March 30, 2023

Everyone Is Replaceable, Unless you are Key-Person Dependent

What risks do you face when your company is Key-Person Dependent? The phrase itself is enough to keep any business owner up at night, worrying about the organizational pickle they have found themself in. But what exactly does this idiom even mean? Allowing one employee to harbor more than a professional amount of inherent business knowledge, without anyone else knowing what or how they do their job, is by definition, a risk. It happens when a company is heavily dependent on that sole person showing up every day for work, never taking time off, and even worse - never quitting.

While none of these employee requirements are realistic, they are in fact what many companies have come to live with. If you don’t think it could happen to you, think again. Business owners are by nature, risk-takers. But their risks are typically calculated, and a well-developed business strategy can prevent a lot of known failures from occurring. Despite their tolerance for risk, the owner has a lot on their plate at all times with only a finite amount of time to get everything done.  Each day is spent continuously weighing the possibility of individual problems occurring, against that of another. As the company grows and more staff is brought on, I rarely see that a company stops to perform a fresh evaluation. One that is done to fully reset, take stock of the current challenges lying in front of them and find the new risks which have recently popped up.

Risk management is such an overlooked area in business that many business Quality Standards have integrated the topic into their regulated requirements. ISO 9001 for example, is an international standard used in manufacturing to ensure that a facility is operating efficiently. Organizations follow the ISO standard’s guidelines to demonstrate their ability to consistently provide products and services that meet customer and regulatory requirements. In 2015 the committee that develops the ISO rules, which dictate a company’s quality manual as well as the criteria for external system audits, determined that risk analysis should also be included. Where in the past, the way that you made a product was the main focus and now your methods would need to include risk-based thinking.  This mindset would strive to prevent failures before they become a reality.

Understand that the risk of key-person dependency sneaks up on you, gradually over time. This is why the risk often goes unnoticed as the phrase: “the heat of the water is raised slowly to a boil” alludes to. Let me know if any of the following scenarios which I have seen play out over the years, sound familiar to you:

  • An employee with a strong personality coupled with a big ego works for you. They are a top performer but they don’t play well with others. You bend rules to accommodate their rough behavior because you can’t afford to upset them and don’t think you can replace them. That employee also has refused to delegate or document any of their responsibilities. In the past, this type of knowledge hoarding is how many employees acted. They had a “scarcity mindset” and felt that if they had to work hard to gain knowledge, so do you. But push comes to shove and you must part ways with that star player. Now what do you do?
  • Another viable setting is when a loyal employee has been with the company from the beginning and is one of the gang. They are super loyal, work a lot of long hours, and no one considers the risk of not cross-training a backup for them. “Matt will always be here to run payroll so there’s no need to document what he does. We have better things to worry about”. Time goes by, Matt has a hard time taking a week off, and then he gets really sick.  Does your team get paid properly this week?
  • Although both of these vignettes are common, the one I see most often is when the owner themselves is the hoarder of knowledge. They are typically so focused on making sure everyone else has a backup that they don’t think about the implications if they were pulled out of the day-to-day operations. They work harder than everyone else and are afraid to delegate because: “I can do it better than anyone else”. That might be the case, but they are building a cage that they will never be able to escape from. More duties will continue to fall on their shoulders, there is no longer time for creative thinking, and wait - "the value of my business is almost worthless without me?" Yes! The company should not be dependent on anyone. Trusting your employees to work at your high standard requires a clearly documented systems manual.

Since everyone needs a scheduled break from work and nobody can tell when an emergency leave of absence will occur, then the old adage: “Everyone is Replaceable” needs to be addressed. The number one way to alleviate the risk of any employee hoarding knowledge is through the documentation of all critical business systems. A portion of your annual business planning session needs to be set aside to understand who your current, key customers are, how your workflow supports that client type, and what key systems should be fine-tuned and documented. By developing a playbook that mirrors the best-known practices in an organization, everyone in the organization wins:

  • New employees get up to speed faster and feel supported. Sounds simple but there is so much more to this. Think back to your first day on the job, any job. You were nervous, unsure of what was expected of you and how to go about your day. You wanted to perform well, right out of the gate, but the company wasn’t really prepared to bring you on in a professional manner.
  • Empowering employees to manage their workflow through a simple and transparent documentation model builds trust for all involved. The employees can show off their skills by helping to develop the methods that they do their job each day instead of being told what to do. Management can see what is working and what isn’t so that strategic improvement can be made as soon as a KPI slips, not when the quarterly P&L gets released.
  • Employees can take vacations without the fear of returning to a backlog of work. Cross-training with a supportive documentation system allows the person covering to help out without fear of failing. And hey, maybe the covering teammate likes that new role? Now everyone can move up and take on a new position with ease. Having the luxury to operate this way is not as hard as you think.

The development of a high-performing team that executes its work in an efficient and predictable manner to get great results. That’s the very definition of what a documented system is. You may have seen my videos on this subject already which define the difference between a simple process and a system. Predictable results are what business value is built on. If you would like to hear a few case studies from my previous clients or ask me questions about how you can build better systems, visit www.henderberg.com and reach out. I love to help small businesses succeed!