After a vacation and a sort sojourn from the blogosphere, I ran across the term ‘tacit knowledge’ while researching how teams develop certain types of computer software. I found that Steven Gourlay describes the term most succinctly: tacit knowledge is a non-linguistic, non-numerical form of knowledge that is highly personal, context specific, and deeply rooted into individual experiences, ideas, values, and emotions. His definition of the term comes from research by Ikujiro Nonaka and Hirotaka Takeuchi and others.
To say that tacit knowledge is “non-linguistic” means that you cannot transfer this knowledge by writing it down. If you are trying to teach someone to ride a bicycle, you cannot give him a “Bicycle Riding Handbook” and expect him to get very far. To say it is “non-numeric” suggests that tacit knowledge is not empirical – you cannot give someone a formula or spreadsheet and expect him deduce what the knowledge should represent with the formula alone. Tacit knowledge comes from the gut.
Auditors face difficulties when they encounter instances of tacit knowledge in their attempts to learn about a business process. An example in my past deals with a client who had several thousand spreadsheets in its financial reporting process. The client started a project to simplify these spreadsheets and implement automated controls the process. To do this — and make its results auditable — the spreadsheet owner (an accountant) was asked to express how he created the spreadsheet and used its values in linguistic terms – he had to “document it”. Although the client could easily support the financials it reported and had many manual controls in place to detect errors that did occur occasionally, the accountants could not explain how they calculated their numbers in several cases. The common answer “that’s the way it’s done” would resurface. When I would ask a particular spreadsheet owner to write down the steps he used to prepare a spreadsheet, my attempts to reproduce the steps would rarely return a consistent result.
It is clear to me now that there was a considerable amount of tacit knowledge in this reporting process that could not be explained in words. Nonaka and Takeuchi would argue that one would have to experience the process before understanding whether it was well-controlled, but acquiring such “experience” would take more time than any auditor would be able to commit. Perhaps auditors should consider the prevalence of tacit knowledge in business processes as a risk and expect audit clients to use Nonaka and Takeuchi’s tool – the SECI model – as a means of addressing it.
Tacit knowledge creates a considerable benefit to an organization because of its intangible nature – competitors cannot access this knowledge if it is not written without capturing the people who possess the knowledge. Yet, this same benefit works as a disadvantage to auditors and should not be understated.
