 20-year-old business-critical
app, and if you are getting a bit worried about your risks, please feel free to
contact me. I’d love to
partner with you and to talk with you about how Adaptix Solutions and I can transform your
knowledge
retention risk into an opportunity for improved IT service, while letting you focus on your
core competencies and the business you really care about.
If you’d like to find out
more visit luxoft.com/capital-markets or consult one of our experts
at financialservices@adaptix.com.
Jonathan Kastin
Jonathan Kastin has been working in financial technology for 16 years, with a focus on managing change programs in market risk and credit risk, delivering value through transparent access to high-quality data and analytics. In his role as Director, Technical Sales and Advisory at Adaptix Solutions, Jonathan partners with senior decision makers at leading financial institutions, bringing the best of Adaptix Solutions’s technology offerings to meet business needs. He holds a master’s degree in philosophy, and he enjoys using his background teaching college philosophy to take a big-picture approach to solving business problems.
