I was asked last week, "Is the current subprime
credit mess evidence of a massive knowledge-sharing failure?" "Would better
knowledge management have helped?"
My answer to both questions was "no". This collapse
isn't a failure of knowledge to flow or best practices to transfer. Knowledge of investment "opportunities" and
cheap credit flowed like wine. Credit (the plastic version) or buying a piece
of the American dream (the condo version) was easy; lenders could offload debt
to others, get their money, and do it all over again. Those "best practices" transferred
quickly. Shareholders--people like you
and me-- rewarded the companies making the biggest short-term profits by buying
their stock and firing the CEOs who didn't go along.
So what do a tulip and $700 billion (the possible
price tag of our current predicament) have in common? They are both evidence of
Extraordinary
Popular Delusions and the Madness of Crowds and the triumph of human
yearning over logic, knowledge, or wisdom. For a few months in
The risks of reliance on borrowed money and a
future that assumes an unlimited market and rising prices isn't a closely held
secret. Gary Schilling, an economist who
serves on the APQC board of directors, has been telling people for years that
the real estate bubble would burst sooner or later. Other voices were just as
urgent, but it didn't stop the cycle. This was not a knowledge problem.
So, even if this wasn't a failure of knowledge
management, what can we learn?
First, there will
be lessons learned, and they will take the form of regulations and new "best
practices." (We transform painful lessons learned into standard operating
procedure all the time in our organizations.) As a result, this particular
bubble may never happen again. But another one will. Moral: Codified knowledge can never fully
replace wisdom and experience. Live
through one burst bubble and you are less likely to fall for it disguised.
Second, the Siren song of riches and the desire to
not be left out outweigh logic and good sense some of the time. Smart people make bad decisions. Emotion
trumps logic. Remember that the next time you introduce a new KM program.
If you find yourself with time on your hands in the
coming weeks (I hope not) and would like to explore the human psychology of
crazes, check out Extraordinary Popular Delusions and the Madness of Crowds
by Charles Mackay. Michael Pollan's chapter on the tulip craze in The Botany of Desire is a page-turner. For a short history about other crazes and
their aftermath--and possibly this one--see http://www.investopedia.com/features/crashes/crashes2.asp.
Leave a comment