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Too Much Operational Knowledge Concentrated In ONE Person?

I am in a fairly new position as CFO at a 25M company. The company uses an ERP/Accounting program that is highly customized, and has a lot of operational nuances specific to the company. I've seen this situation before, wherein the Controller appears to possess a significant amount of critical operational information and skills that nobody else in the company has (this is what I call "concentration risk"). She is the "go to" person when there's an issue involving the Software system, which is evidenced by the parade of employees in and out of her office all day, needing help with one system related challenge or another. I also believe that she's aware of the situation, and it seems to have manifested itself into some pretty lax behavior such as showing up late for work, leaving early, lack of accountability, etc. This behavior needs to stop, but If she leaves, there could be serious pain in her absence. My question is how to mitigate this "concentration risk". She's recently asked for a raise. I'm considering giving her the raise on the condition that she a)clean up the lax behavior, and b)commit to writing an operating manual covering all of the nuanced tasks that nobody else knows how to handle. I'm curious how other companies have dealt with this situation. Thank You all.

Answers

Topic Expert
Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon,

It sounds like a risk, and it could be an opportunity.

Your own and the company's culture/style of management may influence your approach.

Some questions to ask:
1. How did she end up being the "go to" person? Did she show initiative while others slacked off? Did she do it to gain security? It's rare to find a majority of ERP users become experts, so do others resent her or why have they not learned how?
2. Is her attendance a manifestation of feeling un-appreciated/not recognized by your predecessor?
3. Talk to the firm that supports the software-at a high level and in confidence-what do they think/see about your employee's competence and that of other users?
4. What do you want to achieve? Retain and grow a productive, valuable employee who will work willingly for you, or lose someone who may be halfway out the door? If she gets a message that she can't be trusted, that her "go to" status is her fault, that's a bigger risk than you have now. If she gets a message that offers her and you a win-win outcome, that's the opportunity.
5. Documenting what you need to record the nuances may best be a team effort- with her leading and others helping. If they constantly ask her the same thing, I would expect them to retain the answer at some stage, not so?

Hope that helps.

Tricia Havis
Title: General Manager
Company: Associated Background Check Inc.
LinkedIn Profile
(General Manager, Associated Background Check Inc.) |

I agree with Len's questions to think about/ask regarding this person. In my experience, there are typically two ways someone gets in that position: (1) either the person is the only one willing and able to learn how to do it, and so obtained the responsibility by default because nobody else would; or (2) the person is very proactive and took the initiative. Either scenario is a good thing in my opinion. It may be that nobody has asked her to train others on it or truly share the knowledge. She may even be feeling slighted because nobody else is willing to share the responsibility and training. However, *if* the person is using the knowledge as a way to maintain control or in her opinion, have job security, then that's a bad thing and needs to be addressed.

Anonymous
(Chief Financial Officer) |

As you've indicated, this is unfortunately a common situation at companies in the $25M range. I've also referred to this risk as a person being a "single point of failure".

Because I don't know the full situation, I'm not sure whether the lax behavior is directly related to her status as the only "go to" person or whether something else is going on as Len pointed out.

Having an open and honest discussion with her about your concerns (I would focus on the documentation issue) is a great first step. Tying some form of incentive compensation to the documentation effort with specific deadlines for completion will be a good way to flush out whether she can become more committed or is truly halfway out the door.

Good luck.

Anonymous
(Controller) |

I agree with that. Some 25M companies only have one person in Finance, hence the person does knows everything.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

There is an associated issue that was not part of the question, that should also be looked at.

Why is there such a "system gap"? While not every user will be at the same technical level, it seems you have causal users and one expert. It looks like the middle-class is absent.

It would be more productive if there were a group of middle-class users; this would dramatically slow down the parade in and out of the Controller's office and let her spend more time on the true responsibilities of her job.

(Agent, JKS Solutions, Inc.) |

I've had a lot of CFO experience, and here's the worst similar experience I encountered. It was in a $ 2 billion organization. As a newly hired CFO/CIO of one week I found we were unable to account for $ 180 million in expenses. My expectations were that the expenses were real, but were inappropriately allocated. This problem had apparently been going on for 10 years. It had occurred because we used a internally designed accounting system that was incredibly difficult to use and had many programmatic errors.

The manager responsible for this area had been with the company for some time and assured me he could fix it. We spent many hours trying to fix the entries without success. Ultimately I decided he was not competent and had created this situation to assure himself of continued employment. To that point in my career I had never run into anyone with that agenda.

