The Silo Effect

Learn how to bust silos both at work and in your own mind.

Ever since the start of industrialization, specialization has played a big role in turning a business into one that’s more effective as well as profitable. By breaking down the processes into smaller parts, and teaching staff how to do very high-level, specific tasks, a business is able to make better items at a quicker pace.

However, you’ll learn that both dividing and departmentalizing can go a step too far, which negatively impacts a business’s creativity and their flexibility. However, they are faced with even bigger issues than that one. Just as you’ll find silos in your heads, you’ll also find that they’re prevalent in companies. Therefore, now’s the time to get them out of there and never see them again.

This text will teach you how and why silos are built in the first place and outline what steps are needed to take to adjust them for the better, or to just completely get rid of them.

In this text, you’ll learn:

  • How New York was able to help firefighters by making fires more predictable
  • How come Sony had been stuck in an “octopus pot” for far too long
  • How come Facebook makes its new staff go to boot camp

Silos, whether in business or in the mind, are prevalent and cause major communication problems.

A silo is so much more than simply a physical structure. Those deep and narrow columns happen metaphorically not only in social circles, but also in our heads and they are very damaging for a number of reasons.

Within an organization, silos efficiently intimidate people from working with one another. In New York city, a number of government departments used to be like silos. It got to the point that the fire department and emergency call operators wouldn’t even tune their wireless communications to identical frequencies, despite the fact that they actually needed to communicate with one another.

Michael Bloomberg, who had been New York City’s Mayor at the time, had decided that it was of utmost importance to get those two departments to become connected. In addition, he tried to get open office spaces, that way the fire, finance, and police investigations department shared data. This, in return, helped his administration to better predict any risk of fire in those buildings owned by the city.

Although it’s definitely logical to distribute data equally amongst everyone and cooperate in a big organization such as a city administration, it’s quite difficult nonetheless. People typically live and socialize inside of silos, staying with certain groups that consist of those who are like ourselves.

We’re also recommended to specialize in the business world as it’s only getting more and more complicated. We take a lot of advice from experts, for instance, even though they themselves work with those in their particular field’s “silos”.

Those types of specialized silos have positive sides to them, too, though. For one, they help us arrange our social lives, our work environments, and our economic systems and institutions that way we are more accountable.

However, that increase in accountability is actually what’s a part of the issues, especially in our work environments. Whenever groups are simply accountable for their certain piece in a project, they can start to become competitive, withholding data, wasting resources, or, worst of all, not calculating the risks properly.

Studies on how societies define and classify culture help us understand how silos come about.

Anthropology, when defined in broad terms, is the study of human beings. Both social and cultural anthropology concentrate on society and culture, while physical anthropology pays attention to both evolution and human biology.

In the twentieth century, that area was divided into two fields. Prior to that, anthropologists had tried to figure out how a “primitive” person turned into one that’s more “modern”. During that period, non-Western societies were often labelled as “primitive”.

However, in the twentieth century, anthropologists started to run “participant observation” of non-western societies and came to the realization that those people had held onto their own social systems and cultural norms, which were a lot more different than that of Western models, but nonetheless, it still worked in a way close to it.

The French sociologist, Pierre Bourdieu, who had been one of the most influential intellectuals from his period, had taken part in anthropological research in Algeria, but had only made a huge realization back in France; he had started to study French society with an Algerian student. Together, they gained a deeper insight into the French culture with one being an “insider” and the other an “outsider”. In his research, Bourdieu had found out that France also had struggled with its own type of cultural dogma.

From his work, Bourdieu had come up with a few social theories. He hypothesized that a society’s physical space, its population, and its culture are examined via thought patterns as well as its systems of classification. Not one person makes those patterns on purpose and yet those patterns are what help keep a social strata, for instance.

In addition, a society isn’t only outlined based on the ideas it shares as well as recognizes, but also via the ideas that it hides away such as taboos.

Therefore, it may not shape us, but society also doesn’t trap us. We are able to echo our cultural norms or get over them, granted we make the decision to do so.

Those ideas, which are based on anthropological studies that back up the reasons behind both cultural categories and societal outlooks can help us better understand how silos actually work in today’s day and age.

Sony’s competitive struggles were based on its many stifling silos, or “octopus pots” in Japanese.

In order to brainstorm new ideas, people have to be in an environment that allows them to be creative and exchange their ideas with ease amongst people from various other disciplines. However, silos keep all of that from happening.

The majority of big organizations are broken up into silos that work independently from one another. This makes it complicated for silos to work together or communicate properly.

For instance, Sony, the Japanese technology giant, had once been the top international firm that boasted revolutionary items that were sold all across the globe. Today, though, the business is a mere shadow of what it used to be. What had happened?

Once it became too big, it had lost its creative drive. It had been created a little after World War II, and was simple and small, but a lively company. At the beginning of the 1990s, their new top management turned to departmentalization in order to deal with its growth. Each division became self-sufficient and consisted of specialists. In other words, they became silos.

