It’s a phrase I heard just last week, “we may have the same badge, but we are not on the same team.”
When you hear something like that, it’s highly likely you have just discovered that unseen boundary in the firm called a “silo.”
And in the fast-moving agile era, silos are way too costly. Why? As we’ll explore more below, silos cost firms time, money and precious resources because they force information and decision making into an upward spiral holding pattern.
And yes, they are very, very common.
What is a Silo?
Simply put, a silo is a group of people within a firm who work closely together and report to the same leader (this part is normal). In a silo, however, these teams become very inwardly focused and don’t share information, goals, and processes with their adjacent teammates. This, along with a culture that has removed the reward for risk, forms an isolated structure that only allows decisions to be made at the top.
Usually these silos appear quietly and organically – you don’t consciously see them appear. The organic element is that functions tend to attract team members with a certain underlying personality. For a common example, R&D teams are known for their extroverted thinking and introverted intuition, which means they are big on brainstorming but tend to keep to themselves and their peers. Contrast this with business teams that are known for their goal focus, as well as their ability to collaborate and work out challenging situations verbally. When a firm is fresh and new, information and insight flow freely. With time, however, the preference to work with those that think like us kick in and an invisible boundary is formed.
Secondly, as firms mature, as I mentioned, a subtle risk aversion settles in, which drives the decision making higher and higher in the group. This comes from the cost of being wrong exceeding the reward for speed and accuracy. When this equation tips, you lose that extremely important joint risk-taking between teams and individuals. The end result is a less flexible, responsive organization.
When these silos start to take root, we find that empowerment to make decisions disappears, and in late stages, only the senior leader can make a call. As silos progress, the team becomes very inwardly and vertically goal focused (to the exclusion of their peers), and those goals are best measured at the boundary of one senior leader.
Not uncommonly there is an incentive system involved as well, and what at first can be seen as efficiency, quickly becomes a “we need to win” attitude. In time, this subtly sets the team “against” its peers.
Enter the need for cross-functional collaboration.
When (and How) Silos Get Expensive
The ‘siloing’ of firms takes place gradually over time, and if the markets and client demand stay steady, they don’t become too expensive. The real cost comes in when the firm needs to make a pivot, and the inertia of the siloed team becomes very apparent. Because the group has set its own inward-facing goals and culture, it is deeply protective of the status quo and resistant to external changes. The cost of the resistance comes in the form of time, money and resources:
- In this era, time is the most irreplaceable asset. The difference between being first to the market and second might only be a handful of months, but the market share at maturity will likely be double-digit percentages lower (see paper here and HBR link here). Silos force decisions to the top of the house, which means they will be slower than a company that has located decision making at the lowest possible level.
- In any lean system, when the element is unresponsive, it creates inefficiency and drives queuing both in front and behind the process. In the case of a siloed business operations team, we find R&D programs on hold for market data, customer feedback placed in a holding pattern and requests from sales backed up. Each of these costs the company’s real margin and sales.
- When decision making is disrupted and each one needs to go through the top of the house, resources get consumed in two ways. The first is in delay, as the senior exec is just too busy to make all the decisions for a group in a timely manner. The second one is that groups defer and just live with mediocrity when it’s too much trouble to set the decision up in the first place. This unseen lead anchor keeps inefficient systems in place way too long.
The Solution
The way through this boundary and the unlocking of value cluster into three steps. These are most often taken by the senior team after the costs described above have become apparent.
- Enroll – get in the game. Step one is for both sides to acknowledge that the silo exists and is hurting performance. Next, they make a commitment to enter a dialogue about it – with each other and their teams. It is not uncommon for the Ops-oriented leader to miss the existence of the silo all together. Once we’ve completed the diagnostics and cross-team leaders are on board, it opens the path for discussion.
- Engage – conflict is not bad. Many, many times these structures are held in place by an unwillingness to have discussions that involve conflict. Constructive discussions that take on these real (and many times perceived) costs and issues take courage to get started. This courage is best modeled first by the senior leaders and then cascades into the key mid-level leaders. A great vehicle for these discussions is something we call “service-level agreements” as applied to the “gives” and “gets” at the organizational boundary.
- Equip – this is not a one-step journey. To truly make progress with this kind of embedded change you need a two-prong approach. The first is to do the “technical” training – give your teams some solid coaching on interpersonal interactions with those who think differently, as well as how to negotiate for agreement. Second, you need to do the “adaptive” installation of these concepts using resources like coaching to be sure that boundaries really are being melted and customer value is being unlocked.
Take a Step
The first step on this journey is awareness. If this post has given you a sense that your firm has genuine value locked up between the silos, it’s time to kick off action.
Feel free to give me a call at 847-651-1014, or put an appointment on my calendar with this link, and we’ll have a discussion to get you on the right path.
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