Over the last decade, companies have become increasingly aware of the value of managing their organizational knowledge, and researchers have investigated those processes extensively.1 Indeed, the ways in which organizations learn and have stocks of knowledge that underlie their capabilities can be a powerful tool in explaining the behavior and competitiveness of companies. Yet something is missing in the current discussions of organizational knowledge: Companies don’t just learn; they also forget.

Organizational forgetting is a critical and common phenomenon, but one that is not well understood. Forgetting, like learning, is not simple: It may be accidental or purposeful, detrimental or beneficial, but in all cases it can significantly affect the competitiveness of a company. Thus, along with organizational learning, businesses also need to manage processes to ensure that they forget any knowledge that must be discarded — and not forget knowledge that should be retained. In short, the management of organizational forgetting is a crucial task for at least two important reasons.

First, the involuntary loss of organizational knowledge is costing companies millions of dollars every year. Lost knowledge means forsaken capabilities and potentially decreased competitiveness. When a company finds itself in the situation of having to reinvent or buy knowledge it once had, resources are wasted. In that situation, not only is the time and money spent developing those skills lost, but there is also an opportunity cost. In a highly competitive market, effectively managing forgetting can mean the difference between success and failure.

Second, organizational learning frequently depends upon processes of organizational forgetting. That is, companies that want to transform themselves not only must acquire new capabilities, but they also must often forget old knowledge that traps them in the past. Furthermore, businesses must purposefully forget other types of knowledge, such as bad habits learned from a partner.

Dealing effectively with such situations requires the careful management of organizational forgetting. In this article, we present a new construct for companies to determine how best to remember the knowledge they should retain and forget the knowledge they shouldn’t. Based on an extensive multiyear study (see “About the Research”), the framework presented here can help managers understand and manage organizational forgetting both productively and effectively.

About the Research »

What Is Organizational Forgetting?

Organizational knowledge makes collective action possible.2 It is the understanding of cause and effect that results from experience and is stored both in the shared mental models of people and in the assets, standard operating procedures, rules and routines of a company.3 “Organizational learning,” then, relates to the processes by which companies add to this stock of knowledge and hence to their repertoire of capabilities. “Organizational forgetting,” conversely, is the loss of such knowledge. When companies forget, they become unable to perform something that they had previously been able to do.4 They lose capabilities and, at least in some cases, competitiveness. (Although in other situations, as we discuss later, organizational forgetting can lead to increased competitiveness if some elements of past knowledge are interfering with the development of new capabilities.)

Forgetting can be categorized along two dimensions. The first differentiates between accidental and intentional forgetting. There is a fundamental difference between the two. Accidental forgetting is most often associated with the loss of valuable knowledge, which thus reduces a company’s competitiveness. The process is detrimental because organizations have to relearn the forgotten knowledge. Intentional forgetting, on the other hand, can result in increased competitiveness. If a company manages it properly, intentional forgetting can rid the organization of knowledge that has been producing dysfunctional outcomes.

The other dimension highlights the difference between knowledge that is entrenched versus new. Specifically, some pieces of knowledge are deeply ingrained within a company, whereas others have been developed or acquired only recently. Processes associated with forgetting things deeply embedded in a company’s memory are very different from those associated with new knowledge, which can be shed more easily before it becomes widely known and established. An important point here is that organizational knowledge takes different forms as it becomes more deeply embedded, both culturally and technologically. Existing stocks of knowledge tend to be embodied in relatively durable organizational objects: machines, databases, taken-for-granted routines, deeply held values, widespread cultural symbols and so on. In contrast, new knowledge lives a more ephemeral life in the minds of individuals, relationships among small teams and ad hoc organizational groups.

For companies to manage their organizational forgetting effectively, they must first understand both dimensions of forgetting and the relationships between them. The exhibit “Forms of Organizational Forgetting” is a matrix that highlights the four processes stemming from the intersection of the two dimensions: memory decay, failure to capture, unlearning and avoiding bad habits. Together, they describe the range of organizational forgetting that can occur. Each is associated with a distinct set of processes and contexts that results in a specific set of challenges. As such, each of the four processes must be managed differently.

