The Silo Effect by Gillian Tett

In her book, The Silo Effect, FT journalist and anthropologist Gillian Tett describes the destructive effects that mental, structural, and data silos have on collaboration, innovation, and performance. However, it becomes mind-boggling when you put a number to the damages caused.

Gillian used the term ‘silos’ as an analogy to describe the fragmentation of an organization into separate groups, each with their classification system of the world around them. She mentioned that she hadn’t been looking for fragmentation, but rather uncovered the phenomena when she studied the circumstances that led to the 2007/2008 financial crisis.

One of the cases she describes in her book is Sony. In 1979, the company made history by introducing the Walkman, and few would bet against it that Sony would also lead the pack at the beginning of the digital era. Indeed, Sony was the first to introduce a successor. As it turned out, they launched not one but three (!) different digital Walkmans.

Customers got so confused by it that Sony had to withdraw the products from the market. Apple introduced the iPod two years later, and we all know what has happened since then. Steve Jobs, Gillian explained, was highly wary of organizational silos and so the company had, contrary to Sony’s multi-divisional structure, one mission and just one profit & loss to account for.

Gillian Tett: “When it started as a company, Sony had a common sense of purpose. But as it grew big, it became successful. And success has a terrible curse. It doesn’t just breathe complacency; it ignites territorial behavior. One by one, the different products created their own departments. Bureaucracies sprung up, in which each department was incentivized to defend its products, ideas, and brilliance.”

The consequence of siloization wasn’t just that the outcome confused customers; it made the company lose its reputation as an innovation powerhouse. Apple, since then, has dominated the market of portable music devices and went on to dominate the market of mobile phones.

The opportunity cost to Sony is incredible and might even be several trillion dollars, given Apple’s revenue since 2001 and the market valuations of both companies.

Fragmentation is killing collaboration, stifles innovation, and is a bad omen for future profitability. The likelihood that your company doesn’t suffer from silos is close to none. The real question is: To what extent will it damage your business?