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Silos are bad for business, but "Hero-Silos" are fatal

"Hero-Silos" form when we publicly elevate the importance of one business function far above its peers. The frequent outcome is to undermine the success of the whole organisation. What drives us to create Hero-Silos in our businesses and why are the consequences so devastating when we do?

Sections of the investment banking industry have long known that the really big money only gets made in the space between what is legal and what is clearly not, where ethics would otherwise normally come into play. It's why, to expand that space, the industry lobbies constantly for further market de-regulation. It's also why, in the years leading up to the 2007 crash, bond-traders were so revered within global banking institutions.

By then, there was little room for "creativity" in trading public-equities, where markets are heavily regulated, stock-prices are highly transparent and companies mostly valued by relatively consistent mechanisms. Bond-markets, on the other hand, were - and still are - far behind Equities in regulation and transparency. Bond-traders realised that they could make these markets completely opaque through the creation of deliberately convoluted and obscure financial instruments, like Synthetic CDOs.

That opaqueness meant traders could set the launch market price for these exotic derivatives arbitrarily; they contained far too many layers of indirection for most outside parties to effectively understand the origins of their valuations or to question their downside risks, as the rating agencies woefully demonstrated. Bond-traders loaded the originating instruments with toxic sub-prime mortgage bonds and presented the rancid packages as high-return, triple-A, low-risk investments to each other, as well as to unsuspecting pension funds and private investors.

It was institutionalised fraud on a massive scale. But, inside the investment banks, the bond-traders were regarded as superheroes, as one quarterly earnings target after another was blown away.

Because of the stellar performance of this single metric upon which they were measured, the bond-traders were unscrutinised and untouchable. As long as the returns from the fraud were large enough, the roles of auditors and departmental risk-assessors were deprecated and staff in these functions heavily discouraged by senior management from examining too closely what was going on. Governments, too, appreciatively turned a blind eye to these dubious practices because of the wonderful tax revenues that came with them.

The eventual result was global financial meltdown, for which society is still paying the price.

The bond-traders are one of History's most potent and extreme examples of the "Hero-Silo", a less well-understood and special form of the well-known Silo Effect. When a silo mentality grips your organisation, the people within each silo increasingly focus on locally optimising their own function's performance, indifferent to the outcomes of the business overall. In a Hero-Silo, the effect is severely exacerbated; the function that becomes highly-elevated relative to its peers eventually puts the whole business at risk through aggravated isolationism, hubris and inter-functional resentment.

The bond-trader Hero-Silo may be an extreme example with extreme consequences. But it would be a mistake to think that Hero-Silos don't form in our own organisations. They do, often. Or that they can't do enormous damage to your business when they do arise.

How do Hero-Silos come to exist in the first place?

Hero-Silos are born from our attempts to explain complex business phenomena in overly-simplistic ways and from our tendency to anthropomorphise cause-and-effect. In business there are usually multiple contributing causes to both Triumph and Disaster. But we prefer to believe that one person or team is largely responsible in each case - it makes the world seem less complicated and therefore more manageable. Senior leaders feel more in control. Even more than this, we long for an identifiable someone to carry for us the burden of our future hopes (or, at least, our next financial-year targets).

In unconscious consequence of these human frailties, CEOs and senior leaders therefore frequently single out one function within the business and elevate it to Hero-Silo status. As for which one, that often depends on the CEO's own originating business area or prior specialism. Sometimes, as with Donald Trump, leaders even elevate themselves to be the Hero-Silo.

As the Hero-Silo develops, the CEO increasingly places disproportionate importance on that business function, attributing successful delivery of complex outcomes largely to its capabilities and, consequently, undervaluing the other participating functions. Unlike classic silos, the power of the Hero-Silo is so strong that it even survives the silo-busting approaches of strong matrixing structures like the Squads and Tribes model. This "virtual" Hero-Silo's identity remains intact, even when distributed, through the regular singling-out of its members for disproportionate attribution, reward and praise.