Accidental Forgetting

There are two types of accidental forgetting. The first is memory decay, which occurs when well-established knowledge is accidentally lost.5 The second is failure to capture, which occurs when new knowledge is lost inadvertently before it can become firmly established in the organization’s memory.6

Memory Decay

A company often forgets things that have long been embedded in its organizational memory. Concepts, practices and even values can be unintentionally lost through memory decay, often with harmful, costly results. Consider the recent experience of the Central Bank of Argentina. After struggling for years with a deep recession, in January 2002 the government of Argentina devalued the currency and defaulted on its debt. Simultaneously, it ordered the Central Bank to once again manage the country’s monetary policy. However, according to Clarin, a respected Argentine newspaper, “the Bank is frantically looking in its archives and asking its current and former employees to locate the skills that have been lost after years of not using them: the ability to manage monetary emission, to let the currency float, and to get involved in exchanging money at a variable rate.” Sadly, the Central Bank has realized that “it has lost all its knowledge in one of the essential points of the new economic plan: managing foreign trade and the exchange rate.”7

This situation highlights the potential difficulty associated with retaining even very valuable pieces of organizational knowledge: If that information is not used regularly, it tends to decay. Key personnel leave the organization, routines are forgotten, close working relationships break down and important documentation is lost. The problem is often particularly acute during periods of downsizing. Memory decay can cause companies to lose critical sources of their competitive advantage, and those organizations can easily incur huge costs to re-create that forgotten knowledge. Unfortunately, discussions of knowledge management seldom focus on this problem (and its critical strategic importance), when in fact preventing memory decay requires a concerted effort and a specific set of practices.

Forms of Organizational Forgetting

View Exhibit

Find the true locations of organizational knowledge.

To avoid forgetting important knowledge, companies first need to understand where it resides. In our experience, managers often have an oversimplified view of what constitutes organizational knowledge. In a well-established manufacturing company in Pittsburgh, for example, managers wanted to clean up their library of blueprints of industrial products. So those documents were redrawn and refiled with the expectation that the process would enhance productivity by making the blueprints more available and easier to read. What management had failed to realize, though, was that the old blueprints contained critical information in the form of notes that workers had handwritten over the years. But management mistakenly considered those notes as wear and tear on the blueprints, so the new documents were produced with just the formal, technical aspects of the drawings, thereby losing the informal but crucial information that workers really needed for operating the plant. See Sidebar.

The key lesson is this: Valuable knowledge in an organization is often hidden, implicit, informal and created by employees in myriad ways. Much of this information might be stored in the minds of employees as well as in disconnected, idiosyncratic “databases,” such as bits of paper pinned on corkboards. Moreover, given today’s communication technologies (such as the Internet) and decentralized organizational structures, more and more corporate knowledge is being created rapidly and in highly fragmented pieces.

One form of knowledge that is particularly challenging to manage is embedded in so-called communities of practice, which exist in every organization. The importance of tacit knowledge is generally accepted,8 but the emphasis has often been on individual experts. Less well understood is the importance of communal forms of implicit knowledge — what we refer to as “folk knowledge.” Such information is typically embedded in the routines and relationships among a group of employees that make up their day-to-day operations. Consequently, it is less visible than even an expert’s tacit knowledge and is thus even more susceptible to long-term decay.

Maintain organizational memory as a strategic imperative.

Being aware of the location of knowledge is not enough; companies must also adequately maintain that information, especially when they use it just sporadically. In such situations, skills can atrophy, and organizations might completely forget how to perform a valued activity.

Consider the experiences of a company that was once in charge of building the afterburner for the engine of the Concorde. When asked whether the company could build that key component today, a senior manager replied, “No, … we have a subsidiary to do regular maintenance for the [airplanes] that still use it, but we wouldn’t be able to make it today. ... We simply don’t have the capabilities anymore.” As it turns out, the company’s knowledge of building the afterburner was distributed in people’s heads, paper manuals, sets of practices and routines, and even in particular tools and machines. “People have left,” explains the manager. “Our tools have been transformed. We have lost some of the manuals.” Moreover, important information was also contained in the complex web of interactions among those different entities. To maintain that network, the company would have had to establish sets of practices to ensure that the distributed pieces of knowledge were somehow maintained as a coherent body.

Many organizations face situations that occur only infrequently and irregularly, so that managers face uncertain rewards for bearing the costs of trying to manage the knowledge necessary to deal with them. The problem is exacerbated when that knowledge is represented by a complex arrangement of skills, information and tools. In such cases, it might be more sensible (and certainly less costly) simply to forget. But the important point is that the decision whether to maintain such complex organizational capabilities should be a strategic one, and companies should be careful to avoid any memory decay that could affect their competitiveness. At the very least, organizations should include the management of knowledge in their strategic planning process, and a specific person should have the responsibility and authority for identifying and protecting core stocks of knowledge.

Failure To Capture

Along with memory decay, there is another kind of accidental forgetting: failing to incorporate new knowledge into the broader organizational memory. In such cases, a company neglects to make valuable new information available to the rest of the organization, and that knowledge becomes lost when certain individuals leave or work teams disband or change. To prevent that, information must be captured from individuals and made institutional — a process that involves a range of activities to routinize, codify and store knowledge. Also, certain types of information, such as a company’s stories, myths and other forms of discourse, must be embedded into the organization’s culture.

