24 Feb 2016

Columbia Business School’s Center on Japanese Economy and Business -“Zadankai”

Gillian Tett, U.S. Managing Editor, the Financial Times Talks About The Silo Effect on Japanese Companies and Elsewhere

Another stimulating discussion took place at Columbia University at the Business School’s Center on Japanese Economy and Business recently. This time, the U.S. managing editor of the Financial Times, a British newspaper that has been bought by Nikkei, gave a presentation on the manner in which the structure of Japanese companies (and government) has an effect on their ability to compete (or, in the case of government, manage) effectively. Introducing the new book she has written on the subject, Gillian Tett wanted to emphasise that this topic applied to the West just as much as it did to Japan.

As Ms. Tett said, right at the beginning of her talk, this research comes directly from her previous work on the financial crisis of 2008. There, of course, everyone was angry at the bankers. But, as she pointed out, they were acting no differently from many other spheres of business and political activity. Taking out her iPhone, she explained that we have this idea that we are all connected through the immediacy of the technology. We are seduced by the idea that we can get any information from anywhere in the world at anytime. In fact, however, our actions are almost always local and determined by our proximal surroundings. In other words we act ‘locally’ or in a fragmented way.

So, the idea for her new book, which looks at the way organisations as structures operate, arose out of her work on the sub-prime crisis that blossomed in 2007-8. This sense of fragmentation permeated the banking world that led up to the financial crisis: Hence the title of her talk, The Silo Effect. (In fact her book is due to be published in Japan very shortly but, unfortunately, uses the same title, rather than one which she thought would resonate with the Japanese, たこつぼか (takotsuboka or the Octopus Pot Effect).

Using the Union Bank of Switzerland (UBS) as her model, she explained what this fragmentation meant. UBS has been regarded as one of the most conservative and rock solid banking institutions. It had whole teams of analysts who would research and ensure that the risks that the bank was exposed to were worth taking. Yet, the bank discovered in 2007 that it was sitting on a huge pile of sub-prime debt that it had not noticed before. After the financial crisis UBS undertook a detailed and in-depth analysis of what went wrong, issuing a long report on the subject. The answer was relatively simple. The bank was so structured that decisions were fragmented into exclusive ‘silos’ such that important information was not communicated across departments. This vertical stratification is not just limited to the corporate world. It can be applied to government as well (the example for which was the attack on 11th September 2001, where different departments did not share information that could have ‘connected the dots’, as it was stated later in the 9-11 Commission).

As a result, Ms. Tett indicated that this fragmentation produces structural, mental and social silos that end up in what is often called ‘tunnel vision’; this is expressed as only looking at what is under one’s nose. Mental silos are the product of focusing on the specific job at hand, whilst social silos are the product of belonging to a like-minded group, having no sense of what goes on outside the group.

With regard to Japan, one of the best examples of what the effect that fragmentation can have on the efficiency and success of a corporation is the history of the Sony Walkman. The Walkman was the premier means of portable music at the time. Sony had all the advantages. It had excellent hardware, a dedicated and superior group of software engineers, brand name and content. It could have digitised its product and, in fact, began to do so. So, by late 1999, Sony put out not one but eventually three different versions of a digital Walkman. At the time, however, research and production on hardware and software convergence was happening very quickly. So, Sony’s three separate units competed with each other rather than co-operated to manufacture a single product, whilst its competition forged ahead with unification of hardware and software. Apple specifically refused to allow its company to form silos and, as a result, the iPod was created. The rest, as they say, is history.

The Ms. Tett’s background is in Anthropology. She described how the discipline has developed over the last few decades into a serious study of societies both traditional and advanced. Since it is a discipline that looks from the bottom up (at the nucleus of the society, the family) it tends to understand the symbols and characteristics of society as all inter-connected. Hence, Anthropology takes a comparative view of its subject matter. That approach, Ms. Tett believes can make sense of how to understand and deal with the silos of the corporate and government structural world. Most important in this view is the ability of the anthropologist to view another world from the outside and, therefore, to view one’s own world as if looking in from the outside.

Individuals tend to classify the world in order to make sense of it and, not least, deal with the enormous amount of information presented oneself. Cultures do the same. Moreover, cultures see this classification as natural and other cultures as different or, sometimes, strange. This classification is what Ms. Tett believes leads to the silo effect. Classification is a way of organising and managing the variety of human experience. Instead, the anthropological approach is a way of stepping outside one’s culture to see it from the outside.

To give this viewpoint more clarity, Ms. Tett described the case of the Cleveland Clinic, one of the largest hospitals in the United States. Hospitals, generally, are run for the doctors. There are those who operate – the surgeons – and there are those who medicate – the physicians. So, hospitals are organised around these two functions; the perfect concept of the silo. Patients, however, do not see their illnesses in these terms. They say “I have a pain in my chest”, not “I need a surgeon to perform heart surgery”. The new chief executive officer of the Cleveland Clinic recognised this problem and decided to run an experiment by organising the hospital from the patient’s point of view. Not surprisingly, patient satisfaction soared. Also, results were much more successful.

The main point that Ms. Tett wanted to impart was that silos result from compartmentalising work functions. Silos, also, are not restricted to any one type of employment. They are to be found in almost any large scale organisation, public or private. One way of breaking these silos down is to use the approach that Anthropology offers. In all, a stimulating talk.

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Professor Hugh Patrick of Columbia Business School introducing Gillian Tett