As a supply chain consultancy focused on people, key person risk is something we consider daily. Having the right team on the ground working in your supply chain is a crucial ingredient for smooth operations in China.
However, many companies fall short in two ways:
- They don’t prepare well for key person risk.
- They see the risk as too big, so they avoid hiring any team members in China.
Key person risk is particularly pertinent in China, where foreign companies often rely on one crucial employee or “consultant” to manage their local operations.
In this article, we’ll explore how to define key person risk within an organisation and strategies to mitigate such risk.
What is Key Person Risk?
Key person risk refers to the potential for significant disruption to business operations due to the sudden departure, illness or unavailability of an employee who holds critical knowledge, skills or relationships. When it comes to China-based supply chains, this risk can be particularly acute.
Reliance on a single individual or a small team for managing supplier relationships or quality control can lead to vulnerabilities that threaten the entire supply chain.
Common Misconceptions about Key Person Risk
‘Key Person Risk Only Applies to Top Executives’
Many businesses assume that key person risk is only relevant to C-level executives or company founders. However, when it comes to operations in China it’s not just the top brass who matter.
Middle managers, quality control inspectors, and even local HR personnel can be just as critical. These team members are often crucial because:
- They can navigate cultural nuances
- They have deep connections with suppliers
- They understand local regulations in detail
‘We Have Backup Staff, So We’re Covered’
While having backup staff is essential, it doesn’t automatically mitigate key person risk. In China, the transfer of knowledge is often informal, and critical information may not be documented thoroughly. Without proper succession planning and documentation, the departure of a key person can still cause significant disruptions.
‘Key Person Risk is Unpredictable and Unmanageable’
Some companies view key person risk as an inherent, uncontrollable aspect of doing business in China. However, this is a misconception. While predicting when a key person might leave is challenging, proactive risk management strategies can significantly reduce the impact of their departure.
‘I outsource this service, so I don’t have key person risk’
Have you done a robust audit on the service company that you have outsourced your China management to? If it’s a small local team, there may only be one English speaker within that team. You also do not know what their own staff turnover is like, and what planning they have in place if key technical people leave.
Preventing and Mitigating Key Person Risk
Develop Comprehensive Documentation
Ensure that all critical processes, contacts, and knowledge are thoroughly documented. This includes supplier contracts, quality standards, and regulatory compliance procedures. Regularly update these documents and make them accessible to multiple team members.
Implement Succession Planning
Identify potential successors for key roles and provide them with the necessary training and experience. This can include cross-training programs, mentorship, and gradual increases in responsibility to prepare them for potential future roles.
Foster a Collaborative Work Environment
Encourage collaboration and knowledge sharing among your employees. Employees controlling communication flows is a major red flag. This reduces the likelihood of information silos and ensures that critical knowledge is distributed across the team. In China, this might also involve building strong relationships with local partners who can provide support during transitions.
Engage in Regular Risk Assessments
Conduct regular assessments of your supply chain to identify where key person risk might be most pronounced. Evaluate the potential impact of losing key personnel and develop contingency plans accordingly. This might include establishing relationships with multiple suppliers to reduce dependency on any single individual or entity.
Why The China Desk by Kinyu is a Smart Choice
At The China Desk by Kinyu, we work with your team members on the ground to ensure everything is documented clearly and relationships are not developed in isolation. We provide the infrastructure on the ground with succession planning built in so that if a key person falls ill, your business can continue as usual.
If your company relies on a local “person on the ground” or an employee, it’s essential that some structure is put in place to ensure a smooth transition. Get in touch to find out how we can help you today.