The process of knowledge capture can be divided into two interrelated parts. First, the new knowledge must be made explicit — a process that has been called knowledge articulation. Then the information must be communicated to other parts of the organization and embedded in the appropriate parts of its memory system — a process we call knowledge institutionalization. The two processes can pose different problems of varying difficulty, depending on the circumstances. For example, some situations do not require knowledge articulation because the information is already explicit and available for transmission to other parts of the organization. In such cases, the critical thing is to capture the valuable new knowledge before it dissipates.

Numerous companies have innovated, but then they’ve failed to incorporate that learning into the broader organizational memory. Consider the experiences of a large international hotel in our study. The hotel manager personally supervised the first banquet catered at his hotel — a large reception organized by the ambassador of a G8 country. The party was a smashing success, and the hotel was widely praised for its impeccable service and gourmet food. But on the next occasion when such a reception was held — this time when the general manager was not present — things fell apart. Food was cold when it needed to be warm; beverages were warm when they should have been cold; a fire burst out of control in the barbecue pit, charring the roast; and several waiters dropped food and drinks onto important guests. In short, not only did the hotel fail to incorporate the knowledge it gained from the first experience, but also it damaged its reputation for quality service. To prevent such debacles, companies should deploy specific tactics.

Avoid heroes.

Sometimes, companies are able to perform a complex task only under specific conditions that are difficult to replicate — or that can’t be repeated at all. A common situation is when specific key individuals (such as the general manager of that hotel) are needed in order for the organization to perform an activity. Of course, resident experts are inevitable in organizations, but when their knowledge isn’t managed properly they can make the company as a whole more vulnerable and stifle organizational learning. To prevent that, managers should structure work in ways that replicate new knowledge across individuals —and, ideally, even across teams and departments. Without such procedures, the organization fails to learn and competency can be lost if the critical personnel leave.

Often, the experts in question will resist any attempts to convert their specialized knowledge and skills into organizational knowledge. After all, it would be natural for those individuals to prefer being indispensable, and they may fear a loss of importance and power. Obviously, such tricky political situations require the careful attention of skilled managers. A company might, for instance, implement a bonus incentive structure that rewards knowledge sharing, or it could help the in-house experts to develop additional competencies as they pass along their past knowledge and skills. But even though considerable effort might be necessary to manage such situations, companies should bear in mind that the cost of having to relearn important knowledge could be far greater.

Link the new to the old.

An important factor in capturing knowledge is the relationship between new information and an organization’s existing stock of knowledge. Companies are much more likely to recognize and capture new knowledge when people can relate it to their areas of current expertise. When they can’t, they might fail to see the strategic importance of the knowledge and resist adopting it. Moreover, they could find the new knowledge threatening. Such situations can occur, for instance, when a company tries to transfer knowledge from a competitor or partner.

Managers should remember that organizational knowledge is interconnected in complex ways. It is this complexity that leads to organizational capabilities that are difficult to imitate, thus providing companies with competitive advantage. New knowledge that is complementary to those capabilities will be relatively easy to embed in the organization’s memory system. But when the new knowledge disrupts or conflicts with the existing ways of doing things, companies will need to expend considerable effort to ensure that the knowledge is adopted instead of rejected.

Intentional Forgetting

While accidental forgetting can decrease an organization’s competitiveness, intentional forgetting can actually increase it.9 This could occur in two types of situations. In the first, managers strategically remove knowledge that, for instance, is hindering an important change initiative. In the second, managers identify potentially detrimental knowledge (for example, an inefficient practice transferred from an alliance partner) and prevent it from becoming part of the organization’s stock of knowledge. In both cases, forgetting is an active process that the company purposefully manages.

Unlearning

To “unlearn” knowledge, a company intentionally removes something that is well established in the organization’s memory. That process can be just as important as learning, particularly when a company needs to shed knowledge that has begun to undermine its success. This often occurs when something (for instance, a change in technology or a shift in the market) renders previously useful knowledge ineffective.

For unlearning to take place, a company must “disorganize” some part of its knowledge store. The process can be understood by first considering the more familiar process of learning. At its core, organizational learning occurs when a company “organizes” knowledge by taking it out of the heads of individuals and making it institutional. Unlearning involves the reverse: disorganizing knowledge by breaking routines, changing structures and managing cultures in ways that dismantle deeply embedded knowledge. Several tactics can help a company to unlearn knowledge that has become an impediment.

Break routines and practices.

