The cost of cutting wisdom: What happens when IT companies lose their institutional knowledge
IT companies often make decisions that seem logical in the moment but disastrous in hindsight. One glaring example is the pervasive ageism that targets experienced employees. Often dismissed as outdated or expensive, these employees are forced out under the guise of modernization or cost-cutting. For example, companies might implement sweeping automation changes or adopt new tech stacks without involving experienced staff, justifying their removal as part of reducing “legacy” costs, despite the critical role these employees play in smooth transitions. However, this short-sighted approach not only undermines individuals who hold the deepest institutional knowledge but also boomerangs back to hurt the company sooner rather than later.
What is institutional knowledge?
Institutional knowledge is more than just knowing how to use a system or complete a task — it’s the collective memory of an organization. It’s this repository of historical insights and practical experience that serves as a foundation for innovation, allowing teams to build on established practices rather than reinventing the wheel. It encompasses the nuances of customer relationships, the history of why certain processes exist, and the shortcuts that save time or prevent mistakes. It’s the wisdom that ensures continuity and fosters innovation.
When this knowledge is lost, the ripple effects touch every corner of the organization.
The immediate fallout
Operational chaos: Teams scramble to figure out how to handle tasks previously managed by experienced employees. Processes slow down, and mistakes increase as employees struggle to fill the gaps. For instance, a cloud migration project at a midsize firm faltered when experienced IT staff were let go, leaving newer employees unfamiliar with legacy systems to handle the transition. This led to delayed timelines and a 20% increase in reported system errors over the following quarter.
Overburdened remaining staff: The work doesn’t disappear — it gets redistributed. Remaining employees are left juggling additional responsibilities, leading to burnout and, in some cases, further attrition.
Client disruptions: Long-term clients accustomed to working with experienced staff may lose confidence in the company when they’re suddenly dealing with new, less experienced contacts who lack context.
The long-term repercussions
Innovation stalls: Experienced employees often act as the bridge between old and new, providing historical context that ensures innovation builds on solid foundations rather than reinventing the wheel. Without them, projects may flounder or repeat past mistakes.
Knowledge gaps: Institutional knowledge doesn’t reside in a database — it lives in people. When those people leave, the company often discovers too late that critical insights were never documented.
Onboarding challenges: New hires may bring fresh ideas, but without mentors to guide them, their ramp-up time increases, and they’re more likely to make costly errors.
Why do companies make this mistake?
The reasons often boil down to a short-term focus:
Cost-cutting priorities: Veteran employees are typically higher earners, making them easy targets in budget cuts.
Misplaced faith in technology: Many leaders believe that institutional knowledge can be replaced by better documentation, knowledge management tools, or AI — ignoring the human element that makes this knowledge valuable.
“Fresh talent” fallacy: The desire for younger, cheaper talent leads to a dangerous assumption that experience is expendable.
How to retain and protect institutional knowledge
Prioritize knowledge sharing: Invest in systems and processes that encourage employees to document key workflows and lessons learned. Platforms like Notion, Confluence, and SharePoint can help centralize this information by offering features such as collaborative document editing, version control, and tagging. These tools enable teams to store, retrieve, and update knowledge efficiently, ensuring that critical insights are easily accessible. For example, I’ve successfully implemented scalable knowledge bases using these tools, significantly improving team efficiency.
Foster mentorship programs: Pair experienced employees with newer hires to ensure critical knowledge is passed down over time. At a container startup, I developed Notion templates and AI-augmented writing tools to streamline such knowledge-sharing processes.
Create retention plans: Recognize the value of institutional knowledge and invest in retaining experienced staff. This could include competitive compensation, flexible work arrangements, and growth opportunities.
Conduct exit interviews: When employees do leave, ensure that their knowledge is captured before they walk out the door. Implement structured approaches, such as using AI-driven templates to document workflows and lessons learned.
A call to action for IT leaders
Laying off experienced employees may reduce costs in the short term, but the long-term damage to your organization’s culture, operations, and customer relationships can be devastating. For example, one company retained its senior IT staff during a major digital transformation, leveraging their deep institutional knowledge to implement new systems seamlessly. This approach not only avoided disruptions but also reduced implementation costs by 25% due to fewer errors and rework. Institutional knowledge is not a line item on a budget — it’s a competitive advantage.
Protect it.
Have you experienced the fallout from losing institutional knowledge in your company? How did your team adapt — or struggle? Let’s discuss in the comments.
Will Kelly is a technology industry writer and marketer. Medium is home to his personal writing. He’s written for CIO, TechTarget, InfoWorld, and others. His career includes stints in technical writing, training, and marketing. Follow him on X: @willkelly.
