By CPA Samwel Baraka Ochieng
Overreliance on a Single Key Person Can Prove to Be an Organisation’s Achilles’ heel
A business is a dynamic, evolving organism, its pulse quickening with each passing year. At its core, a symphony of employees and stakeholders breathes life into this dynamic entity. Some individuals emerge as the true luminaries, donned with monikers such as ‘the linchpin,’ ‘the driving force,’ ‘the cornerstone,’ and ‘the secret ingredient’—all attesting to their extraordinary contributions to the business.
Fortunately, these remarkable individuals can be found at every level in the organisation, spanning the entire spectrum from visionary founders and seasoned supervisors at the highest echelons to the dedicated staff at every rung of the organisational ladder. But what happens when your organisation leans excessively on the expertise of a single key figure? It is essential to recognise that while their exceptional talents may undoubtedly be captivating, they also carry a set of risks that could potentially destabilise the very foundation of your business. Welcome to the realm of ‘Key Person Dependency Risk,’ where the collective strength of your team should always prevail, and the exclusive burden of knowledge, visibility, or performance should never rest upon a single individual. This awareness is fundamental to safeguarding your organisation’s stability and long-term success.
In light of the risks associated with key person dependency, it is crucial to understand the characteristics of key employees and how these risks can impact your organization. A key employee is an individual who possesses exceptional and proven skills, coupled with critical knowledge in a specific operational area within the business, honed over years of dedicated service. They might have delivered outstanding financial results that enhanced the brand visibility in the industry, or they may be the go-to authority for essential information and the application of best practices in various situations. You may already be aware of the lurking key person dependency risk within your organisation, perhaps even winking at it, especially if you are that key person yourself. However, have you ever contemplated the potential consequences if the linchpin of your business were to take an extended vacation, decide to depart from the organisation, or, worse yet, confront an unexpected personal health setback? It is a clear reminder of the necessity to plan for the unexpected by mitigating key person dependency risks. It is crucial to ensure business continuity and success by establishing robust business models where no single employee retains exclusive control over vital intellectual capital, knowledge, or networks. Also, you can implement various strategic measures, including capturing and sharing critical knowledge and skills within the organisation, task automation, staff cross-skilling, key person insurance, succession planning, and several other steps that diversify and distribute responsibilities, promote knowledge sharing, and ensure the business remains resilient in the face of unforeseen challenges. In the contemporary business landscape, organisations heavily reliant on one or a few key individuals are susceptible to several substantial risks, as we shall delve into in the subsequent paragraphs.
Firstly, a significant danger is the potential for business disruptions. When a key person becomes unavailable—whether by choice, due to illness, or for other reasons—operations are disrupted. Projects may be delayed or even come to a complete stop, and important decisions may come to a tragic halt. These disruptions can result in lost revenue, decreased productivity, and lower customer satisfaction that not only affect the internal workings but also have an external ripple effect. Customer relationships may suffer as service levels drop, which damages the brand reputation and customer loyalty in the long run. Moreover, competitors may take advantage of the situation, resulting in a loss of market share.
Secondly, the business risks losing critical knowledge and expertise vital to its operations. When a single or a few employees possess skills, knowledge, and rapport for business success, they clench the crucial position of being the thread that binds the organisation. If such a strand breaks when these individuals leave the organisation, their knowledge and expertise are lost, leaving behind a struggling entity. They struggle because of the lack of vital insights required to navigate challenges effectively and, of course, the loss of vital institutional memory. Furthermore, the departure of these key individuals can interrupt team synergy and create a void that may lack an immediate replacement. The lack of synergy among team members may lead to conflicts and tension, ultimately contributing to lower employee morale that, if left unaddressed, can have lasting negative consequences in the organisation, undermining its long-term ability to adapt, compete, and succeed within its industry.
Thirdly, over-reliance on a single key employee can also expose an organisation to external risks such as loss of market share, supply chain vulnerabilities, legal and compliance risks, and cyber-security exposures. These risks can have far-reaching consequences, impacting the organisation’s stability, reputation, and competitiveness. For example, if the employee’s responsibilities are monitoring market trends, unexpected changes in those trends can leave the organisation grappling to adjust. Similarly, regulatory changes that the organisation is not prepared to address can lead to legal issues and financial penalties, threatening the business’s ongoing operations. Furthermore, becoming too dependent on a single employee may make the organisation an attractive target for competitors seeking to poach talent, which could jeopardise intellectual property and critical knowledge. Therefore, organisations need to establish a culture of collaboration and knowledge-sharing to mitigate the risks associated with over-reliance on a single employee.
Lastly, key employee dependency can significantly undermine employee morale and development. When one individual holds a disproportionate influence, it can lead to an unhealthy work environment where other team members may not feel valued or appreciated for their contributions. This dynamic can stifle collaboration, suppress idea generation, thwart idea sharing, and breed a disengaged culture, which, in turn, hampers employee growth and development. A collaborative and inclusive work culture fosters employee motivation and engagement. When entrusted with challenging responsibilities and given opportunities to develop their skills, employees tend to be more committed and satisfied. Conversely, the lack of such opportunities results in high staff turnover, which not only disrupts workflow but also foists financial burdens on the organisation in the form of recruitment, onboarding, and training costs. In essence, overdependence on a single key employee can lead to a range of human resources challenges that can impact the overall well-being and effectiveness of the organisation.
The inherent dangers of key employee dependency are not to be underestimated, as it is abundantly clear that overreliance on a single key person can prove to be an organisation’s Achilles’ heel. Remarkably, each staff member who joins the organisation brings distinct skills and experiences. It is incumbent upon the organisation to foster their development, nurture their talents, and strategically place them in roles that align with their skills. Ideally, just as the human body relies on the harmonious collaboration of its distinct parts for overall well-being, a successful business similarly depends on the collective efforts of its uniquely skilled staff. Each, like a specialised organ or limb, plays a vital role in contributing to the organisation’s general efficiency and profitability. Emphatically, just as the hand cannot perform the same functions as the leg and the ear serve distinct purposes from the eye, the organisation thrives when all its uniquely skilled staffers work harmoniously, appreciating each other’s contributions. While a key employee undoubtedly holds significant value, wielding considerable influence within the organisation and often feeling tempted to guard their knowledge possessively, it’s essential to recognise that synergy is paramount for the organisation’s survival and well-being. The collaborative interplay of diverse talents and expertise across the entire team is the true driving force behind sustained success and adaptability. It’s no mean task to be privy to all that a key employee may do for or against the company in their duty, but take caution! It’s essential to acknowledge that placing all your proverbial eggs in one basket is a risky venture.
Diversification becomes a strategic imperative since losing a key employee is not a matter of ‘if,’ but ‘when.’ Whether they choose to resign, retire, or regrettably depart unexpectedly, businesses must take proactive steps to manage these associated dangers, securing their long-term prosperity and sustainability.
The writer is a Member of ICPAK
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