Wednesday, June 6, 2012
Silos are necessary in companies. They provide the structure that allows companies to work. Every company is split into divisions, departments, or groups, such as sales, technology, and finance. This structure allows expertise in different areas. In companies, silos tend to be places where information, focus (another word for choosing priorities), and control flow up and down. But company silos also cause problems--that same structure prevents the flow of information, focus, and control outward. And in order for a company to work efficiently, decisions need to be made across silos.
There are three aspects to the organizational silos barrier:
• Nonaligned priorities
• Lack of information flow
• Lack of coordinated decision making across silos
Silos occur naturally because of the way organizations are structured. Each part of a company reports up to a manager who has responsibility only for that part of the company. But none of the parts is truly independent. Each relies on others to perform its function, and the company performs well only when each of these sometimes many parts or units work closely together.
This kind of company structure is also necessary because it keeps accountability and responsibility in the silo. It also fosters a sense of independence and pride of ownership, which is a good thing. Senior management’s role is to look broadly at the organization; a department manager’s is to look deeply into his or her own area. The problem is, doing this creates what I call “tower vision.” Managers tend to look up and down only within their own silos--never looking around or across--so all they see, and tend to think about, is their own silo. They don’t know what is happening elsewhere in the organization or how their actions impact other areas. They act primarily in the interest of their own silo.
This makes sense. After all, when you are a division manager, your priorities naturally and appropriately center on your division. You may not even be thinking about other groups. And when you have to make decisions that may affect other silos, you are conditioned to think about your own silo first.
Just because a course of action makes sense for a silo manager doesn’t mean it is the best way to do things or even in the best interests of the entire company. From a company point of view, silos need to work together. But too often that doesn’t happen. Problems arise when departments do not share the same priorities, knowledge, or information, and when managers work in an independent, entrepreneurial manner--in short, when people are operating with tower vision.
You see the organizational silo at work all the time. Every manager is part of a silo and has been frustrated when his or her priorities did not align with someone else’s in a different department. (Can you remember telling a colleague that whatever you needed was reallyimportant? Or telling another colleague that you were doing something that has a higher priority? We have all been on both sides of the equation.)
Customers also see the organizational silo barrier at work. Think about the process of buying a new car. The salesman at the dealership sells you a car but has to rely on a computer system to tell you if it is in stock. The dealership’s sales department is run by a sales manager, who has no control over how the computer system works. She relies on another unit to keep technology running smoothly.
The salesman also needs to know how quickly he can get the car to you. This is also not in his manager’s control. Even if the auto manufacturer actually has a car in stock in the color and with all the features that you want, and even if the computer inventory program is accurate, it is up to the distribution department, under the control of yet another manager, to get the car to you. And if you want to finance the car, that is yet another department--and another department the salesman and his manager have no control over. It is only when all of these units within the dealership operate successfully together that the salesman is able to make you happy with the purchase of your new car.
Breaking The Barrier
To break the organizational silos barrier, the goal is not to destroy silos themselves but to eliminate the problems that silos cause. That is a critical distinction. Managers may be tempted to think that getting rid of silos is the answer. But the structure that silos bring is very important in terms of creating accountability and responsibility within the organization. Silo managers know clearly what they are responsible for. Cooperation, communication, and collaboration are the three keys to working across silos. Those are components that ideally any successful working relationship would have, but they are must-haves if you are going to break the organizational silos barrier.
You can break this barrier when knowledge, focus, and control are shared among more than one silo. The solution is about losing tower vision and being able to look at--and see--things from a different person’s or department’s point of view.
Breaking this barrier is also not about proving who is “wrong” and who is “right.” It is perfectly understandable why silo heads have different priorities and why they believe that they are doing the best thing for the company when they are doing the best thing for their silo. When managers have been given responsibility and authority, it is only natural that they will choose to exercise them--and not always in moderation. When decisions to reprioritize do get made, it is because collaboration or communication has allowed a shift in perspective.
