Why Silos are Bad for Business?

Or, how to build your company for scale

Photo by Pavan Trikutam on Unsplash

How is your company structured?

I assume there are departments like sales, marketing, product, dev, and such. There are most likely KPIs for each department, right? And a VP or Head of… Ever wondered why is that so? What’s the value in it? Well, like many things, the cause is rooted in the past. This is how corporate America modeled modern businesses. Some people are good at sales or marketing, others are more technicals and fit development roles, and others, well they are good at giving orders. This does not just feel like old fashioned thinking, it actually is. Marketing nowadays requires a lot of technical skills, and successful product managers have sales skills as well as marketing and technical skills. So, how can a company assign tasks to its employees so they create the most value for the company? I’ll give you a hint… It’s not with silos.

The issue with silos is not they slow you down (which they do), but because, they dictate your internal processes based on obsolete business models. Today’s successful companies are those that are customer centric. Companies like Zappos or Lemonade. But to be customer-centric, your internal processes need to align with your customer needs.

Imagine calling your insurance agency only to find out your claim is handled by another agent. How annoying! Such a company is structured around arbitrary parameters like “Claim Owner” or something your customer is oblivious to. As a customer, you want your claim handled promptly. Looking for the right agent is not part of your desired customer journey. Is it?

Silos create arbitrary barriers that add friction rather than value

Silos are usually used to describe different departments that operate separately and with little collaboration. These silos echo in everything a company does, but more critically in why it does what it does. KPIs are a common way to motivate departments to achieve more. The problem is they rarely converge so all departments focus on a single objective. Sales need to sell, dev needs to release and marketing needs to generate leads. Little collaboration can come if each department has a different goal in mind.

So what can we do?

Silos are inevitable, but instead of choosing internal segmentation, why not take customer centricity all the way?

If you are already familiar with the AARRR framework, then you may already know where I’m heading to. The AARRR framework (developed by Dave McClure) breaks down the customer journey into 5 phases:

1. Acquisition
2. Activation
3. Retention
4. Referral
5. Revenue

Each phase has its own success metrics and together they sum up what a company needs to achieve in order to grow. The beauty of this framework is not just in its simplicity but in its practicality.

Let’s imagine there are no marketing departments, and no sales too. No need for dev or product dept as well. Instead, imagine companies break down by customer journey phases, the AARRR. How would the Acquisition department look like? Well, it needs product managers, and marketing, and engineers and designers. It needs all the people already working for your company, only their goal is very focused and aligned to a specific phase in the customer journey. The same goes for Referral or Activation or any phase. So instead of grouping people by profession, we group them by goals. Sounds better, I think.

Grouping employees by goals, rather than a profession, makes all the sense

Each newly defined department can now work independently from other departments, yet still, create value for customers. One department is focused on helping customers onboard, while another is helping them make the most of the product. Another one helps them share and spread the word and yet another makes sure revenue is optimized for the company. The only issue now is how to handle touchpoints between the new segmentation we have created, as we don't want silos.

Network theories teach us that small networks can be dangerous if completely isolated from other groups, resulting in what is called echo chambering. A function called a Bridge is required to connect different groups and facilitate the transfer of knowledge and create synergy. Those bridges are simply people who communicate openly. Anyone in your company can become a bridge, given the opportunity. Such an approach to company structure is not new. Spotify, which pioneered a new agile company structure, has squads in place. Spotify squads own features, rather than customer journey phases, yet the value is the same. You get autonomous, self-sustained teams that focus on creating value for a customer — a feature in Spotify case. They also have bridges in place. Spotify also connects employees by tribes, chapters, and guilds. These additional segmentations connect people from different squads creating a mesh network of employees, promoting the share of knowledge, experience, and ideas.

Conclusion

In the song “Warning”, Green Day says “question everything or shut up and be a victim of authority”. The business framework of sales, marketing, dev, and such is a relic of a time long forgotten and needs to be questioned.

1. Modern businesses must align with their customers if they want to remain relevant.
2. Breaking down silos cannot be achieved without a solid alternative that is customer-centric at its core.
3. Realigning your team based on the AARRR model, while putting bridges in place, can help your company move faster, keeping pace with your customers, wherever they go.
4. And, if you are just starting out, no realignment is in order, start right off with the right model and never look back.