Corporate Memory vs. Corporate Amnesia

Introduction

Do you remember that Advanced Statistics mid-term that you took in the third year of your university degree? Can you remember what result you received and more importantly, why you did so poorly?

Personal memory fades over time and the longer that mid-term test was sat, the less likely you are to remember it. Even if the actual score is recollected (68%), the reasons for that outcome are even less likely to be remembered.

Corporate Memory

If you work for a lender, then there is a 99% certainty that you are an employee of a corporate. My first two jobs out of university was with two banks: a small savings and loan and one of the largest banks in the world. Both lenders were at different ends of the corporate spectrum, but both were corporates, nevertheless.

If the term ‘corporate’ offends you, then alternative terms that can be used are ‘organisation’ or ‘institution’.

Many people will be surprised to read that corporates, just like us humans, have memories. Wikipedia defines this as:

“Organisational memory (OM) (sometimes called institutional or corporate memory) is the accumulated body of data, information, and knowledge created in the course of an organisation’s existence.

The concept of organisational memory includes the ideas of components knowledge acquisition, knowledge processing or maintenance, and knowledge usage like search and retrieval.[1] Falling under the wider disciplinary umbrella of knowledge management, it has two repositories: an organisation’s archives, including its electronic data bases; and individuals’ memories.

Organisational memory can only be applied if it can be accessed. To make use of it, organisations must have effective retrieval systems for their archives and members with good memory recall. Its importance to an organisation depends upon how well individuals can apply it, a discipline known as experiential learning or evidence-based practice. In the case of individuals, organisational memory’s accuracy is invariably compromised by the inherent limitations of human memory. Individuals’ reluctance to admit to mistakes and difficulties compounds the problem. The actively encouraged flexible labour market has imposed an Alzheimer’s-like corporate amnesia on organisations that creates an inability to benefit from hindsight.[2].”

Corporate Amnesia

“Those who do not remember the past are condemned to repeat it.” George Santayana, The Life of Reason, 1905.

The most telling sentence from the Wikipedia definition of corporate memory is:

“The actively encouraged flexible labour market has imposed an Alzheimer’s-like corporate amnesia on organisations that creates an inability to benefit from hindsight.[2].”

Effectively this is stating that corporates have historically over-relied on the personal memories of their staff. However, with job mobility and people switching careers, this is no longer an option and so corporates now no longer remember the past. This then places them in a position of amnesia and at risk of repeating the same mistakes of the past.

A Simple Solution

A very simple solution to address the multiple challenges of corporate amnesia caused by team turnover and a lack of documentation is to implement a Portfolio Chronology Log.

So what is a Portfolio Chronology Log, it sounds rather grandiose? In fact nothing could be further from the truth. This is just a straightforward ‘dear diary’ style log that is maintained and accessed by the entire risk team.

An example format would be:


Now that we have cleared up what a Portfolio Chronology Log should look like, then it makes sense to address what type of information should be included?

As a rule of thumb, the more information that is included, the more accurate the Log will be. The sources and types of information should be wide ranging and from both internal and external sources:

  • Marketing campaigns
  • Sales drives
  • New product launches
  • New scorecards implementation
  • New scorecard cut-offs
  • Scorecard re-alignments
  • Changes to policy rules
  • National events
  • Strikes
  • Financial crises
  • Interest rate changes
  • Inflation rate changes
  • Exchange rate changes
  • Changes in national regulations
  • Software upgrades
  • Software changes
  • Credit bureau changes

This list is not exhaustive, but as can be confirmed, it is comprehensive. The more information that a company has available, the less likely it is to suffer from corporate amnesia.

Summary

If you have read this far, you may be thinking “why are they writing about such a simple topic?” “Why are they making such a big deal out of a no-brainer?”

The answer is, whilst this is such a simple, no-brainer thing to do, very few companies actually have this in place!

By not implementing even a simple Portfolio Chronology Log, and making it second nature, the majority of lenders are condemning themselves to “… an Alzheimer’s-like corporate amnesia … that creates an inability to benefit from hindsight.”

About the Author
Stephen Leonard is the founder of ADEPT Decisions (www.adeptdecisions.com) and has held a wide range of roles in the risk industry since 1985.