Companies embed knowledge in routines and practices, thereby making that information available to a range of employees and facilitating its reproduction over time even after its originators have left. Such knowledge can become deeply embedded because people don’t typically question the assumptions behind established routines and practices, and because employees whose status or influence is dependent on them will fight to protect the status quo. Both of those factors make unlearning difficult: Long-held assumptions are rarely questioned without a significant catalyst, and vested interests tend to resist change even when it is strategically important. Even so, companies can succeed at unlearning by making a concerted effort to break those routines and practices that are central to the production (or reproduction) of the problematic knowledge.

Consider the experience of one of the large international hotels in our study. The executive team wanted to implement radical cost reductions in an organization that had traditionally not paid much attention to such concerns. Instead, the hotel had focused on a customer-centric strategy. For example, it regularly conducted comprehensive customer-satisfaction studies. Not only were those surveys costly to perform, they continuously introduced into the organization new knowledge that was focused on customer responsiveness, thereby distracting employees from the task of reducing costs. After the situation became urgent (the hotel was posting regular losses), managers replaced the surveys with informal “fireside chats” with customers, and employees began to implement a series of comprehensive belt-tightening measures. As a result, the hotel was able to shift its focus to the new strategic goal of cost reduction, and it discovered it could provide the same level of service at a considerably lower cost.

Divest businesses.

Sometimes organizational knowledge is so deeply embedded that a company has tremendous difficulty unlearning it without major disruptions to important ongoing activities. The unquestioned assumptions might be too firmly rooted or the vested interests just too powerful. In such cases, a more radical approach might be necessary. Divesting parts of a company is an effective — though often costly — way to rid the organization of knowledge that conflicts with core activities or that stands in the way of strategic change. It may take the form of selling off operations that are ancillary to the core business. A less severe option is to close a department or group and absorb the employees back into the rest of the organization. Another alternative is a corporate restructuring that reassembles parts of the organization. Whatever the approach, the important thing is to dismantle the complex body of knowledge whose interconnections with other parts of the organization’s memory make change difficult or impossible.

Avoiding Bad Habits

Learning organizations are typically viewed as healthy and competitive, but learning is actually a double-edged sword. Organizations, like people, can learn bad habits —routines, practices, ideas and values that are counterproductive. Successful companies are able to forget such knowledge purposefully before it becomes embedded in their organizational memories. To accomplish this, a company has to be able to distinguish between useful knowledge and potential bad habits, and it must have the systems in place to ensure that the latter are forgotten before they become ingrained.

It is important to note that the ability to avoid bad habits becomes increasingly critical as organizations become better learners. After all, companies that excel at learning are often just as good at picking up bad habits as they are at gaining useful knowledge. Thus, as an organization becomes more adept at learning, it also needs to become better at identifying and forgetting potentially detrimental knowledge. Otherwise, the organization could incorporate numerous bad habits into its knowledge system, and the learning capability that was supposed to enhance competitiveness will, ironically, have the opposite effect. Identifying and forgetting potentially bad habits can require the same kind of effort and dedication as learning useful knowledge, and managers should be aware of certain common pitfalls.

Don’t overlearn from either failure or success.

It’s actually easy to learn; the real challenge is learning the right things. Indeed, one of the fundamental challenges facing organizations is to learn the right lessons from failure. It is far too easy to learn nothing or, worse, to overlearn from failure. That is, companies might lack the insight to identify clearly why they failed, and that shortcoming could color the judgment of their capabilities. At its most extreme, they could decide that they are simply unable to succeed in a particular activity. They “learn” that they shouldn’t be involved in a certain business because they will surely fail. As the management guru Tom Peters argues,10 Ford Motor Co. over-learned greatly from its inability to manufacture small cars in 1938. Instead of evaluating why that effort failed and then attempting to build the missing competencies, Ford decided that it simply didn’t know how to make small cars, and that faulty assumption became deeply ingrained in the organization’s memory until the mid-1980s, when the company had to unlearn that lesson to remain competitive.

A similar problem occurs when innovations succeed but managers are unable to distinguish between the positive factors (those that led to success and can be replicated more broadly) and the negative ones (those that are harmful to the organization but happen to be associated with the success). In such cases, the negative elements can easily become organizational bad habits, especially if a company mistakenly assumes that they are essential to success. In the late 1970s, for example, Gucci’s success at extending its brand beyond the fashion business led the company to believe that it could market products far removed from its core business. Overlearning from its earlier success, Gucci proceeded to brand a wide range of goods, including pens, key chains and coffee cups. The result: a rapid erosion of the Gucci brand that led to a crisis from which the company almost did not recover.