Even where a business works in a non-siloed fashion at the outset, the introduction of a Hero-Silo usually kicks the entire organisation over into a silo mentality, in reaction. This is common in smaller, high-growth companies which, on passing a certain scale, often fall suddenly into silo-ism shortly after the first Hero-Silo starts to emerge.

Hero-Silos - why do they cause so much harm?

To appreciate why Hero-Silos, once formed, are so toxic in business, it's useful to first review why classical functional silos reduce the performance of the overall organisation so much. This is less well understood than we perhaps sometimes think - otherwise we wouldn't keep banding together into silos.

To illustrate the damage that silos do, let's consider a major end-to-end business activity, Product Development, in a typical, growing tech business. The issues illustrated by this example apply to most major business processes.

Product development ideally should be like Nature, operating on a continuum, without obvious boundaries and segmentation. While we are experiencing the beauty of a sunrise, Nature is not sub-dividing its delivery and assigning each to a different function of the Dawn. The Morning does not produce a detailed handover specification for The Afternoon.

Product development, in its own nature, is the same; a set of tightly integrated events and activities, flowing from market-need identification to conception to development to market adoption through traction to growth and around again. Mirroring this flow, product development requires a continuous blending of product, design, engineering and growth-marketing skills, the boundaries of which should not easily be discernible in the ideal organisation.

In practice, our social limitations lead to us inserting functional boundaries into this creative process so that we can more easily manage the scale of our task. The price paid for that manageability is that we break the natural flow of product development. In so doing, we increase the risk that the classic Silo Vicious Cycle takes hold:

  1. START: We introduce the beginnings of misalignment between the goals of the people involved in the process. Functions optimise for their own local metrics, rather than to optimise for the success of the overall activity.

  2. We over-specialise. In doing so, we under-appreciate the importance and nuances of other functions involved in the product's delivery.

  3. Because we don't properly understand the other functions, we attribute success in the overall process outcomes disproportionately to our function and any problems disproportionately to other functions.

  4. In time, the boundaries between teams become wider. We tend to meet with people from our own teams far more often than with those in adjacent areas. This feeds greater misalignment and the cycle intensifies.

Enter: the Hero-Silo

When, within this degrading cycle, the CEO then starts to associate Hero-Silo status to one of these functions, all of the negative effects intensify and accelerate. Self-confidence within the Hero-Silo migrates to hubris and polite disdain for peer functions, while resentment from other functions towards the Hero-Silo quickly increases. Barriers to cooperation strengthen considerably.

The fastest way to end-up with a mediocre function within your business is to attribute little importance to it, relative to the Hero-Silo

Worse still, the performance of other functions diminishes in Hero-Silo conditions. Good people in unloved functions, feeling disenfranchised, move on. Ambitions are lowered. The fastest way to end-up with a mediocre function within your business is to attribute little importance to it, relative to the Hero-Silo. The standard example here is how some CEOs regard supporting functions such as HR in comparison to, say, Product Engineering. If you want someone of the quality of Lazlo Bock as your Executive VP of People Operations, then you'd better value HR as strategically critical.

A good place to start in assessing whether you, as a senior leader, are personally fostering the creation of a Hero-Silo in your business is to regularly ask yourself these questions:

  • Do you most value a specific function because it's the one that you most understand? Conversely, do you value other functions less because you don't understand them?

  • Are you sure that you fully appreciate the role that each part of your business plays in, for example, bringing a product successfully and sustainably to its market. And do you likewise appreciate the importance of those supporting functions that provide for the people directly involved in the primary process?

  • Do you direct >60% of your questions, challenges and brain-storming activities in the business towards the same function?

  • Who do you talk about when you talk to the business? Who do you celebrate? And when was the last time that you publicly thanked the IT Operations team for keeping the company's network secure?

In the end, for all the silo-busting organisational models that businesses might adopt, the avoidance of Hero-Silos still remains solely in the hands of CEOs and senior executives. Only members of this constituency have the power to create such silos and only they can dismantle them.

As with all aspects of leadership, it comes down to choice. It's a choice better made by those leaders who understand the destructive power of Hero-Silos and how easily conjured they are.

IPSO FACTO LTD

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