And people can leave the firm, taking their knowledge with them. Turnover is a human capital risk. The third capital risk involves knowledge capital. Klepper defines knowledge capital as the information the organization uses to make good business decisions. Knowledge capital is not inherent in one person.
Knowledge capital becomes obsolete when economic conditions change or key people leave.
Klepper says buyers who outsource shift much of these risks to the vendor. In this analogy, the outsourcing vendor is akin to the insurance company. The larger outsourcing vendors have tremendous scale. The vendor has many ongoing projects and can reassign people depending upon the need. Because their customers operate in a wide variety of industries, they may not feel the sting of economic ups and downs as sharply as their individual buyers do.