That went hand in hand with the most predominant trend during that period. Businesses were viewed as the accumulation of smaller, independent companies that had their own balance sheet.

However, that change caused independent departments to be less likely to try to take some risks as now, they had to deal with more responsibility. It also essentially stopped communication between one another from occuring.

That’s why in 1999, Sony had come out with three different devices that were able to play digital music. Every gadget was formed based on their own standards as each one was made in a separate group of the business. As a result, Sony was able to compete with itself effectively.

It’s quite difficult to redo the structure of a business as soon as silos have been made. Sony attempted to fix the issue by hiring Howard Stringer, which was the first CEO of the company who wasn’t from Japan. When Stringer had tried to let the company board know that they had more than enough silos, his translator had difficulties as there wasn’t a word that translates into “silo” in Japanese.

With time, the team ended up starting to refer to silos as “octopus pots” in Japanese. An octopus pot is basically a silo; a narrow column that an octopus is able to get into, but isn’t able to get out of. Having that mental image helped staff gain an understanding of the concept of silos. That being said, the organizational problems didn’t go anywhere.

“Tunnel vision” within silos was one of the main issues leading up to the 2008 financial crisis.

It’s risky whenever one of the departments within a business isn’t aware of what the other ones are up to. That creates issues like the inability to properly evaluate business risks.

UBS, the Swiss financial services business figured that out the difficult way in the 2008 financial crisis; one of their silos had caused the business to fall.

Back in 2005, the business had made a new department for securitizations, which are highly specialized markets where mortgages are packaged into bonds and then traded. Even though the department itself was little, the financial activity was big; the bonds themselves also had an AAA credit rating, which is the highest level.

Unfortunately, though, when the crisis came about, the bonds weren’t seen as safe investments any longer. All of a sudden, no one wanted to purchase them any longer, therefore, UBS lost a lot.

UBS could have steered clear of this had their individual departments shared a lot more data with one another. However, their staff across all of the different silos didn’t have a reason to do so as their salaries solely relied on how their own departments were doing.

As a result, UBS ended up losing more that $10 billion due to one silo in a US branch that the executives of the business’s Swiss headquarters barely knew a thing about.

In addition, Silos make it difficult for both economists and regulators to properly evaluate how the global economy is doing. That was incredibly important when new financial entities came about that didn’t go hand in hand with the previous classification systems. Those new, highly capitalized businesses weren’t banks since they didn’t either take deposits or make any loans and they weren’t hedge funds because they didn’t officially put money into risky assets.

Therefore, those twenty-first century financial entities were only looked at as “other financial corporations”, going right through the naming as well as the regulatory cracks.

That’s one of the many reasons as to why the 2008 financial crisis was so harsh and sudden. Industry types only paid attention to their silos and inside of each one, they were looking at the world through rose colored glasses. The silos had pushed forward the idea of “tunnel vision” and kept anyone from being able to see the increasing market risks.

Silo-busting isn’t just good for communication; you can help beat crime and corner the market, too.

You won’t only find silos in your company. You’ll also find them in your head.

This is why silo-busting actually begins with you. If you are a trained computer expert, for instance, that speciality most likely impacts both your social and cultural silo. You are able to break down that silo when you share your knowledge with various other fields.

With personal silo-busting, you have to collaborate more with those who aren’t like you, socially as well as professionally.

Brett Goldstein is a Chicago-native and a trained computer expert that decided post the 2001 terrorist attacks in New York to start working with the Chicago police. He had utilized what he knew in order to analyze Chicago’s murder statistics since teams from various districts weren’t sharing information that properly tracked any changes within gang behavior.

Goldstein’s skills had helped the police make better predictions about potential gang conflicts that could heighten up to killings. He had assisted withbthe breakdown of silos in the police force and simultaneously, he was able to break his own.

Surprisingly, a lot more often than not, both police organizations and the US Federal Bureau of Investigation (FBI) have a tendency of using silos too often. There’s a chance that had various security agencies talked better amongst one another about what the al-Qaeda operatives were up to, 9/11 wouldn’t have occurred.

Another advantage of silo-busting is the fact that it can help you make much more money.

BlueMountain Capital, which is a hedge fund, had come up with an efficient silo-busting strategy. The fund had evaluated various markets in order to figure out when the bigger investors, via their actions, were making distortions in market places. That information was used in order to bet against them.

The fund understood that often times, silos inside banks often encouraged traders to do things that made sense from a micro perspective, but as a whole, it wasn’t beneficial to the bank whatsoever. As a result, traders in the bank silos sometimes ended up working way too much inside of a market, making market price distortions.

Therefore, BlueMountain Capital kept a look out over the market leader JPMorgan since in 2012, it had gone far down into incredibly volatile credit default swaps, and continued by losing billions throughout the entire process. BlueMountain went one way as JPMorgan went another and as a result, throughout the process, it ended up making a lot of money.

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