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Overcoming Roadblocks to Change: Organization Silos, Part 1

Overcoming Roadblocks to Change: Organization Silos, Part 1

August 3, 2012
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What do you do when you have a great idea, and it hits the wall of “silo indifference?"

Silo indifference – my term – is the difficulty of engaging your company’s functional or regional groups in new business initiatives that offer the prospect of significant gain but disrupt their traditional operations. Here’s an illustration:

Several years ago, my group at MIT held a workshop on customer service for executives of our affiliated companies – companies that support our activities and host thesis research. About thirty top managers gathered in Cambridge for a full-day session.

We shared our latest research findings, and invited top managers from Ritz Carlton Hotels, Disney and a few other customer service leaders to share their insights. At the end of the day, I led a session in which the executives discussed their thoughts and experiences in turbocharging customer service.

Turbocharging customer service
I started the session by asking “What is customer service?” My straightforward question drew a variety of more-or-lessexpected responses: line fill, case fill, answering the phone in 30 seconds, no telephone tag, fast order cycles and others. The thread that linked these responses was that they all were operating measures.

More importantly, they all were internal operating measures. After all, what good does it do to have high fill rates if the customer has too much of the wrong inventory? Or if the customer is ordering twice as often as is economical? Or if the customer has a quickly answered phone call about a very disruptive service problem that should not have arisen?

The customer service measures that really count are those that reflect what the customer is actually experiencing, not what you are experiencing in your operations. It is a very common false assumption to simply equate the two. Not only that, but what counts even more is the customer’s perception of service, which again managers often simply, but falsely, assume reflects actual service.

In fact, customers’ perceptions of service are strongly determined by their worst experiences. Even if a customer’s really bad experiences are very rare, those will be the most memorable. Just think about the one time you had a really bad meal at a restaurant – did you go back? (For more on this see my blogs, "Stumbling on Customer Service" and "Demand Management Disney Style.")

Your worst nightmare
After the MIT workshop executives had developed a long list of internal operational measures, I asked a very different question: “What could your competitor do that would be your worst nightmare?”

At first the group was silent. After a few minutes, the discussion gathered steam and moved in a very different direction. The answers varied in form and content, but they all had the same underlying message: “If my competitor could coordinate internally to really improve my customers’ profitability, business processes and strategic positioning, I would be in deep trouble. If my competitor really could do this, my customers would abandon our relationship and run to the competition without looking back.”

This was the customer service prospect that really concerned and worried everyone in the group.

So I asked the logical next question, “If this is the ultimate win strategy, and we now know the secret to competitive success, why don’t we do it first? It seems we have a golden opportunity to secure our best customers and take away our competitors’ prime business.”

The answer to this query still echoes in my mind. In essence, everyone in the group said in so many words, “We can’t. We just can’t.”

Why not? “Because,” the conversation continued in essence, “we can’t get our functional departments to coordinate around really innovative customer initiatives. They are too focused on their own departmental objectives and metrics (like the internal operational measures the group focused on initially).” Certainly, managers can get limited cooperation, but all too often this is overshadowed by the momentum of the mainstream business.

Here we had a textbook definition of “silo indifference.” Not a malicious lack of cooperation – just counterpart managers in other departments naturally focusing on their traditional “mainstream” activities and measures.

And, in most cases, these counterpart managers in other silos are appropriately focusing on the objectives they were given by top management. They are responding to the measures top management has told them are most important, and for which they are being held responsible.

What’s at stake? Massive competitive success.

The Apple problem
I thought about this customer service workshop when I had an opportunity to work with a group of top marketing executives of major financial institutions a few months ago.

I led a session on market innovation, in which I showed how a number of very innovative companies, ranging from Southwest Airlines to Apple, had entered tradition-bound industries, and revolutionized them with powerful new value propositions and compelling new go-to-market strategies. In their wake, numerous strong incumbents wound up reeling and a surprising number simply went bankrupt.

As I discussed the innovators, and explained how the industry incumbents had failed to respond effectively, I heard a familiar frustration. The marketing executives saw the need for fundamentally new, innovative approaches to take advantage of the massive changes beginning to sweep through the financial services industry, but they felt an almost insurmountable roadblock in engaging their counterpart managers, who were too busy operating and improving their “traditional” business activities.

These managers hit the wall of silo indifference. Just like the MIT workshop executives.

But the financial services managers faced a problem much more pressing and troubling: the impending presence of world-class innovators like Apple, Google and others – all with massive resources, far-reaching creativity and powerful go-to-market machines – and all taking aim directly at the sweet spots in their industry.

If the incumbents failed to act quickly and decisively, they would be in severe danger of failing to use their natural first mover advantage to secure the most profitable portions of their market – their islands of profit – and being left with the unprofitable portions. Just like the incumbent firms in industry after industry that failed to act.

Yet, there was an almost irresistible temptation for some participants to shift the conversation to comfortable topics like how to tune up the on-premise customer experience.

Nevertheless, a number of participants continued to drill into the core question of how to be an effective innovator, how to overcome the roadblock of silo indifference. And this led to a very productive discussion.

Accelerating change
All companies face the problem of accelerating change, overcoming silo indifference. Most fail to act decisively and effectively, putting themselves in danger of being overtaken by more capable, focused competitors.

How do the most successful innovators do it? Read the second blog in this two-part series next week to find out how Google overcame the silo of indifference in developing a “showcase” ultra-fast Internet project in Kansas City.

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