Tear down the Silos

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Tear down the Silos

By Ann Meyer - 03/01/2015

What's in it for employees to work together?

At Whole Foods Market, their jobs depend on it.

New job candidates at Whole Foods understand from the start how important teamwork is to their own performance. After 90 days on the job, they have to receive a vote of confidence from two-thirds of their team to be retained.

In doing so, Whole Foods establishes a reason for workers to embrace its decentralized management structure, where store-level team members are expected to work together to make decisions, solve problems and purchase products that fit the communities they serve.

"If you want to build an organization that will last until the future, you have to build one that's built around customer desires," says Joe Phelps, whose Phelps consulting firm has worked with Whole Foods Market for 14 years. Employees who interact with consumers often have more insight into what those customers are looking for than executives who rarely leave the corner office.

Common sense suggests teams who work well together will net better results than siloed executives who bark orders. Yet experts say companies like Whole Foods, with free-flowing information across departments and a collaborative approach to tackling problems, remain the exceptions.

"I don't think anybody at any level of an organization wakes up in the morning and goes to work and says, 'Let's have silos. Let's not cooperate,'" says Frank Cespedes, author of "Aligning Strategy and Sales" and a senior lecturer at Harvard Business School. "But most companies do [have silos] for a variety of reasons."

In part, Cespedes attributes the phenomenon to changes in the management structure of American companies over the past 10 years or so. "The number of executives that report to the CEO has doubled, largely by an increase in specialization," he says, noting that c-level positions such as chief marketing officer and chief technology officer weren't common historically.

The added layers of management can result in functional silos, where information might flow vertically but it often doesn't transfer to other departments. In some companies, departments compete among themselves, in part because the leadership is territorial.

"Friction points and empire-building in organizations arise from fear, ill-formed compensation programs and in some cases, a lack of leadership accountability and managerial courage," says Lorraine Moore, president, Accelerate Success Group in Calgary, Canada.


In a March 20 Benchmark report, Steve Rowen and Paula Rosenblum of RSR Research highlight the friction that occurs among departments "working at cross-purposes." The emergence of marketing as a powerhouse in the retail environment has resulted in misalignment among departments, according to the report, called "Modern Merchandising: Managing Complexity with New Tools and Techniques." "Getting marketing in line to support merchandising plans" was the No. 1 operational challenge listed by 44 percent of those surveyed, up from 29 percent in 2013. It was followed by "managing the complexities of cross-channel merchandising" and "getting merchandising and supply chain to work together."

With inventory management an ongoing concern for many grocery retailers, the flow of information across departments is more critical than ever for accurate planning. "It's imperative for these organizations to 'de-silo' and return to a holistic model of retailing," the RSR report says.

To eliminate silos, RSR recommends changing the organizational structure to embrace a team approach and ensuring that compensation and incentives are aligned across the company.

"If you keep peeling back the onion, usually you find there's a conflict of interest there."



The lack of collaboration among functional departments at major corporations is often because of conflicting focuses, Phelps says: "If you keep peeling back the onion, usually you find there's a conflict of interest there." Often it revolves around money, particularly compensation, and power. "You have to back off and figure out how to align goals so that everyone has the same common goal," he says.

Most often, the goal of a retailer is to provide value to the customer in the form of either service, product selection or low prices. That goal can run counter to commission-based compensation strategies, which emphasize sales above all else but often pit employees against one another. "You might be able to have a highly profitable concern for the short term, but if it's not delivering value for the customer, it's not going to work in the long run," says Phelps, who is also the author of "Pyramids Are Tombs."


Phelps says Whole Foods' decentralized approach empowers workers to decide what products to add or replace. "[Headquarters in] Austin gives the individual stores much more autonomy to make decisions for their neighborhood," Phelps says. The result is food that appeals to Armenians in Glendale, Calif., and a greater number of kosher products in Beverly Hills, he says.

Cross-functional teams can break down the communication barriers between departments. But the focus should be on communication, and not the team structure, experts say. "Think about it. Very few managers are–or should be–in favor of teamwork for its own sake," Cespedes says. "Presumably they're in favor of teams because they're conscientious about competitive advantages, and certainly there are things you can only get done through teams."

Chief among them is communicating the company's mission or the ultimate goal of a particular project. "On average, less than 50 percent of employees say they understand their firm's strategy," Cespedes says. "The really perverse part is, the closer you get to the customer...the percentage decreases even more. It's a basic issue. It is really tough for people to execute something they don't really understand."

In the absence of information, individual workers or departments can't be expected to act in tandem with other departments. Cespedes says executives must over-communicate. They typically underestimate how much communication is required to get employees to embrace the message.


It's human nature for workers to pursue a course that will benefit them personally, says Iwan Jenkins, president of The Riot Point Research Corp. in Markham, Ontario. Unless the problem commanding attention is sufficiently motivating and comes with a mutually beneficial reward for working together, employees in different areas aren't going to go out of their way to address the issue, Jenkins says. It's the task of leaders to persuade employees to work with others by emphasizing that differences in perspective are valued or by presenting a sufficiently motivating reward for collaborating.

Costcutter, a franchise network of 1,700 independent grocery stores in the UK, is closer to the customer than many larger chains. It keeps costs low with a sophisticated logistics system that allows stores to quickly respond to customer demand.

Costcutter is in the midst of a change in compensation structure to encourage more collaboration and product innovation, Jenkins says. The objective is partly to avoid the conflict that can occur when a retailer wants to try new items on the shelf, but the production workers' compensation is tied to driving down the cost of production, creating a disincentive for them to try to produce new products. "The compensation is rewarding antagonistic behavior," Jenkins says.

"The compensation is rewarding antagonistic behavior."


The Riot Point Research Corp.

Workers might be more inclined to collaborate when they understand how it furthers the company's mission, but they require access to detailed information to make it happen. The proliferation of data due to technological developments means more analytics are available throughout the retail operation and the supply chain. But turning the raw data into meaningful information and communicating it across departments is another feat.

The Most Frequent Challenges to Internal Collaboration
Source: Retail Systems Research

Confirmit, a provider of customer and employee insight solutions, encourages employee collaboration through an information system involving surveys and insights that identify friction points. The feedback also points to what's working. "We help companies understand what is driving their business," says Tore Haggren, senior vice president.

Increasingly, companies are relying on collaborative software to ensure everyone is on the same page. Consulting firm Capgemini has developed a trademarked tool, The Collaborative Business Experience, to help companies increase their performance and achieve their goals. "We're seeing a huge uptick in retailers to use change management tactics, and act more collaboratively," says Lindsey Mazza-Silvers, a senior manager in Capgemini's North America Supply Chain Technologies practice.

"We're seeing a huge uptick in retailers to use change management tactics and act more collaboratively."



The company's Rightshore platform provides a system of record, or as Mazza puts it, "one version of the truth," by pooling data. The system skirts the problem of conflicting data sets from one department to another, which can bog down the collaborative process.

Besides organizing workers into teams, companies should examine whether their compensation structures are encouraging internal collaboration. "Unless you change the reward system, you're not going to change behavior," says Rick Lepsinger, president of OnPoint Consulting.

Often, silos develop when the goals of individual departments conflict with those of another. The problem stems in part from how workers are compensated, which frames their perspective. Sales representatives tend to look at volume, while retail buyers look at margins, Cespedes says.

A flatter organization supports a diversity of opinion, which can be a competitive advantage, Phelps says. Bringing together people from different disciplines can result in "more ideas and more unexpected ideas that maybe the person ultimately responsible for it wouldn't necessarily think of."