Organizational silos are a good thing (except when they aren’t)

5 minutes read

Management Kits - Organizational Silos

Let´s make the case for organizational silos. As long as the term “silo” describes the grouping of organizational activities into separate units, it simply denotes the primary boundaries within which to build specialized capabilities and drive performance. These unit structures, or silos, provide direction and focus. They allow for the creation of organizational sub-cultures, which can provide the individual with a sense of belonging and pride that the larger corporation, due to its sheer size, might not be able to offer. The reason to create silos is to create an effective division of labor, and organized division of labor was a key factor in the emergence of a modern economy.

But this beneficial specialization is only half of the story, because when people talk about silos they usually have their disadvantages in mind. Those who are critical of silos criticize not the separation of functions or activities, but the fact that this separation creates boundaries that are impenetrable, inflexible and absolute. This can happen in multiple instances, for example, when hierarchies and classical “chains of command” are strong and exclusive, and are enacted by managers accordingly; when formal incentives are both strong and strongly aligned to organizational units; or when an organizational structure, built for a once stable environment, has stopped reflecting strategic imperatives and market realities. Then unit structures as silos become a problem.

When silos aren’t as good

Unit boundaries that are too rigid become problematic in at least three instances:

1) If you have to frequently cooperate across unit boundaries

As there are usually pros and cons for having unit structures within an organization, deciding for or against setting up a silo is never a black-or-white decision. As a result, more or less regular tasks and activities will have to cross silo boundaries. The problem arises when there are too many tasks and activities that have to cross these boundaries.

For example, many innovation tasks will typically need to draw on capabilities of different organizational units. If the unit structure is not following client segments – and sometimes even when it is – ensuring an optimal client experience will often involve cooperating across functions, geographies, or product areas. Shared service organizations, by their very nature, will have to work across organizational units. An organization that adheres too rigidly to its unit structure will face difficulties in efficiently handling cooperative tasks.

2) If you have to solve non-standard problems

A well-thought-out organizational structure is typically derived from strategic objectives, which are then translated into an organizational design capable of supporting the activities necessary to reach the objectives.

This is fine, as long as the markets, customers, and the wider technological, political, and social environments do not undergo rapid change. Organizational designs are often built to support routinized, standard activities within specialized units that change slowly. As a result, routinized organizations can run into trouble if they are unprepared to solve non-standard problems that affect the whole organization. Examples of this are severe crisis phenomena in the economy, game-changing regulatory initiatives, or cross-cutting technological trends, such as digitization.

3) If you have to reorganize and silos are deep-rooted

If you have to rebuild your organizational structure to align it with market realities, an entrenched organizational unit structure will be harder to change than a less rigid set-up already accustomed to cooperating across boundaries.

How to balance unit specialization with organization-wide cooperation

There are several formal ways to support collaboration on routinized and frequent tasks that cross unit boundaries. In the classical approach, alignment happens at the top level of the organization and is then reflected by the managers for their respective silos. This works (in theory) if there is no need for horizontal cooperation at lower levels of the organization.

Other formal ways include the definition of cross-unit processes and the respective roles different units have to play within those processes (e.g. via a RACI analysis or a swim lane diagram), or the establishment of collaborative groups, such as task forces, working groups, or cross-functional teams. The best way to override silos is to combine unit structures via a matrix. However, this won’t solve the problem if cooperation has to go beyond the matrix structure.

While some formal mechanisms are important for organizations as soon as they grow beyond the size of a team of say 15-20 (which can largely rely on personal interaction and coordination), informal links are an indispensable element of every effective organization, especially when it comes to non-routine and non-standard problem solving. Informal links supplement formal mechanisms and serve as a corrective to formal rigidity. They depend largely on voluntary action and individual initiative. However, these informal links can be encouraged through setting good leadership examples and establishing positive behavioral norms as part of the organizational culture.

For example, one behavioral pattern that enforces rigid silos is strictly following the chain of command within an organization to the extent that horizontal cooperation is only allowed between those on the same leadership level. For one of my clients it was an absolute no-go to reach out to the subordinate or boss of a peer leader. As a result, alignment and problem solving was always confined to one level, and was slowed down and hampered by the fact that formal rules were applied irrespective of the nature of the task at hand.

On the contrary, leadership behavior that demonstrates that it’s okay to deviate from strict organizational chart-line relationships if the situation requires it may, over time, encourage informal cooperation. Balancing of unit specialization with organization-wide cooperation can be further encouraged by promoting exemplars who, through their initiative, play significant informal coordination roles, highlighting the freedom to network as a desired behavior, and paying attention to spatial arrangements that facilitate informal cooperation.

The organizational structure kit includes a number of tools to foster collaboration across unit boundaries. Get a free preview here.