It all falls apart when the institution changes.
As it turns out, any change to the institution will decimate the team and cause the well-oiled machine to stutter. A new team member, a team member leaving, a change to the underlying assumptions of the institution, any change can be horrible for a team's ability to work together intimately. The "hive mind" is broken.
So, how do we preserve institutional memory?
- Change the team slowly. Even if you could hire three people today, hire one and bring them in to the team before you hire another. In general, no more than 15% of your team should be new at any given time.
- Write it down. Make part of the institutional memory the practice of writing down information. It may not be easily findable, but if it's written it's not totally lost. Wikis and other group-editing environments tend to be good for this.
- Mentor. When someone new comes in, pair them with an existing team member. This type of encouraged camaraderie will help make the new person part of the institution. It also provides a clear path to impart information in a very easy (and casual) manner. Less formal teaching, more welcoming to the shared information repository that exists in the team's collective head.
Institutional memory is going to happen, and in a stable team it can be a large part of what makes the group successful. However, no group is stable forever. This group knowledge only powerful as long as it's backed by techniques to pass along the knowledge -- so that the team is strong through stability and through change.