I replaced him with a smart professional who had no internal agenda and I gave her as many resources as she needed. Ultimately, we reclassified 10 years of expenses, replaced the accounting system and got the problem permanently solved.

Never let this happen to you. As a new hire, you have more power to fix this structural problem than you will have later when you'll own it.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I had a similar situation with a company. It usually happens when you have an employee that has been with the organization for a very long-time. They essentially know where all the bodies are buried. Of course documentation is important and should be maintained for all primary processes, but Wayne identified the solution I used.

I walked into a situation where the staff would constantly reply to requests by saying, “We need to wait for ______________________, to answer the question.” After ensuring policies and procedures where documented and available, I assembled the staff and stated that the statement would no longer be acceptable. They needed to raise their technical knowledge. It worked.

If the person walked out today, it would still be a shame as she has tremendous experience and understands the history, but the pain would be limited.

The compensation situation is separate and should not be linked to this issue. If the employee deserves an increase, award the increase at the appropriate time. Big mistake to link.

Anonymous
(CFO) |

Excellent comments so far. I agree that this person most likely accumulated this knowledge due to stepping up when the situation called for it. However, there is no excuse for them to feel so empowered as to exhibit lax behavior and not being accountable. I have also run across this before and I would advise making use of their expertise to the benefit of the department by have them share their knowledge with your other staff who are willing to learn and delegate this responsibility. Over time, they should be capable of filling in if the Controller leaves. Bottom line here is obvious in that you can't let the tail wag the dog.

Vish Pattanashetty
Title: Director of Business Systems and Solutio..
Company: Demandbase
LinkedIn Profile
(Director of Business Systems and Solutions, Demandbase) |

Keeping aside the personality of the person, it looks like a highly customized system that only one person could understand (or has understood) could be an issue with the process design itself. Perhaps a process change is required to reduce the customization to a minimum. And this may be hard to do in the current system. But if you are thinking of upgrading to a new system, it is something to think about. I understand that each company does things differently but the current ERP systems have incorporated most of the best practices into their design. So every time there is a need for customization, companies should step back and think if it is really necessary to follow their old way of doing things.

The less we customize our systems, the less we have to depend on one person to understand the system.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

I have been the individual representing the "concentration risk". What I know about my company's systems did not come about by accident. I was instrumental in their design and maintenance and learned over time what works, what does not, and why. I would certainly hope not to be viewed negatively for this. As others have alluded to, this knowledge was sought after and earned, not given.

As the new CFO, you might be focusing on only part of the issue (I think all agree a lax attitude should be addressed). What level of staff supports your Controller? Are they manager level professionals or is there a steep drop off from your Controller to individuals with a lower skill-set?

Perhaps you can promote a member of your team to Accounting Manager / Asst Controller and make it clear their job is to back up the Controller in all things (or hire such a person).

You might also investigate what avenue for further development you can make available to your Controller (provided they are deserving and capable). You never mentioned if the individual comes in late and leaves early but performs to the level set for them. Putting in an intermediary person who can support / succeed your Controller should be predicated on you being able to offload more to your Controller.

Speaking for myself, if I am given challenging work, it drives my interest and I seek to delegate the things I am well-versed in to my team since the subject material is all too familiar to me. I always want to learn and make good impressions on new assignments.

Maybe there are things that you as the CFO feel similarly towards? Is it possible your Controller is slacking due to the absence of a path to further growth and challenges?

Anonymous
(CFO) |

A little bit of feedback:
As Regis said, my controller has indeed been here for over 8 years. She was the main point of contact for the ERP implementer, and continues to be. I like the idea of a backup, or an Asst Controller role, but as Ken eluded to, there is a steep drop off in skill level; i.e. CFO---->Controller ---->Clerk. The clerks are, well, accntg clerks. They just don't have the horsepower to be an Asst Controller. I've considered the possibility of hiring/replacing a clerk with a person with sufficient accounting skills to assist/step in for the Controller. But this kind of move always feels a bit to me like an NFL team paying 20M to a backup QB who never plays, and it's a tough sell to an SMB CEO (paying extra wages for a backup). I'm getting a lot of good ideas from you all, so keep them coming if you've got 'em. Thanks.

