01 February 2016

The Silo Effect

Gillian Tett
2015, Little, Brown, 304 pages,
ISBN 9781844087570

Reviewer: Bronwyn Curtis OBE

This is an easy read packed with anecdotes demonstrating that silos in organisations hamper businesses and can possibly cause them to fail. Inefficiencies develop because information isn’t shared and behaviours support the silo, rather than the organisation as a whole. Creativity is stifled and companies falter.

Silos develop in all sorts of organisations when people just do not share information and talk to each other. There are also the silos that are created from our past experience, silos in our thought processes so we categorise and subdivide into what is  ’normal’ – and that generally supports the status quo.

Silo-busting has long been an obsession with management gurus and Gillian Tett’s training in anthropology gives us a different perspective on the topic.  Anthropologists ask why people and organisations react and organise themselves the way they do and her conclusion is that some of the most successful organisations prosper because they break down these silos. 

According to Tett, the demise of the Sony Walkman was due to silos, leaving the way open for Apple to take over the market for portable digital music players. While Steve Jobs had the innate ability to combine information from a variety of sources to develop his products and had a single profit objective, Sony didn’t work on a unified strategy. Different silos developed their own (incompatible) products that competed with each other. 

Facebook has tried to keep silos from forming. It has a 6-week boot camp so new hires get to know each other and has tried a number of experiments in social structures and group dynamics. Will they work in the longer term? One employee noted that Facebook seemed less plagued by the internal rivalries and rigidities seen at its rivals. This may just be the sign of a fast growing company and perhaps as growth slows and the company matures Facebook too will succumb to silos and rivalries.  

Another of her examples was the reshaping of the structure at the Cleveland Clinic in Ohio. As the organisation became more complex, it had divided into specialist silos. Surgery had become distinct from medicine and there were a variety of subdivisions. By reorganising into multidisciplinary institutes around the patients and their illnesses, it forced the practitioners to take a more holistic view of their patients, which improved patient outcomes. 

Other examples do not fit quite so neatly her thesis of behaviours such as suggesting that the financial crisis was caused by lack of communication in departments within financial institutions. It was a contributing factor, but the complexity and fragmentation of the global financial system should not be underestimated.

And the divergent pricing of the same (credit) instruments within the same institutions is often a result of differing risk profiles of the customers, rather than just the ‘silo effect’. It may have created profitable trading opportunities for some hedge funds who combined equity and bond analytics to arbitrage between different divisions of the same bank, but smart computer programs have now arbitraged away most of these ‘opportunities’. 

The conclusion is that you cannot live without silos in the modern world but the best results often come from getting people to think ‘out of the box’ or putting people together from different disciplines to solve problems. It is a little glib. Sometimes silos within companies are the most innovative as they avoid the ‘group think’ mentality. Think iPlayer from the BBC and PlayStation from Sony. Without silos, these might never have been developed.