Summary: Using the classic case of the Volvo supply chain, we identify the root causes of silos and share ideas about how to tear them down.
A while back, I was talking with Marti Eulberg, previously Executive Vice President of Sales, N.A. for Volvo, about the challenges created by functional silos in an organization. Now Executive Vice President of Sales and Marketing for Jaguar, Marti has been extremely successful in “tearing down walls.”
Prior to Marti’s arrival at Volvo, a textbook example of functional disconnects occurred.
Volvo had produced a lot of green cars in the mid-1990s but wasn’t selling them. To off-set the problem, sales and marketing started to secretly offer heavy discounts, rebates, and special deals on green cars to their dealerships.
The problem? Volvo’s supply chain people didn’t know about the discounts, so when they saw the green cars selling like hotcakes, they doubled their production plan for the next year.
You guessed it! By the end of that next year, Volvo had a lot of green cars in stock.
Why Silos Happen.
I can’t think of a better example of how function silos hinder communication and lead to costly mistakes.
So, why do silos develop?
Let’s begin with the most obvious reason — turf protection. Managers may fear losing power and control by sharing information…because they all are aware that only so many can make it “to the top.”
From the time we are children, when we are taught the game of “musical chairs” (a prototypical model of scarcity and turf protection), we learn that we have to beat each other out in order to succeed. In musical chairs, when the game dwindles down to one chair and two players, only one person wins…and we call that fun!
Narrowly focused goals and metrics. Accountability is an overarching theme in every sector of today’s business environment. Now, add in the fact that each department is steeped in its own metrics of what they term success.
Strategic and tactical plans tend to develop around these unique goals and metrics with little thought of integrating with other departments to expand leverage strengths…and there’s usually no integration at the senior level to change the status quo.
More often than not, incentive and compensation systems are usually narrowly focused and tend to reward individual behavior. Rewards are typically tied to achievement and achievement tends to be individually-focused rather than team-focused. Ultimately, it is the culture of the organization that has, inadvertently and unintentionally, created silos by rewarding individual behaviors using competitive and narrowly focused parameters.
How to avoid silo development. Three effective strategies I learned from Marti and now practice with clients include:
- Facilitate integration at the top. Motivate the people at the top to start talking – senior executives, department heads and program managers – and encourage them to look, horizontally, across functions. Facilitate discussions about the differences and resulting tensions between product division goals, supply chain issues and customer goals…and don’t forget to discuss any possible or existing functional disconnects. The key is to keep a horizontal perspective of the organization in addition to a vertical one.
- Build Joint Accountability. Trust is essential in building integration. It is predicated on working toward joint goals and in an aligned fashion over a period of time — without major surprises. Trust can be developed by having joint metrics associated with incentives.Some organizations adopt an “internal customer-supplier model” rather than a “partnership model.” Unfortunately, with the customer-supplier model, some leaders take the attitude that if the other function does not provide a certain level of responsiveness, they’ll be blamed or rated badly.In a true partnership model, if either party negatively impacts the results of the other, resources are then used to build the relationship – new information systems, joint team education and travel to get people together more often to build communication.
- Clarify roles, responsibilities and authority levels at the interface level. Processes cut across departments and it is this “white space” (the interface between the functions) that frequently causes problems and leads to the building of individual silos.
Employees may be unclear about roles, responsibilities and authority levels. In our work, we have facilitated discussions between groups that interface with each other to build efficiency and integration. In these groups, we discuss who has ownership and/or authority for various parts of the process.
Jointly, these mangers determine who must be informed of decisions, who should be consulted, and whose support is needed to implement outcomes. This type of planning enables functional areas to identify and resolve points of potential confusion and conflict. The result? Trust is built and operations become significantly smoother and more efficient.
Without a doubt, functional silos hinder communication and efficiency, and many companies struggle to tear them down, once they appear. Key to this issue is the challenge of incorporating trust between departments or functions.
Under Marti Eulberg’s leadership, once the walls had been torn down, Volvo has continued to emerge as a world leader in the very volatile and fickle playing field of the automotive industry.
Establishing transparent processes to govern how departments work together, share accountability and increase horizontal communication will, ultimately, create and build more productive relationships and deliver increased value to the organization.