Silos Are Not Just On Farms:
My initial introduction to business silos was about 25 years ago when I was consulting with a large fabrication/construction company that was growing rapidly through acquisitions and good business promotion. Each department/entity had a manager that had either transitioned to that position from within the department, or came over from an acquisition and was there for the continuity of the business. The silos were created by several events, however, mostly because each department had to report to upper management, and they micro managed the company, just as they had in the beginning. So when the department/entity heads got together, they did not want to rely on anyone else for the success or failure of their department, therefore they generally ran their departments like little entities within the company.
An example of this was in accounts payable. Invoices were sent directly to the department/entities by the vendors for coding and approval by the departments. Once the departments approved the invoices, they were copied and stored in the department/entities filing cabinets and a copy sent to accounting for payment. Accounting also filed the paperwork into their files, along with a copy of the check, which was copied to the departments/entities. The black hole and the redundancy of process and filing turned out to be a real problem as their invoice count went from 5000 to 30,000 invoices per month. Vendor payments terms were missed, relationships were strained, invoices were lost (not processed)…it was a disaster. The silo between the departments/entities and the main office became a barrier for growth.
To break down the silo, we centralized the invoice capture to the main office and used an electronic routing system for coding and approval by the department heads. This eliminated the duplication of records and provided the necessary access to the information by the managers, which is why they kept and maintained their own set of records. The other advantages we gleaned from this change were:
On-time payments with vendor
Taking advantage of discounts offered
Better problem solving processes
Reduced cost of invoice processing
Increased productivity of processors 3 fold
Eliminated filing time
Decrease the time for problem resolution
Better reporting and more timely posting
Cost were posted immediately
Projected cash flow was more accurately...no surprises
Eliminated the "black hole"
Knew the status of every invoice
No lost invoices
This is just one example of silos. I have been involved with many companies over the years and have consulted with them on breaking down and eliminating the silos so they can grow their companies. You might ask how did you do this? Generally, the silos can be broken down by centralizing your processes through the company, then automating the process. More specifically, if you document your processes within each department, then do an evaluation across the company, if you have silos, you will see things like redundant processes, filing, and reporting. You might find application redundancy between departments, even using different vendors. I have seen information that is collected one way, then re-entered multiple times to update the main company ERP system.
I once was consulting with a small Telco company as they rolled out digital cell phones, and because I could call a meeting with all department heads, they would use me to call the meeting, but only to discuss issues unrelated to what I was charged to do. That was an extreme case, but it was quite funny because of the extreme decentralization of the company.
At that same telco, they resold Bell line service. They were responsible for billing and collecting the revenue, but paid Bell a percentage of that charge (CLEC). The problem created by the silo was that in customer service a customer would add, change, or delete service and an adjustment would be made on the telcos billing system. However, getting Bell to handle the adjustment was farmed out to another department that was not controlled by customer service. We found that the communication between the two departments was delegated to a fax machine for these adjustments and over 1/2 of the ACD's never got to Bell.
The Telco hired us to write a program that would compare the Bell bill of services to the services data in the telco system and you know what we found! The first month that we ran the program the discrepancy between the system was over $50,000.00. At first we thought it to be a bug and did a physical audit and come to find out, there was a bug, but it increased the margin to well over $100,000.00 (We left of two charge codes). This had been going on since the beginning, so the problem was well over a million dollars. We immediately put technology in place to monitor these transactions, and changed the management and put the department under customer service for control. That eliminated the silo and solved the problem for good!
One more example: A software company that I was working with had silos between support, training, development, and accounting. Each department used its own system to manage the volume of business that was transacted and we used a business intelligence tool to pull together management reports that gave us profitability on each producer (Time Vs Billable Hours). Each transaction could either be billable or non-billable, and since we sold blocks of time, the billable time had to be deducted from the prebill hours. The first evidence of the silos were coming from the BI reports. The producers were never instructed, nor managed well enough on how to record their time and description of work, so they would put down 8 hours and the client name. Unfortunately, the time should have been distributed to billable and non-billable with a detailed description so that management could review producer profitability. This created a problem with accounting, because they either recorded all the time as billable and passed it along to the customer, or non-billable and it never got billed. To compound things, we were having cost overruns to projections which was a BI report that management used to determine if a producer was pulling in enough revenue to cover his cost. Since the reports were weekly, each department would argue over the time reporting to the point that it was determined that the reports were useless because the time entry was flawed. This went on for a year before anyone addressed the problem.
In almost every case, when I put together the departments to talk about existing process, and management is included, we find that a process was taking place that either no-one knew it existed, and would have solved some issues, or it had been cancelled by management long ago but never made it to the department SOP's. Companies that are growing seem to be the most prone to silos. Things happen so fast that managers are reactive instead of proactivity thinking through process.
To conclude, most companies that have been successful in growth beyond entrepreneurial limitations, have done so by eliminating the silos. They centralized their processes, and re-engineered their data collection so that each department could rely on the information for managing their departments/entities. There was no need to keep redundant processes and the efficiency went through the roof. I will address this more in the chapter on Flat Lining Burden and Overhead Cost.