Managing the silo effect in your company and supply chain
Editor’s note: According to the APICS Dictionary, the silo effect describes a business organization that has poor communication among departments or functional units. Silos form for various reasons, but they generally are seen as inhibitors to efficient operations. Recently, Ray Reagans, PhD, talked to APICS magazine staff editor Christopher Jablonski about how the silo effect relates to knowledge sharing and exploring the development, types, and components of business networks and how they facilitate communication.
Jablonski: Why is it important to establish strong communication among diverse business functions?
Reagans: Sharing knowledge outside of a silo is important for two main reasons. First, silos usually represent some part of a division of labor—or an element of a machine—and getting work done requires some degree of coordination and cooperation between people in different areas. But there is a more fundamental reason why communication and transfer between areas is important: It promotes creativity and innovation. Knowledge transfer between silos provides people with an opportunity to see a problem or situation through a different lens, which can promote creative problem solving and innovation.
Jablonski: Can you explain how and why silos tend to form in organizations?
Reagans: Maybe it is useful to think in terms of the benefits silos can create. With silos, you gain the opportunity for individuals to develop a stock of knowledge and expertise around a specific question or issue, which promotes learning and efficiency. Often, you will then see the corresponding development of tacit knowledge. Consider, for example, the jargon that many academics use. This specialized knowledge simultaneously makes it easier for people in an area to talk to and learn from each other, but it also makes it harder for them to share knowledge with outsiders.
Jablonski: So, occasionally, silos can be viewed as having a positive impact on the company?
Reagans: When thinking about the value of silos, first imagine a graph. The vertical axis represents how tacit or complex knowledge is. Knowledge can be completely codified—something you can learn from reading a book—versus more tacit or complex; that is, you need to see someone do something and have them explain it. The horizontal axis is how distant you can be from the knowledge source and still learn it and be effective. To share and benefit from complex and tacit knowledge, you need to be closer to the source. This can help illustrate why a silo can be beneficial—at least I hope it does.
Jablonski: What elements can make for the most effective communication between silos?
Reagans: It really depends. In my research, I examine the benefits of strong ties and network cohesion. These are factors that increase the odds of someone persisting with knowledge transfer even when it is hard. The goal is that transfer is more likely to be successful and therefore effective. The other way is through network range. People who maintain networks that cut across different subject matter or domains develop a greater capacity for sharing knowledge.
Networks are the key because it is hard to transfer knowledge between silos and functional areas. And those transfer costs undermine successful knowledge transfer. But strong ties introduce countervailing costs—the reputation costs associated with not helping a friend.
Jablonski: How do these reputation costs affect business relationships?
Reagans: The reputation costs I have in mind are the costs you incur when you behave inappropriately in a relationship. The usual example of this is the negative emotions you experience when you do not help out a close friend. If your friend discovers you could have helped but didn’t, your reputation with the friend is damaged.
Now, imagine that you and your friend have a number of mutual friends. As news of your behavior spreads, your reputation is damaged even further. This basic rationale provides one explanation for why coworkers collaborate and cooperate. They do so to protect their reputations at work.
Jablonski: How does network range influence performance when it comes to knowledge transfer?
Reagans: Think of network range as an indicator of the diversity of knowledge and expertise your network delivers to you. Range promotes performance through a number of mechanisms. Range increases the odds that you are aware of best practices in other areas that could be beneficial for a group. At the extreme, creativity emerges from the need to deal with conflicting knowledge and expertise, which is also more likely when your network has range.
Boundary spanners are people with networks who span formal gaps or disconnects in an organization. Someone who has range spans formal and informal gaps. Think of the two as being related, and think of range as making someone better at being a boundary spanner.
Jablonski: How can people become more comfortable in their business networks?
Reagans: I like to think that people need to become more comfortable with feeling uncomfortable. If you are building a network characterized by range, you are consistently living in someone else’s turf or domain. Or you are consistently living between domains or groups, which can make you feel uncomfortable. However, the empirical evidence indicates that people who build these kinds of cross-cutting networks do better and contribute more to creativity and innovation.
Jablonski: Do factors such as race, gender, and age also affect how business networks form?
Reagans: In general, we feel more comfortable interacting with people who are similar to us. And we tend to be more comfortable with people when we share some socially significant demographic characteristic. Within organizations, you can also add functional area and degree of tenure in the organization to this list of factors.
However, people who have more range in their networks avoid the tendency to build networks based on demographic characteristics. They also avoid letting proximity determine how they spend their time. Instead, they look for activities inside and outside of work that bring them into contact with a wide variety of people.
Jablonski: When considering the silo effect and business networks, are there any similarities between the different organizational units in a business and the various suppliers, partners, and customers that make up a supply chain?
Reagans: I think there are. Within a firm, there are more formal mechanisms for achieving coordination across people in different roles such as marketing or production. Between organizations, on the other hand, there often are more informal agreements that can create many of the same benefits knowledge transfer between units can introduce and create.
I imagine that boundaries between organizations are deeper, and thus it’s harder to develop informal ties. However, at least the people are concerned with the same set of issues, and those concerns can create a common group for creating a network connection.
Jablonski: What steps should business leaders take now to enable better communication among their employees?
Reagans: They should create more slack to give people the ability to do the kind of work that enables them to develop better networks. Those investments are costly today, but will yield dividends tomorrow.
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