There is no principle more fundamental to the market economy than the division of labour. It is the subject of the very first chapter of the founding text of modern economics, Adam Smith’s The Wealth of Nations.
And yet, as anyone who has ever worked in a large corporation knows only too well, that principle has its dark side as well. Specialisation improves efficiency — but it also leads to tunnel vision and blind spots. Organising companies into discrete divisions makes responsibilities clearer — but it also leads to bureaucratic rivalry, corporate infighting, and the left hand not knowing what the right hand is doing. In short, the miracle of the division of labour can all too easily degenerate into the nightmare of The Silo Effect.
This paradox at the heart of modern life, and how to resolve it, are the topics of a new book by the FT’s US managing editor, Gillian Tett. Her treatment is highly intelligent, enjoyable and enlivened by a string of vivid case studies. It is also genuinely important, because her prescription for curing the pathological silo-isation of business and government is refreshingly unorthodox and, in my view, convincing.
The Silo Effect starts from a taxonomy of the disease. Much silo-building is initially deliberate and its immediate effects are often beneficial. The problems start when the silos become taken for granted.
Tett uses Sony as an example. In the 1970s and 1980s, Sony was a watchword for innovation with its Walkman and its Trinitron TV. By the 1990s, however, the company had grown ungovernably large, so its new chief executive Nobuyuki Idei deliberately reorganised the unitary corporation into 10, and then 25, sub-companies.
In the short term, efficiency improved and profits rocketed. Over time, however, the reforms began to backfire. Internal competition killed collaboration and innovation slowed. When the digital age arrived, silo-ridden Sony was comprehensively bested by Apple, with its famously totalitarian ethos and relentless commercial focus.
Organisational silos are bad enough. Even more damaging are silos of the mind. These are the unexamined assumptions, the conventional categorisations and the ingrained patterns of thought that underpin our everyday decision-making.
Here, Tett’s powerful examples come from finance and economic policymaking. Managers at UBS took it for granted that their models adequately captured the risks on their books. They got a nasty shock when they lost $30bn on mortgage-backed securities between 2007 and 2009. Policymakers, meanwhile, believed until 2008 that orthodox postwar macroeconomics had essentially solved the problem of economic management. Only when the crisis hit in 2008 did they realise that it had virtually nothing to say about money, banks and finance. “Ideas matter, and economists were all using the same ideas,” Tett quotes one eminent central banker as saying. “They were sitting in the same mental silo,” she explains.
Of course, silos — both organisational and mental — are unavoidable in life. The benefits from specialisation are real, and mental building blocks are necessary if we are to think constructively at all. Hence when Tett moves on to solutions, her aim is not to investigate how we can eliminate silos, but how, as she puts it, we can master them instead of allowing them to master us.
She starts from the observation that what we are talking about, ultimately, is culture. That gives her a useful perspective on the silo effect. For Tett herself happens to have trained to the doctoral level not in finance or business administration, but in the science of human culture: Tett is an anthropologist. And she argues persuasively that the most successful masters of the silo effect in business and government are, in important ways, anthropologists too.
The defining feature of their approach is the effort to become what anthropologists call an “insider-outsider”: getting close enough to a group’s concepts and practices to understand them properly, while maintaining sufficient distance to analyse them objectively.
At the level of the individual, temperament and education are probably most important in nurturing this anthropological approach. According to Paul Tucker, the ex-deputy governor of the Bank of England, breaking down mental silos is “about having a curiosity and a generosity of spirit [to listen to others]”. Big institutions need people “literate in a number of specialisms”.
What about organisations themselves? Is it possible to institutionalise such radical open-mindedness? Tett tells the stories of two major US corporations that are trying.
The first is Facebook, where regular staff rotation and company-sponsored hackathons have created an atmosphere of permanent revolution. Perhaps coding is uniquely amenable to such serendipity-by-design. Yet Tett’s other example, the Cleveland Clinic, comes from the intrinsically specialised field of medicine. It too has been conspicuously successful at promoting cross-disciplinary collaboration. There, she finds that the financial incentives generated by Cleveland’s unusual (for the US) partnership structure play a pivotal role.
Personally, I am a believer in the power of ideas. But when it comes to big organisations, the blunt message of the Cleveland Clinic case is hard to deny: for silo-busting to thrive, it has to pay.
Felix Martin is a bond fund manager and author of ‘Money: The Unauthorised Biography’ (Bodley Head/Knopf)
The Silo Effect, by Gillian Tett, Little, Brown £20/Simon & Schuster $28, 304 pages
