Cost-Cutting Gone Wrong: Understanding the Value of Knowledge in Organizations

Case Scenario 1:

• The administration of one University decided to cut costs by firing some staff. The top computer technician was one of them;

• The computer server eventually ceased operating after a few months owing to various elements being damaged;

• The University attempted to correct the problem several times but was unsuccessful. As a result, it has no choice but to engage the computer technician to fix the server;

• The computer technician used his soldering pen to attach the replacement part and place it in the proper location, allowing him to return the server in service in minutes;

• He then submitted a ₱50,000.00 repair charge. The soldering pen, on the other hand, did not cost more than ₱500.00;

• Can you justify (₱49,500.00)?...

To explain the ₱50,000.00 repair charge, we need to understand the value of expertise, especially in knowledge management. In this situation, a decision made by the University, which was meant to save money, ended up causing problems. It's important to notice that the technician was described as "top," meaning he was very skilled in his field with a lot of experience. While the University tried to fix the server themselves but failed, the technician was able to repair it quickly. This shows the clear difference between an expert and someone who is just starting out, and his skills are worth much more than the ₱500.00 cost of a soldering pen. This situation highlights the need for organizations to recognize and manage their knowledge effectively, as firing such an expert can lead to expensive mistakes. 

Knowledge as a Key Resource 

In knowledge management, knowledge is seen as a vital resource for an organization that should be managed carefully, just like money or equipment. Knowledge in a workplace can be divided into two types: explicit knowledge, which can be easily shared, and tacit knowledge, which is more personal and learned through experience. The case with the University shows how important tacit knowledge is, as the value of the technician's skills was only realized when problems arose after he was gone. 

Tacit knowledge comes from years of hands-on experience and includes skills that can't easily be learned from books (Indeed Editorial Team, 2024). The technician's ability to quickly figure out and fix the server is a great example of this valuable tacit knowledge. The mistake the University made was thinking that the technician could easily be replaced when he was actually a crucial part of their knowledge base. 

Expert vs. Novice 

The big difference in cost between the ₱500 soldering pen and the ₱50,000 repair bill can be explained by the difference between experts and novices. Experts like the technician can quickly find and solve problems, while those with less experience might take a long time and still not succeed. The University tried using other technicians who didn’t have the same level of experience, but they were unsuccessful. This shows the difference between just knowing how to use tools and understanding when and why to use them. 

Experts progress from being novices to advanced beginners, then proficient, competent, and finally experts through years of experience and tackling complex problems (Persky, 2017). Experts don’t just fix problems; they solve them in ways that ensure stability and performance over the long run. In this case, the technician’s skills allowed the University to save time and money in the long term. 

From a knowledge management viewpoint, the technician’s problem-solving skills and experience go beyond just using a soldering pen. They demonstrate his ability to foresee issues and prevent future problems, which is incredibly valuable for any organization. 

The Hidden Costs of Firing Expertise 

The University’s choice to fire the top technician was a short-sighted move to cut costs. In knowledge management, this is seen as knowledge loss, which can have serious negative effects on an organization (Adamska, 2023). When key people leave, their valuable tacit knowledge leaves with them, often leading to poorer performance, longer problem-solving times, and more costly recovery efforts, as shown in this situation. 

When organizations fail to capture, keep, and share knowledge, they risk facing inefficiencies and costly mistakes (Starmind, 2023). If the University had set up proper knowledge management practices, they could have reduced the risks of firing the technician. For example, they could have documented his knowledge about the server and its problems, trained other employees, or created systems to share important information. 

Nonaka and Takeuchi’s Knowledge Creation Model shows how important it is to share and create knowledge in an organization through four processes: Socialization, Externalization, Combination, and Internalization (SECI model) (Anggraini, 2018). In this case, the University didn’t find a way to share the technician’s tacit knowledge, leaving them vulnerable when a major problem arose. If they had a knowledge management strategy in place, they could have kept or at least shared this knowledge before letting the technician go. 

The Cost of Knowledge: Beyond Physical Tools 

The ₱50,000.00 charge is justified because while the soldering pen costs ₱500.00, it is not the tool that solves the problem—it’s the technician’s years of experience that allowed him to use it well. This is similar to the story of a repairman who fixed a large ship’s engine with just a few taps and charged a lot for the service. The tap was worth $2, but knowing where to tap was what really mattered. The true cost reflects years of learning, skill development, and the ability to solve tough problems under pressure (Martin, 2023). 

In the broader view of knowledge management, organizations need to understand that knowledge work, which includes having expertise and applying it in social and organizational settings (FutureLearn), is much more valuable than just manual labor or tool use. This is especially true in technical fields, where troubleshooting and fixing problems require a deep understanding of complex systems. The technician’s fee is not just for soldering; it’s for knowing the server’s structure, diagnosing the exact issue, and fixing it quickly without causing more damage or delays. 

This situation shows how crucial it is for organizations to manage their knowledge properly. The University aimed to save money by letting go of key staff but didn’t think about the long-term effects of losing valuable expertise. The technician’s years of experience were not easy to replace, and when the University couldn’t fix the server without him, it became clear that losing this knowledge was more costly than keeping it. To prevent this, organizations should invest in methods to retain and share important knowledge, like mentoring or training programs. Lastly, it’s vital to recognize the true value of experts, as their skills and experience are essential for an organization’s success. 

Conclusion 

In conclusion, the ₱50,000.00 charge from the technician is not an overpayment; it reflects the value of his knowledge, experience, and skills. The University’s decision to let him go, while trying to save money, ultimately led to greater expenses and a serious gap in knowledge. This case emphasizes the importance of effective knowledge management, where keeping and sharing vital knowledge within an organization can help avoid costly mistakes and ensure smooth operations. In today’s knowledge-driven world, expertise and experience are much more valuable than the tools used for the work. 

References

Adamska, I. (2023, May 15). Strategies to minimize knowledge loss in organizations. NSFLOW. https://nsflow.com/blog/strategies-to-minimize-knowledge-loss-in-organizations

Anggraini, A. (2018, February 5). Introduction to “The Nonaka and Takeuchi” Knowledge Management Model. School of Information Systems. Retrieved September 27, 2024, from https://sis.binus.ac.id/2018/02/05/introduction-to-the-nonaka-and-takeuchi-knowledge-management-model/

FutureLearn. (n.d.). What is knowledge work? FutureLearn. Retrieved September 27, 2024, from https://www.futurelearn.com/info/courses/wisdom-skills-for-the-future-generalist-doctor/0/steps/305114

Indeed Editorial Team. (2024, August 15). What Is Tacit Knowledge? Definition, Examples and Importance. Indeed. Retrieved September 27, 2024, from https://www.indeed.com/career-advice/career-development/tacit-knowledge-example

Martin, J. (2023, May 12). Friday Notes #104 — The Price of Experience & Being Relevant. Numeric Citizen Space. Retrieved September 27, 2024, from https://numericcitizen.me/friday-notes-104-the-price-of-experience-being-relevant/

Persky, A. M. (2017, November). Moving from Novice to Expertise and Its Implications for Instruction. NCBI. Retrieved September 27, 2024, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5738945/

Starmind. (2023, Apriil 5). What is knowledge management and why is it so important? Starmind. https://www.starmind.ai/blog/what-is-knowledge-management-and-why-is-it-so-important