The Danger of Silo-ed Thinking

By William “Wes” Waldo
silo-ed thinking often happens without a business system in place

You might have heard of the idea of "silo-ed thinking." But what is that exactly?

Simply put, when each department operates on its own, without sharing information or collaborating on strategy, improvement and innovation, that's an organization operating in silos. The problem is that customers don't see the results of each individual department; they see the results of the whole.

Organizations without a business system often see silo-ed thinking."

We often see silo-ed thinking in organizations that lack a business system. A business system focuses on alignment of all activities to the customer perspective, from the strategy to employee's day-to-day work, and installs value-chain-based thinking.

What the Customer Sees vs. What You See

Let's look deeper at the dangers of silo-ed thinking. Consider an organization that has received customer complaints repeatedly; there’s a quality issue or the final product isn’t good enough.

silos in an organizationWhat Is a Business System and Why Do You Need One?

In a silo-ed organization, typically every part of the value chain is forced to look at what they can do to make it better. Individually, when those silos examine their process, they might see that their quality is “good enough,” so they assume the problem lies somewhere else.

But when you consider that the customer doesn’t see the results of each individual department but rather the totality of the entire value creation chain, the situation starts to look different—and so does the math. Anytime there is a mistake at any point in the process, it creates this multiplicity of effects through the entire value chain.

The Multiplicity of Effects

For example, if in the very first step, you were 90 percent correct every time, that’s a 10 percent error rate, even if all the other steps operated at 100 percent. You can’t ever be better than the worst step.

Now consider if the next step in the process is at 90 percent, too. That comes out to an 18 percent error rate, or 82 percent. Even when a department is operating at 99 percent, a number that most people would say is near perfect, when you multiply all the process steps along a very long value chain, the customer sees something much lower.

Using this concept of First Pass Yield (FPY), here’s how the math works for a five-step process, with each group operating at 90 percent:

.90 x .90 x .90 x .90 x .90 = .59 or 59 percent

For a 30-step process with each step operating at 99 percent, the FPY of the process is less than 74 percent.

So what can you do about silo-ed thinking? That's where performance excellence comes in. Performance excellence is designed to break down this kind of silo-ed thinking that says my area is good enough so it must be somebody else’s issue.

Wes Waldo is COO and President, Americas, of the Lean Methods Group. He is also the author of A Team Leader’s Guide to Lean Kaizen Events.

For more information on Performance Excellence or how the Lean Methods Group uses it as part of our approach to creating a business system, contact us or visit our article on Business Systems.

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