In corporate and other hierarchical organizations, senior executives should make all important decisions concerning the activities they oversee. However, poorly structured business processes can allow that authority to fall into someone else's hands. Personal interests may be a contributing factor, but this can also happen entirely unintentionally when roles and responsibilities have not been properly assessed.
Failing to give this issue sufficient attention can expose our organization to serious risks, as decisions made in this way rarely serve the company's interests.
A real-world example
The following example is based on actual events, with a few minor details changed. A company's CEO decided to implement an IT system to manage incoming and outgoing invoices. The system would show where invoices came from, when they arrived and what they covered, allowing the CEO to approve, reject or return them for amendment based on specific criteria. Naturally, this also required the related contracts and their details to be recorded in the same system, with the option to manage different contract types separately. Approved invoices would automatically enter the financial system for further processing. The CEO envisaged the same approach for contracts: approval followed by forwarding to the next stage. Implementation began, and all agreed activities progressed as planned—until it became necessary to involve the CFO.
What did the key person say?
The CFO's involvement in the project began with an in-person meeting attended by several company representatives, including the CEO. The meeting opened with a review of the invoice and contract processes that had already been designed. Even at this stage, the CFO raised several comments and criticisms questioning the need for the system.
Here are a few examples of the CFO's comments, which revealed the likely underlying concern and attitude toward the system:
- “But I already know this. There is no need to record it.”
- “Why should these require approval when I can handle them myself?”
- “Why do we need such strict procedures for these invoices? Why can't we simply forward them to finance as before?”
- “Why do we need to record contract details when I already have them?”
These statements revealed the thinking of a key person who had realized that implementing the system would make them less indispensable. We can only speculate as to why the CFO did not want the CEO to see certain invoices and contracts or to veto their payment or countersignature. Why was managing contract data a problem, when it would make it possible to track which invoice related to which contract and whether it had been issued legitimately and for the correct amount?
Unsurprisingly, the discussion led to conflict between the CFO and the CEO and other management team members, who were committed to implementing the system. In the middle of this unproductive debate, I turned to the CEO and asked to speak. “Just one question: who is your boss?” “Who would that be? I am also the owner,” came the reply. “As I understand it, whoever holds the purse strings calls the shots. And this conversation suggests that, in many cases, that person is not you. From an IT perspective, we can certainly ensure that you are informed of every financial event and that all other responsible parties are clearly identified. However, we cannot overcome internal resistance within your company, so implementation could fail. How would you like to proceed?”
Needless to say, the CEO then made it explicitly clear to everyone that the system was essential and would definitely be implemented. This would remove some of the CFO's authority and could even expose potential misconduct. The conversation was most instructive for the CEO, who only then realized how dependent both the CEO and the entire company could be on their own employees.
What is key person dependency?
Key person dependency arises when, for whatever reason, employees outside senior management hold information, knowledge, experience or other assets that are critical to the company's operations. When this happens, removing the key person becomes very difficult, as their departure alone could disrupt normal business operations.
An even more concerning example is when key person dependency develops in sales: salespeople build relationships for themselves rather than for the company and fail to share those relationships appropriately. As a result, if they are dismissed or leave for any other reason, the company must also account for the losses generated by customers who follow them.
Of course, this can also happen unintentionally. A good example is a restaurant that launched a daily set-menu service. Although the service was not designed around a single person, only one employee worked in the kitchen. That employee prepared the meals, placed the necessary orders and coordinated with suppliers.
When the owner decided to part ways with the employee, orders for the daily menu fell by approximately 90% within two months. There was no intrigue or ill intent involved, and all the previous activities continued. Customers simply did not like the new chef's cooking. Consequently, they ordered less than before and, as the situation did not improve, most eventually stopped ordering altogether.
In this case, key person dependency developed unintentionally and had unforeseen consequences. The owner had not expected customers to find the same dishes unacceptable simply because a new chef prepared them—even though they were technically well prepared, of good quality, and made using the same equipment and ingredients.
The daily menu service has since closed, although the restaurant remains in business. This story offers an important lesson: a single person cannot be solely responsible for an activity within a company, because that makes everything depend on them. Even when the employer–employee relationship works perfectly, life circumstances can make a key person unavailable: pregnancy, extended travel, illness or an accident, to name just a few. Business leaders therefore need to prepare for these challenges and organize operations to prevent similar situations.
Key people in business administration
As mentioned earlier, key person dependency can also develop in business administration. Managing it is more complicated in some respects—and simpler in others—than managing dependency on operational staff. It is complicated because key people may acquire a form of “power,” making it difficult to part ways with them. They may also “take with them” part of the organization under their control, creating further complications. Appropriate management techniques are, of course, available to handle such situations and minimize losses, but a departure of this kind will inevitably be painful for the company.
Despite these difficulties, key person dependency in business administration is largely preventable. We should ask ourselves: why and how do key people emerge within an organization? Most often, it is because the owner, managing director or CEO has to delegate certain tasks. Performing those tasks also requires authority: someone cannot approve something without the appropriate authorization. Particularly in larger companies, certain tasks and powers may be transferred to future key people, as business leaders face greater pressure to reduce their own workload.
What is the solution?
As a technology company, we believe that a well-structured approach to delegating authority and tasks can mitigate the effects of key person dependency. For example, approval authority can be distributed among representatives of several specialist functions, or sole approvers can be prohibited. The latter, however, is a fairly cumbersome and costly solution. Most importantly, everyone in every organizational unit must work in accordance with established policies and operational processes. Problems often arise precisely because some employees bypass protocols rather than follow them. This can create key person dependency and is also likely to give those individuals opportunities to misuse their authority, depending on their preferences and integrity. But how can we ensure that everyone follows the protocols and performs their daily tasks accordingly?
Process management and workflow
As we have explained many times on our blog, establishing appropriate routines and processes is the guiding principle here too if we want to avoid key person dependency. When management has visibility into the activities of a particular employee or specialist function—in detail, if necessary—it becomes easier to replace individual employees. They no longer hold all the answers: the information and, where relevant, the knowledge required to perform their tasks are no longer exclusively theirs. This is already a significant advantage, but a workflow system can do much more.
First, it allows us to automate certain tasks, immediately reducing the workload and, proportionately, the importance of the key person's contribution. A workflow system stores all activities performed within it, along with associated data, documents and even emails, as structured datasets. This provides a wealth of information that a professional familiar with the relevant field can readily interpret. Perhaps the most important feature of workflow systems, however, is that they always provide accurate information about every event or activity, including in the form of reports. We never again need to ask what a task's deadline was, who was responsible for it or why it was not completed—the system provides all these answers. Furthermore, if processes are managed within the workflow system as comprehensively as possible, we can identify every missed task, delayed deadline or forgotten response, down to each individual step of every process. This also creates a management information system that does not depend on employees' personal opinions, perspectives or the information they hold. The system consistently collects actual data on everything and makes it available to management, even in real time, without requests, questions or objections. We can therefore make decisions based on accurate data, avoid situations where only one person in the company knows something, and maintain transparent, traceable visibility into every employee's activities down to the second. If an employee leaves the company for any reason, each of their tasks can be resumed exactly where they left off. And because the workflow continues to follow the same process, the transition can be significantly easier, faster and less costly.
