Key Person Risk: Could the loss of one person sink your business?

In the sixth of our ‘Lean manufacturing in the digital age’ series, we explore how being too reliant on a handful of key individuals can leave a gaping hole in your organisation should they decide to move on.

Key Person Risk. You might not have heard the term, but the ramifications of it have almost certainly crossed your mind.

Key-person risk arises when your business relies too heavily on one or a small handful of individuals who generate enormous value to your operation.

Common examples of key people in manufacturing include design visionaries, technical experts, machine specialists, high-performing sales professionals and IT architects.

Shutterstock

In truth, they could work in any department or function. They could be senior leaders or unsung heroes. They could be veterans of industry or relatively new starters. They could have outward facing roles or be largely unknown outside your organisation.

Regardless of the specifics, the one thing they all have in common is that your business – and by extension, your bottom line – relies on them to perform.

Their departure could detrimentally impact your productivity and profitability, your ability to deliver on-time in-full, even your employee engagement and market reputation.

What happens if they suddenly hand in their notice, announce their retirement, are struck down by a long-term illness or worse?

How would that impact your day-to-day running? What happens to the orders you’ve already secured and your pipeline of future work?

These aren’t easy questions to answer so many organisations tend to shy away from asking them, particularly small and medium-sized enterprises – despite them being (typically) far more exposed to the potential risk than large companies.

Depositphotos

What can businesses do to manage their key-person risk or, better yet, not expose themselves to it in the first place?

Prevention is better than cure

Difficult as it is, there are several ways a business can mitigate the loss of invaluable knowledge, experience and talent.

A good starting point is to conduct a thorough workforce analysis to determine who your key individuals are and what grade of risk they present (high, medium or low), and then establish some form of business continuity strategy.

This could include:

identifying appropriate stand-ins
taking out key-person risk insurance (if deemed necessary)
establishing mentoring, work shadowing and cross-training initiatives
creating formalised standard operating procedures (SOPs) and checklists for all business processes
building an organisational framework where critical knowledge, relationships or IP isn’t retained by one or a handful of individuals
outsourcing specialist tasks like industrial cleaning, maintenance, installation, logistics, IT services and telecoms

Increasingly, businesses are leveraging technology to eliminate their key-person dependency outright, through automated workflows and responsibilities, centralised information gathering and storage, and knowledge-sharing.

One such business is a family-owned Newcastle-based producer and supplier of quality teas, coffees, sweet treats and related homeware.

Success story

Established more than 100 years ago, the company operates two business units. The production division sources and imports teas from around the world, and blends and packs them for either their own brand or for premium retailers.

Its retail division delivers its tea and related products to some 300,000 UK households through a network of 30 offices and a fleet of more than 200 delivery vehicles.

Pixabay

It’s a multi-faceted, complex set-up and the departure of a senior individual instigated a necessary change in how the business operated.

“We had been very dependent on our IT manager,” explains its executive chairman. “And while he was very skilful at his job, I didn’t want such a concentration of knowledge in one person’s hands again.”

The decision was made to outsource IT support and develop a broader base of IT skills within the business. A review was subsequently commissioned to evaluate the existing IT systems and determine how to create the comprehensive IT backbone the business would need in years to come.

Seamless business-wide integration

The business is a long-term user of award-wining software provider Access Group, predominantly to manage the manufacturing and supply chain side of its operation.

The review revealed that Access was absolutely the right supply chain system for the business, but it wasn’t being utilised to its full potential.

To address this discrepancy, the business began by upgrading to Access ERP to create a springboard for integration throughout the company. Since then, the focus has been to expand the use of Access ERP into all areas.

Thanks to Access ERP’s Warehouse Management functionality, the business now has a single warehouse system that is accurate, virtually live and offers complete traceability.

Work has already begun on implementing Access ERP’s MRP capability to consolidate the business’ planning and materials requirements, and an investigation is currently underway to evaluate whether tea stock data and retail sales transactions can be similarly unified.

“Our aim is to develop seamless integration across the business and migrate from a multisystem business to one strong system with one or two secondary systems supporting it,” the executive chairman. concludes.

Software shouldn’t replace a key-person’s experience, but make that employee’s job easier, while having their knowledge stored in a system provides reassurance for a business in case of absence, retirement or career change.

Discover how to analyse your business and protect it from such productivity risk by visiting The Access Group and The Manufacturer’s Lean resource hub,

Check out the other articles in our ‘Lean manufacturing in the digital age’ series:

*Header image courtesy of Shutterstock