We've all heard of the credit crunch but with more reports of jobs being axed, Kevin Condon, managing director of 3D Employee Benefits, warns that vital knowledge could be severed from the company as well.

We are all aware that it's gloomy out there at the moment; business is tough, so I hate to jump onto the bandwagon and be the harbinger of another 'crunch' - the knowledge crunch. I define this as the threat which commerce faces through the loss of its intellectual capital - its knowledge.

Second only to cashflow, knowledge is of immense value. At a fundamental level, it's what differentiates one business from another. More often than not, the larger part of this knowledge is stored in that most sophisticated of computerised jellies: the brains of the employees. So why am I predicting a knowledge crunch and why should you take action to avoid it?

Well, all the ingredients to cook a knowledge crunch are currently in abundant supply. You need a population of influential baby boomers who are close to retirement, you then need to add mass redundancies to the recipe and then sprinkle on some job insecurity. Finally, add in early retirement options and hey presto, you've got a flow of vital knowledge and experience haemorrhaging from the business.

Baby boom fallout

Barring any unforeseen medical breakthroughs that allow us to miraculously halt or reverse the aging process, the baby boomer generation is set to retire over the next five to 10 years. You may recall the war for talent, whereby the government challenged firms to fill the baby boomers' high-ranking jobs when they started retiring in the late 1990s. Some larger corporations may have put succession planning strategies in place, but baby boomers are a defiant and powerful breed. When they retire from their offices for the last time, I can assure you they will be carrying a treasure trove of experience, expertise and relationships that will not have been passed on.

The effect of this knowledge crunch is set to hit just as the UK recovers from the credit crunch. But things could get worse. As firms implement their restructuring strategies to prepare for the downturn and heads continue to roll, many of the baby boomers will flee to the fairways five years earlier than they anticipated. This could leave a gaping knowledge gap which exposes businesses to a distinct competitive disadvantage.

Firms should be implementing a structured strategy for knowledge transfer and succession planning. Organisations must not only retain the knowledge held by the aging baby boomers but also ensure that the new generation of workers benefit from the old-timers' experience and their skills are passed down.

The further risk that I have witnessed during these troubled and turbulent times is that employers are placing so much emphasis on streamlining their businesses - making cost savings and managing cashflow - they are forgetting about is the importance of their employee’s welfare. Right now the majority of employees don't feel great. Many workers feel insecure about their future, on top of this their prime assets (their houses) are not worth what they were a year ago and they couldn't sell them if they needed to.

It's a sad statistic that stress-related illness is becoming ever more common amongst UK workers, with an estimated 442,000 employees expressing that they were experiencing work-related stress at a level that was making them ill, according to the 2008 Labour Force Survey. As fears regarding job security escalate, the potential health impacts will be wide ranging; this in turn will affect workplace performance and sickness absence rates.

During these uncertain times it is vital that businesses retain their best employees and their knowledge. Any employee that feels threatened and insecure will test the market and potentially seek employment elsewhere. They may even seek assurances with competing firms, further compounding the risk of a knowledge crunch.

The good, the bad and the money

The first thing that any business owner should do is communicate, communicate and communicate again. Don't be afraid of telling the staff that we are in difficult times - the staff will know this already, but it will give them reassurance that the business owner is concerned for the wellbeing of the staff. If they feel that the work force does not trust them, then bring in a third party professional source to explain all the good and bad things that are happening. You will be surprised at how good a picture can be painted. 

Explain to the staff the full range of benefits, starting at the basics from car parking facilities on site (saving them money), free coffee and tea making facilities, right through to the bigger benefits such as the pension scheme. Many staff do not appreciate or even realise they have such benefits, yet it costs nothing to communicate this.

Having a healthy, productive workforce is essential to business performance, particularly during these hard economic times. Good businesses need to become 'employers of choice' more now than ever. To remain competitive in a down-turn employees must be at their best, they must be delivering full value and working a peak performance. The key to achieving this is to understand that workers are an asset to be enhanced and in which to invest. Businesses that take notice of their responsibility to look after the health and welfare of their staff will not only reap the benefits of a happier workforce but enhance their business capital.

But as with all investments, employers are currently looking to reduce expenditure. To reduce the cost of their employee benefit schemes, business owners should talk to their staff and organise a staff survey to find out what they really want. For example, many staff do not value the pension scheme but would rather purchase extra holiday entitlement. They are probably doing this already by taking extra sick days, which costs all businesses an average of £700 per person per annum. Multiply that by the workforce number and it is costing business owners a fortune! Firms should offer the flexibility of purchasing holidays to not only reduce sick days, but also reduce the salary and national insurance contributions their employees make.

A business's workforce represents 70% of the operating expenses of a company. Companies are right to be nervous right now; they are aware that they could lose their best people. But by following some relatively simple steps, such as safeguarding knowledge and benchmarking employee benefits schemes, businesses can keep ahead of their competition and avoid getting crunched.