Tuesday, 15 November 2016

The Pros And Cons of “Silos”

One of the terms one hears in many organisations is “silo”.  A silo is:
  • A pit or other airtight structure in which green crops are compressed and stored as silage”;
  • An underground chamber in which a guided missile is kept ready for firing”;
  • A system, process, department, etc. that operates in isolation from others,”
… according to Oxford Dictionaries.  We talk about “silo management’, operating “in silos” or “silo mentality” to mean teams, departments or even entire business units that seem to operate without reference to each other or to whether they are aligned with organisational goals. 

Generally, silo management is considered “bad”.  At times, though, I’ve asked whether this is altogether true…

Among the common disadvantages of silo operations are:

Ineffective Communication: different functions, departments or teams may be working “against each other” without knowing it because they’re unaware that their actions may be harming a profitable relationship for another team.  This may result in…

Duplication/Wasted Time: … as effort and/or resources are replicated across teams, leading to increased costs and reduced shareholder returns.

Blame Games: it’s easy (and common) to blame Marketing/Sales/IT/Compliance etc, when things go wrong if you're not talking with each other.

Competition For Resources: … between silos leading to “turf wars”.

Alignment: objectives of one silo may run counter to other silos’ or not be completely in line with organisational goals.

When considering the advantages of “silo operations”, I see the following:

Independence: some functions may actually need to be silos, e.g. Internal Audit, Compliance to ensure that good corporate governance prevails. 

Focus: teams/departments/business function can operate without interference.  This may be critical when bringing a new product or service to launch stage ahead of the competition.  Aligned with tis is…

Concentration of expertise: expertise centralised “under one roof” dedicated to delivering the product/service for which that unit is responsible, without distraction.

Internal communications: those within the “silo” can communicate easily and effectively with each other in the furtherance of organisational projects/goals.

Effective allocation of resources: assuming that the expertise is concentrated where it’s needed, resources can be allocated without reference to organisational constraints.  Economies of scale can be achieved to a limited degree based on the focus of that particular “silo”.  It is not constrained by having to wait for “Head Office” to make a decision, send the relevant expert, or allocate centralised resources needed.  This could mean increased profitability and shareholder returns.

In a global business, managing each geographical region as a separate, self-contained “silo” may actually be a more effective way of doing business, given time zone constraints.  The military also operate a hybrid “silo system” through the concept of “Mission Leadership” where the general briefs his subordinates and orders cascade down to the line to individual fire team leaders who are many steps removed from the man at the top, but can operate independently to achieve their part of the overall objective within limits prescribed.

In short, there are times when silos are necessary for a number of reasons, but care should be taken that they are limited in scope and size to prevent them from turning into unstoppable beasts that proceed to rampage out of control, accountable to no one.  This, sadly, is all-too often what happens…

I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world  running different operations and lending businesses, I started my own Consultancy to offer solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

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