Human nature forces people to want to do the best they can within their own “sandbox” at the expense of everybody else. “Owning” a function or a part of a business naturally brings forth a manager’s entrepreneurial spirit, and you don’t get to be head of a silo without being competitive. Managers rationalize their lack of cooperation as “I’ve been given this area to run as I see fit and I need to do the best job I possibly can."
This is easier said than done, of course. We are, after all, in typical silo heads talking about a group of very focused, highly competitive individuals. A good process to remove barriers highlights where cooperation is not occurring, and it points out the consequences of those lapses. It puts in place measures to ensure that decisions are not made in isolation going forward.
Tuesday, June 5, 2012
Management knows it and so does Wall Street: The year-to-year viability of a company depends on its ability to innovate. Yet many companies have not yet learned to manage innovation strategically. The companies we've found to have the strongest innovation track records do things differently: Rather than hoping that their future will emerge from a collection of ad hoc, stand-alone efforts that compete with one another for time, money, attention, and prestige, they manage for "total innovation."
One tool we've developed to help companies manage their innovation portfolio is the Innovation Ambition Matrix (see the chart below). It is a refinement of a classic diagram devised by the mathematician H. Igor Ansoff to help companies allocate funds among growth initiatives. Ansoff's matrix clarified the notion that tactics should differ according to whether a firm was launching a new product, entering a new market, or both. Our version replaces Ansoff's binary choices of product and market (old versus new) with a range of values. This acknowledges that the novelty of a company's offerings (on the x axis) and the novelty of its customer markets (on the y axis) are a matter of degree. We have overlaid three levels of distance from the company's current, bottom-left reality.
In the band of activity at the lower left of the matrix are core innovation initiatives — efforts to make incremental changes to existing products and incremental inroads into new markets. Whether in the form of new packaging (such as Nabisco's 100-calorie packets of Oreos for on-the-go snackers), slight reformulations (as when Dow AgroSciences launched one of its herbicides as a liquid suspension rather than a dry powder), or added service convenience (for example, replacing pallets with shrink-wrapping to reduce shipping charges), such innovations draw on assets the company already has in place.
At the opposite corner of the matrix are transformational initiatives, designed to create new offers — if not whole new businesses — to serve new markets and customer needs. These are the innovations that, when successful, make headlines: Think of iTunes, the Tata Nano, and the Starbucks in-store experience. These sorts of innovations, also called breakthrough, disruptive, or game changing, generally require that the company call on unfamiliar assets — for example, building capabilities to gain a deeper understanding of customers, to communicate about products that have no direct antecedents, and to develop markets that aren't yet mature.
In the middle are adjacent innovations, which can share characteristics with core and transformational innovations. An adjacent innovation involves leveraging something the company does well into a new space. Procter & Gamble's Swiffer is a case in point. It arose from a set of needs P&G knew well and built on customers' assumption that the proper tool for cleaning floors is a long-handled mop. But it used a novel technology to take the solution to a new customer set and generate new revenue streams. Adjacent innovations allow a company to draw on existing capabilities but necessitate putting those capabilities to new uses. They require fresh, proprietary insight into customer needs, demand trends, market structure, competitive dynamics, technology trends, and other market variables.
The Innovation Ambition Matrix offers no inherent prescription. Its power lies in the two exercises it facilitates:
- First, it gives managers a framework for surveying all the initiatives the business has under way: How many are being pursued in each realm, and how much investment is going to each type of innovation?
- Second, it gives managers a way to discuss the right overall ambition for the company's innovation portfolio.
For one company — say, a consumer goods producer — succeeding as a great innovator might mean investing in initiatives that tend toward the lower left, such as small extensions to existing product lines. A high-tech company might move toward the upper right, taking bigger risks on more-audacious innovations for the chance of bigger payoffs. Although this may sound obvious, few organizations think about the best level of innovation to target, and fewer still manage to achieve it.