Isolate yourself from partners’ bad habits.

Common wisdom suggests that company collaborations and partnerships are a fundamental way for corporations to develop new competencies and enhance their knowledge bases. Through such arrangements, though, an organization must be careful to control what it learns. When companies evaluate potential alliance partners, they typically focus on the value of the knowledge that they might obtain and on the capacity for the arrangement to facilitate learning. Manufacturing companies, for instance, often engage in international marketing alliances in order to gain access to a local partner’s expertise in an overseas market. The assumption is that through such relationships, a company will gain only knowledge that is strategically advantageous. In reality, though, collaborations and alliances designed to facilitate learning often involve multiple points of contact between partners that can lead to employees picking up detrimental knowledge that was not on the learning agenda.

Consider the recent scandals that engulfed Arthur Andersen LLP and its clients Enron Corp., Sunbeam Products Inc., World-Com Inc. and others. Critics have argued that the dependence of accounting firms on their largest clients results in a number of potential difficulties. For one thing, such relationships can make a company more susceptible to the transfer of bad habits, such as a lax attitude toward audits and business ethics. It is unclear how much of a factor that was in Arthur Andersen’s demise, but the important point is this: The closer and deeper a relationship, the more critical it becomes for companies to manage the processes of organizational forgetting to ensure that they reject any bad habits. Without such vigilance, the default situation is that companies will tend to become increasingly like their partners (just as individuals often become more like their friends).

SOME COMPANIES FORGET the things they need to know, incurring huge costs to replace the lost knowledge. Other organizations can’t forget the things they should, and they remain trapped by the past, relying on uncompetitive technologies, dysfunctional corporate cultures or untenable assumptions about their markets. Successful companies instead are able to move quickly to adapt to rapidly changing environments by being skilled not only at learning, but also at forgetting. Indeed, as companies work to increase their capacity to learn they also need to develop a corresponding ability to forget. Otherwise, they could easily be learning counterproductive knowledge, such as bad habits. The bottom line is that companies need to manage their processes for forgetting as well as for learning, because only then can they deploy their organizational knowledge in the most effective ways for achieving sustained competitive advantage.

References

1. C. Fiol and M. Lyles, “Organizational Learning,” Academy of Management Review 10, no. 4 (1985): 803–813; B. Levitt and J.G. March, “Organizational Learning,” Annual Review of Sociology 14 (August 1988): 319–340; and A.S. Miner and S.J. Mezias, “Ugly Duckling No More: Pasts and Futures of Organizational Learning Research,” Organization Science 7, no. 1 (1996): 88–99.

2. M. Douglas, “How Institutions Think” (Syracuse, New York: Syracuse University Press, 1986).

3. R.M. Cyert and J.G. March, “A Behavioral Theory of the Firm” (Englewood Cliffs, New Jersey: Prentice-Hall, 1963); and R.R. Nelson and S.G. Winter, “An Evolutionary Theory of Economic Change” (Cambridge, Massachusetts: Belknap Press of Harvard University Press, 1982).

4. P. Martin de Holan and N. Phillips, “Organizational Forgetting,” in M. Easterby-Smith and M.A. Lyles (eds.), “The Blackwell Handbook of Organizational Learning and Knowledge Management” (Malden, Massachusetts: Blackwell, 2003), 393–409.

5. E. Darr, L. Argote and D. Epple, “The Acquisition, Transfer and Depreciation of Knowledge in Service Organizations: Productivity in Franchises,” Management Science 41, no. 11 (1995): 1,750–1,762.

6. N. Dixon, “The Neglected Receiver of Knowledge Sharing,” Ivey Business Journal 66, no. 4 (2002): 35–40; and D. Leonard and S. Sensiper, “The Role of Tacit Knowledge in Group Innovation,” California Management Review 40, no. 3 (1998): 112–132.

7. O. Martinez, “El Banco Central se Meuve: Modificación en la Carta Orgánica y Control de Cambios,” Clarín, Friday, Jan. 4, 2002, Sección Economia.

8. I. Nonaka, “The Knowledge-Creating Company,” Harvard Business Review 69 (November–December 1991): 96–104.

9. B. Hedberg, “How Organizations Learn and Unlearn,” in “Handbook of Organizational Design, Vol 1,” eds., P.C. Nystrom and W.H. Starbuck (Oxford: Oxford University Press, 1981), 3–27; and R. Bettis and C.K. Prahalad, “The Dominant Logic: Retrospective and Extension,” Strategic Management Journal 16, no. 1 (1995): 5–14.

10. T. Peters, “Liberation Management: Necessary Disorganization for the Nanosecond Nineties” (New York: Knopf, 1992).