Pretty much everybody who has worked in a large organization knows that problem; the one we generally refer to as silos: people in a particular department or division only communicate with their peers, but when there is a problem or an opportunity that would require people from different units to coordinate, communication breaks down.
Complex structures don’t solve silos
It is a pervasive problem that occurs everywhere, whether you have geographic structure, a functional structure, product divisions or client-focused units. That is because there will always be issues that require coordination along different lines.
Companies try to solve this by creating increasingly complex org charts: they create a matrix structure where one side represents geography and the other captures functional lines. They may add overlays for product groups, and insert dotted lines to achieve coordination across client projects. Eventually, nobody quite understands what the structure is and how it is supposed to work. I have literally witnessed multi-day workshops where people from corporate HR tried to teach employees what the new structure really was and how it was supposed to work – after which it gradually became painfully clear that they did not quite know it either.
As explained in my book Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business (Harvard Business Review Press, 2017), I propose a simple yet effective alternative for these multi-sided matrices with overlays and dotted lines that will help fix and even prevent silos from forming. Together with my colleagues professors Phanish Puranam, from INSEAD and Ranjay Gulati, from Harvard, we examined firms that opted for simple structures but which, instead, changed them regularly over time.
Repeated, pro-active change
Picking a simple structure – for instance a functional structure – but changing it every now and then – for instance to a product structure, and then a geographic one, and then back again to the old functional structure – has the advantage that it unleashes the power of your informal organization; particularly its social networks and corporate culture.
That is because your informal organization only adapts very gradually to a new formal structure – and you can use that to your advantage. Once you have changed your functional structure into a product one, for example, your people will coordinate along product lines through formal meetings and reporting lines. But they will still have a functional mind-set and have a relationship with their former functional colleagues who are now scattered across different product units. This is wonderful, because it means you still get coordination along functional lines too, albeit it through your informal organisation. As a result you enjoy the best of both worlds. And all without silos. When after a few years your informal organisation has adapted to the formal product structure, in terms of people’s mind-sets and the informal networks they have within your organisation, you can again easily solve the problem by switching your organisational structure again, back into the old functional groupings or using some new criteria altogether.
Don’t make increasingly complex organisational structures but, instead, pick a simple one, but dare to change it every now and then.
An example
A CEO who understood this well is Alfred West: founder and CEO of SEI Investments: a very large fund of fund managers, with hundreds of billions of dollars under management. He was described to me by his employees as a “serial changer”: he was often changing something in his organisation. This certainly did not always involve reshuffling everyone in the firm, and certainly also not as often as possible. But he was always busy changing something. When I spoke to him he was changing the company’s remuneration system, for example from individual incentives to team ones, or company-wide incentives.
That is because West understood that there was no perfect solution in terms of an incentive system. But if, after some time, he felt that his employees were sufficiently aware of their own, individual contributions to the firm through their individual incentives, he might decide to widen their outlook by giving them company-wide ones, or vice versa. Al West understood that there was value in the process of change itself. And that by changing regularly he could get the balance right.
Conclusion
If silos are a problem in your firm, and you have not been able to figure out a perfect solution in your organisation’s design, rest assured: that’s because there is no perfect solution. All organisational forms have advantages and disadvantages, and you can never solve them all.
A better way to manage these trade-offs is to simply pick an organisational structure, and a simple one, and then commit to changing it every now and then. Are there no costs to this process? Costs of disruption, management time and employees having to adjust to new situations? Of course there are. But the point is that you when wait for the problems of silos to escalate, to such an extent that things really start to break down in your firm and you end up in crisis, the costs of managing your way out of that – if you’re going to manage it at all – will far outweigh the costs of any pro-active smaller changes.
Invest now in doing regular, pro-active change to prevent silos for forming in the first place and, in the long run, it will end up saving you a lot more trouble.