This is a second part. The first part, available at the link, sets the foundation for understanding and managing key resource risk.

In terms of resource risk management more often than not what kills companies is what they are not aware of. And since they are not aware of a certain risk they do not monitor or manage it. And since that’s the case they are surprised when it impacts them. I’ve mapped all key risk areas in companies so that you would never be surprised by any of them.

Imagine a scenario where your company cannot afford to lose a crucial resource tomorrow. This could be a key employee, a major client, or even software storing critical operational data. The potential impact of such a loss underscores the urgency of effective key resource risk management.

Key Resource Risk = key employee

Critical employee risk sounds like:

  • The only specialist in your company with a crucial skill necessary for operations – e.g., essential for delivering the service that generates the most revenue.
  • The only senior person in a given field from whom the rest of the department regularly seeks help.
  • A salesperson whose network of business contacts underpins your sales.
  • A recognizable figure in the industry whose presence in your company brings in many new clients/business opportunities or on whom you base a significant portion of your marketing.
  • And so on.

A real-life example: London-based BlueBay Asset Management closed a $1.4 billion hedge fund after Neil Phillips, the fund’s portfolio manager, announced he was leaving to start his venture.

Key Resource Risk Management

A hypothetical example: we offer a product whose key functionality relies on Google Maps. Suddenly, Google cut off its API, preventing anyone from building anything based on their maps. Absurd? A similar situation occurred with Brand24 or TradeWatch. Let’s focus on the latter.

TradeWatch was once a prevalent application allowing users to monitor Allegro transactions. Sellers received dedicated sales reports from the categories of interest, making it easier to find sales niches, track trends, choose the right assortment, etc. In 2020, Allegro announced that its old API would cease functioning as the service sought to modernize its structure – along with the disappearance of the old API, the TradeWatch tool (in the format known to users) also disappeared.

Key Clients as a key resource risk to manage

Critical client risk refers to clients responsible for a significant portion of your revenue or who bring in additional clients.

Key Supplier

Vendor lock-in occurs when a company depends on solutions offered solely by one provider. This occurs, for example, when a company chooses to implement a dedicated online store using technology supported only by a few suppliers in the country. Implementing additional functionalities incurs significant costs, while competitors using popular “box” solutions can implement the same functionalities simply by installing a plugin—much faster and cheaper.

How to Reduce Key Resource Risk?

Aside from the prominent aspect of insuring the business, it’s worth doing a few other things.

Business Diversification

We’ve touched on this in our post about risk management in companies.

Customer Care

One person cannot be responsible for all customer relationships. Assigning customer care to a dedicated customer service department or person reduces the risk that all their clients leave when a salesperson leaves.

Documenting Procedures

Avoid situations where only one person in the company knows how to do something meaningful for your business operations. For example, if only the person responsible for your website knows which functionalities are handled by whom, then when they are absent (not to mention the worst-case scenario: “after their departure”), any changes you need to make to the site may cost you significantly more time than necessary or, in the worst case, lead to site failures.

In a similar case, the CEO of AdWeb Group was forced to shut down the company after over 14 years of successful operation due to a lack of reasonable procedures for server failure. A sudden failure after the company parted ways with its only permanent administrator—who knew the company’s infrastructure well without passing on their knowledge to a new specialist—resulted in AdWeb’s downfall.

Good Value Proposition as an Employer

Financial factors cease to play the most critical role in choosing an employer at a certain level of competence and life situation. People with loans to pay, families to support, and other obligations value job stability, no overtime, and a pleasant work atmosphere, which results in them feeling less burdened and more satisfied with life than just receiving a few dollars more a month.

Of course, staying updated with market rates is essential so that your critical specialists earn as much as or more than the industry standard. However, remember that a yearly raise alone will not guarantee the retention of employees whose loss would be detrimental to your business.

It would help if you had a solid value proposition. At Casbeg, our remote-first work environment and the fact that we hire mainly seniors help us attract talent. We created this value proposition in an environment where experienced specialists can learn from each other, are not burdened with tasks below their competence, and still have time for other vital areas of their lives (Look for yourself—we are continuously recruiting!).

What if Key Resource Risk already affects you?

If you know or suspect that key resource risks are already affecting you, it’s worthwhile to approach the issue according to the following steps:

Step 1. Map your current risks

Key Resource Risk mapping is a separate consulting domain – if you need support, contact us. If you’ve never dealt with this before, you can use essential tools; for example, the Business Model Canvas template has a ‘Key Resource’ section – this can be a good starting point for mapping risks. The Business Model Canvas is a strategic management and entrepreneurial tool that allows you to describe, design, challenge, invent, and pivot your business model. It’s a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances. (Check out the article on the Business Model Canvas or download our ready-made Business Model Canvas template).

Step 2. Analyze their consequences

  • What awaits you if you cannot agree with a supplier?
  • What will happen if a key resource – key client – leaves?
  • And if a key employee?
  • And so on.

Step 3. Consider your alternatives

  • If your problem is vendor lock-in, how much would switching to a system supported by multiple suppliers cost?
  • How could you generate leads without their involvement if your marketing relies on a corporate “celebrity”?
  • If all your clients come from one sector, what other sectors could you reach with your product/service? What would be needed?

“De-risking” is always a process – we don’t make sudden moves here. Changing revenue structures, critical client structures, and other similar changes do not happen overnight. Whenever we see a problem, it’s worth starting to analyze and work on it – and over time, this approach will lead to a somewhat safer company.

Key Resource Risk Management – conclusion

There is one more, less obvious risk related to critical resources in a company. Sometimes, companies focus so much on the risk of what will happen if a key employee decides to leave that they fail to fully utilize their talents in the company right now, for example, by allowing them to increase responsibility, participate in more exciting projects, and more significant challenges.