The Silo Effect on Value Creation
I started reading “The Silo Effect” this week.
In this era of hope and aspiration for massive enterprise value creation enabled by AI, we first need to broaden our thinking beyond our current horizons and boundaries of functional task groupings and consider the true “end-to-end” business opportunity.
I am sure you, like me, have observed and even diagnosed examples where a team’s laser focus on their specific functional area of work has resulted in error, wastage, leakage and lost opportunities that impact the organization as a whole, the financial results as well as the ultimate customer/consumer.
Unnecessary cost, lost revenue, overlooked liabilities, denuded cashflow, and complete “snow blindness” to genuine root causes and effective resolutions.
All this, unwittingly reinforced by a focus on the management and motivation of the units created by the “division of labour”, which has been a guiding business principle for 200 years. Popularized by Adam Smith in “The Wealth of Nations” the division of labour vastly increased productivity and efficiency through task specialization, repetition and skill mastery in the industrial age.
Focus, which we all regard as a quality, has a flip side.
“Silo Thinking”.
I was drawn to this book by both the title and the author.
“The Silo Effect: why putting everything in its place isn’t such a bright idea”.
That title had me at “hello” 😉
The author, Gillian Tett, is a long standing columnist and editor at the Financial Times (FT). Her articles have had me glued to the “pink pages” since long before the iPad and Kindle overwhelmed our reading habits.
She is also a social anthropologist, which makes her perspectives on this topic doubly relevant.
It is a human challenge.
Silos.
Since the dawn of civilization, we have felt the need to classify and categorize.
The “silo effect” of functional groups in a business focusing primarily on their own internal efficiency is a well-documented phenomenon. It is the organizational evolution of this “simplification by stereotyping”.
It happens even when we don’t want it to.
In his great book “Thinking, Fast and Slow”, Daniel Kahneman explained stereotyping as a cognitive shortcut used by our fast, automatic/primitive brain to process information. I guess it helped us avoid becoming a lion’s lunch in early days of homo sapiens. This shortcut simplifies the world by categorizing people, things and events efficiently. However, this deep reliance on stereotypes in the modern wrold often leads to severe biases, omissions and incorrect judgments
On the plus side, silos can make things more efficient, and help give leaders a sense of confidence that they have the right people focusing on the right things.
But they can also be catastrophic, leading to tunnel vision and tribalism. They can create a structural fog, with the full picture of the organisation and it’s direction hidden from view.
Silos are everywhere. They are not simply an organizational construct, but a psychological one, making them even more powerful and insidious. “The Silo Effect” explores how individuals, teams and whole organisations often work in silos of thought, process and product.
Silos can blind and confuse us, making the organization less efficient and effective, unconsciously taking on risk, loss, wastage, cost and denuding customers and revenue.
“The Silo Effect” is a manifesto to encourage us to remove our organisational blinders and transform the way we think to drive better business outcomes.
We cannot entirely abolish silos, any more than we could abolish electricity. We need specialism to deal with extreme complexity, but when our classification and silo thinking becomes too ingrained, we become blind to key risks and opportunities.
It is the “Silo Effect” that camouflages so many critical tasks in our business cycles (aka “end-to-end processes”). Leaving key “blind spots” where some key tasks operate almost out of sight, in our peripheral vision across different units, locations, and even continents . . .
These “blind spots” cause us to leak revenue, cost, liabilities, shipments and customer experience.
“Silo Busting” is not about destroying the org-chart, but about changing our way of thinking about the business and its key cycles, allowing us to “Zoom Out” and “Shift Left” to get a broader, and ultimately more value-creating, perspective.
You can get a copy of “Thinking, Fast and Slow” by Daniel Kahneman here . . .
The Silo Effect on Value Creation
Thanks for reading . . .