Anonymous
(Office Manager / Adjusting Assistant) |

Like Ken, I have also been labeled a "concentration risk" for my company. I also was involved in systems development, design, and maintenence and am intimately familiar with the data. I worked hard at gaining that knowledge and attaining new skills to adapt and grow with the evolution of the system and the company. Upper management has realized what a bind they would be in if I left the company and, unfortunately, has come to view my unique knowledge and skillset as a negative. I have always been willing to teach others the skills that I have learned and have tried to do so on many occasions. However, over the years, no one else was willing, or even asked to, step up and learn.

I often have to work while sick or on vacation because no one else can do my job. In addition, I have been passed over many times for promotions because I am "too valuable" and irreplaceable in my role. It is difficult to keep a positive attitude and stay motivated when faced with these circumstances and lack of appreciation for my dedication, loyalty, and hard work.

While one could certainly take advantage of their power in this situation, it would be worthwhile to consider whether your "concentration risk" is faced with circumstances like mine. Could her lax behavior be due to feeling trapped, overworked and underappreciated? It would be worth having an open and frank discussion with her regarding the reasons behind her behavior.

Richard Cromwell
Title: Chief Executive & Principal Client Advis..
Company: ControlWorkx
(Chief Executive & Principal Client Advisor, ControlWorkx) |

I think you received solid feedback from many postings. As a seasoned executive, I have run into this situation many times and very rarely do they work out well. Either the person a dedicated team player who took on a needed task and is getting worn out...or an "empire builder" holding the company hostage. I think you have a positive conversation with the individual and start off with "I see you have much on your plate...and the go to person for many things...hows that going for you"?. You can build into the individual's performance plan a training objective to get others up to speed and the process/procedures documented. Thus, mitigating the key person risk. If the individual is a team player, they can be recognized for that. If an empire builder, then that situation can be scaled down. Communication is the key and how you approach the person in addressing the situation.

Mark Sutherland
Title: CFO
Company: Profit By Design CFO & Controller Servic..
(CFO, Profit By Design CFO & Controller Services) |

A lot of great advice here. Richard, I've been thinking of doing exactly what you're suggesting. In terms of having her train/cross-train others and writing procedure, I'll have to figure out how to verify the level of success there (the challenge being, how will I "know what you don't know?", i.e. what has she NOT trained or written procedure for?). Maybe in the next 6-12 months I'll tell her to take a two week vacation and see how well myself and the other staff can stand in for her using the training and procedures she's created?

Julie Gilmore
Title: Auditor
Company: Broniec Associates
(Auditor, Broniec Associates) |

It is never a good idea to have one individual in complete control of an operational area...whether we are talking about software knowledge or financial oversight. She may be great at what she does, but there needs to be another layer of overlapping knowledge for accountability. When is the last time the company had an audit? You could walk away with some important information about your operational efficiency and some best practices to apply.

Teresa Anyango
Title: Finance Manager
Company: Bandwidth and Cloud Services
(Finance Manager, Bandwidth and Cloud Services) |

My view in this case is that there is collective responsibility in creating 'experts'. Smart professionals are needed but when we have 'only experts' in any operation, it becomes a time bomb. Both manager and worker will have some contribution to this situation. Unfortunately, the business stands to lose if this continues.

The situation should therefore be looked at more in terms of what the management has not done, than what the employee is doing/not doing. Some of the quick actions would be;
1. Come up with a company succession plan/career development.
2. Propose a possible next position for the expert but the condition should be that she trains a successor.
3. Have some rotational work procedures to allow others to do what she does.
4. Motivate the other team members to get interested in the role.

As a junior accountant with my first employer, we had an experience of the know it all that turned into a very big fraud. No other person understood the IT system but one gentleman. He smartly interfered with numbers and managed to collude with some cashiers to swindle millions from the company.

Avoid such situations as it is an avenue for fraud. With the comments given by the team, I am sure you will be able to deal with it immediately to avoid a bigger problem.

Carla Gordon
Title: Accountant
Company: Govt
(Accountant, Govt) |

I would approach the task of writing the manual as a concern that something could happen to this person healthwise, not as a lack of trust. You have no control over accidents, health issues, etc. Keep that in mind.

Anonymous
(President) |

Like a few others, I have also been labeled a concentration risk within my organization: I have been here for just over seven years and have absorbed everything thrown at me. Five years ago, I went through every process and created detailed instructions for each task, including screen shots. I also created (on my own time) a detailed "training course", providing specific examples for the accounting and support staff to use as practice for the training. I'm sad to report that NOT ONE person in the group of 12 ever did anything beyond sitting through my three hours of training (broken up into one-hour increments)...

Furthermore, 18 months ago when I tried to discuss training to a new VP over me, his response was, "I have you here; so I don't need to know how to do your job."

Am I a single point of failure for the company? Maybe, but not for a lack of trying to share my knowledge and experience.

Anonymous
(C2C Specialist) |

I do not envy your situation but take a moment to find out how this came to be.

From what you've said, you work at a small firm in that it only has $25M of sales and has an ERP. This could be a firm with a full suite ERP or one with a very stripped down suite. It all depends on the firm, its provider and a host of other factors.

The challenge is that a firm with sales of $25M isn't likely to have a huge finance bench. One of my past firms did close to $200M of business and did not have a deep finance bench. The controller was a go to person and in the end, I did develop ways to get around him. There was a bit of conflict but after a few dustups, we settled down. I was not a senior person at the firm but I was not about to give in to him either. I was not his direct report either.

You need to find out what's going on with this person. It sounds like the person is bored but who knows. From the point of view this person, each day is the same. A bigger question is, why do you need this person to say. If a person can come in at 10 and leave at 4 and still get all of their tasks done, why do you need them to stay from 9 to 5? I understand that for certain reasons (ie: sign-offs etc) you might want them to stay. There have been some roles where I've managed to master my duties to the point where during month I could leave early. Offering this person a 2% raise or even a 5% raise to work 9 to 5 does not address the underlying situation and may make things worse. Speak to the person, I have a feeling that communication or the lack thereof is a huge issue.

The last point is consider moving off the ERP system. Consider spending the money to train other people in the firm as well. Both of these are more expensive options but may be more worthwhile in the long term. In the short term its just easier to pay the controller and leave things as they are.

Anonymous
(Tax/Business Consultant) |

Many good replies.

But there's one more thing missing about the CFO and the position...
It could have been created for that person BECAUSE he KNEW the owners! Period!

I've been in similar situations and saw many firms where the "CFO" was basically the outside accountant who knew the owners. The owners did NOT want to hire anyone except a bookkeeper so the accountant did the "work". The "work" was actually NOT done by him directly but taken into his CPA firm where he delegated the work.

One extreme example...
The company paid him a SALARY not a consultant. The CPA made his staffers, over the years, do HIS work at the company whenever he needed and did the returns.
Conflict of interest? YES!
This happened for >30 yrs!!
The company finally hired a CFO but the CPA still "disagrees" with almost everything the CFO does who has taken over ALL the financial duties!

One has to ask: Why does the CFO NOT FIRE the CPA?
Because the CPA knows the owner and is still with the company until either the CPA or the owner dies, literally!

IMHO, that "indispensable" employee should have been FIRED YEARS AGO!
Making his staff do HIS work while getting paid as an employee, with benefits, from the company!

If you can't do the work yourself, then you're incompetent!
If you need "help" to do the work, then hire competent people!

Unfortunately, this occurs relatively commonly in privately-held and/or family businesses!

The owners may not know anything about finance/accounting but knows how to do the work in their company. The finance/accounting person basically ingratiated him/herself into the company, which is very unfortunate!

Pray that you do NOT have to deal with those CFO people as they are quite stubborn, to say the least! Many should have been fired or retired from the company years ago!

Without sounding ageist (is that a word?), when you're past 70 yrs old, let go and have someone else do the job of CFO!
Otherwise, in my business experience, your EGO/Arrogance just gets in the way of business!
A company can't Grow when the old timers are still there, many of whom can NOT or WILL NOT embrace what's NEEDED... CHANGE!

David Smith
Title: Manager
Company: Private
(Manager, Private) |

I think the framing of the problem, "too much operational knowledge concentrated in one person," sends the problem on a wild goose chase for a solution about this person with too much knowledge.

Are we really saying that a person possessing a lot of knowledge is a bad thing?

Or, is the problem one of others not possessing overlapping adequate knowledge? On that level the problem is not with the person who possesses great knowledge, but really their supervisor, co-workers and even direct reports, who could take greater responsibility for learning new things.

Anonymous
(CEO) |

How does one deal with this when there is only one finance person in a ten million dollar private company and he gets everyone that crosses his path fired? The pattern is clear now. Every time a new person starts asking questions, he threatens to quit, and the other person gets fired..

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

If you are the CEO, look for a new person and replace the individual. Sounds like there may be something dodgy going on (one of the tell-tale signs of fraud is not allowing anyone to see what's going on).

Or at least have a forensic accountant come in and look at the books.

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