What do you do when you have a great idea, and it hits the wall of “silo indifference?”

Silo indifference – my term – is the difficulty of engaging your company’s functional or regional groups in new business initiatives that offer the prospect of significant gain but disrupt their traditional operations. Here’s an illustration.

Several years ago, my group at MIT held a workshop on customer service for executives of our affiliated companies – companies that support our activities and host thesis research. About thirty top managers gathered in Cambridge for a full-day session.

We shared our latest research findings, and invited top managers from Ritz Carlton Hotels, Disney, and a few other customer service leaders to share their insights. At the end of the day, I led a session in which the executives discussed their thoughts and experiences in turbocharging customer service.

Turbocharging customer service

I started the session by asking “What is customer service?” My straightforward question drew a variety of more-or-less expected responses: line fill, case fill, answering the phone in 30 seconds, no telephone tag, fast order cycles, and others. The thread that linked these responses was that they all were operating measures.

More importantly, they all were internal operating measures. After all, what good does it do to have high fill rates if the customer has too much of the wrong inventory? Or if the customer is ordering twice as often as is economical? Or if the customer has a quickly answered phone call about a very disruptive service problem that should not have arisen?

The customer service measures that really count are those that reflect what the customer is actually experiencing, not what you are experiencing in your operations. It is a very common false assumption to simply equate the two. Not only that, but what counts even more is the customer’s perception of service, which again managers often simply, but falsely, assume reflects actual service.

In fact, customers’ perceptions of service are strongly determined by their worst experiences. Even if a customer’s really bad experiences are very rare, those will be the most memorable. Just think about the one time you had a really bad meal at a restaurant – did you go back? (For more on this see my blogs, Stumbling on Customer Service, and Demand Management Disney Style.)

Your worst nightmare

After the MIT workshop executives had developed a long list of internal operational measures, I asked a very different question: “What could your competitor do that would be your worst nightmare?”

At first the group was silent. After a few minutes, the discussion gathered steam and moved in a very different direction. The answers varied in form and content, but they all had the same underlying message: “If my competitor could coordinate internally to really improve my customers’ profitability, business processes, and strategic positioning, I would be in deep trouble. If my competitor really could do this, my customers would abandon our relationship and run to the competition without looking back.”

This was the customer service prospect that really concerned and worried everyone in the group.

So I asked the logical next question, “If this is the ultimate win strategy, and we now know the secret to competitive success, why don’t we do it first? It seems we have a golden opportunity to secure our best customers and take away our competitors’ prime business.”

The answer to this query still echoes in my mind. In essence, everyone in the group said in so many words, “We can’t. We just can’t.”

Why not? “Because,” the conversation continued in essence, “we can’t get our functional departments to coordinate around really innovative customer initiatives. They are too focused on their own departmental objectives and metrics [like the internal operational measures the group focused on initially].” Certainly, managers can get limited cooperation, but all too often this is overshadowed by the momentum of the mainstream business.

Here we had a textbook definition of “silo indifference.” Not a malicious lack of cooperation – just counterpart managers in other departments naturally focusing on their traditional “mainstream” activities and measures.

And, in most cases, these counterpart managers in other silos are appropriately focusing on the objectives they were given by top management. They are responding to the measures top management has told them are most important, and for which they are being held responsible.

What’s at stake? Massive competitive success.

The Apple problem

I thought about this customer service workshop when I had an opportunity to work with a group of top marketing executives of major financial institutions a few months ago.

I led a session on market innovation, in which I showed how a number of very innovative companies, ranging from Southwest Airlines to Apple, had entered tradition-bound industries, and revolutionized them with powerful new value propositions and compelling new go-to-market strategies. In their wake, numerous strong incumbents wound up reeling and a surprising number simply went bankrupt.

As I discussed the innovators, and explained how the industry incumbents had failed to respond effectively, I heard a familiar frustration. The marketing executives saw the need for fundamentally new, innovative approaches to take advantage of the massive changes beginning to sweep through the financial services industry, but they felt an almost insurmountable roadblock in engaging their counterpart managers, who were too busy operating and improving their “traditional” business activities.

These managers hit the wall of silo indifference. Just like the MIT workshop executives.

But the financial services managers faced a problem much more pressing and troubling: the impending presence of world-class innovators like Apple, Google, and others – all with massive resources, far-reaching creativity, and powerful go-to-market machines – and all taking aim directly at the sweet spots in their industry.

If the incumbents failed to act quickly and decisively, they would be in severe danger of failing to use their natural first mover advantage to secure the most profitable portions of their market – their islands of profit – and being left with the unprofitable portions. Just like the incumbent firms in industry after industry that failed to act.

Yet, there was an almost irresistible temptation for some participants to shift the conversation to comfortable topics like how to tune up the on-premise customer experience.

Nevertheless, a number of participants continued to drill into the core question of how to be an effective innovator, how to overcome the roadblock of silo indifference. And this led to a very productive discussion.

Accelerating change

All companies face the problem of accelerating change, overcoming silo indifference. Most fail to act decisively and effectively, putting themselves in danger of being overtaken by more capable, focused competitors.

How do the most successful innovators do it?

Consider this recent New York Times article (July 26, 2012).

News Summary: Google’s Fast Internet for $70/mo.

FAST SERVICE: Google says it will charge $70 a month for its long-awaited, ultra-fast Internet service in Kansas City.

THE SIGNIFICANCE: The service is intended as a showcase for what’s technically possible and as a testbed for the development of new ways to use the Internet. Bypassing the local cable and phone companies, Google has spent months pulling its own optical fiber through the two-state Kansas City region.

OPTIONS: For another $50 per month, Google will provide cable-TV-like service, too. There’s also a free, slower option, though households have to pay a $300 installation fee.

What is Google doing?

Two things.

First, Google is learning by doing.

The project is framed specifically as a “showcase” and as a “testbed for the development of new ways to use the Internet.” Since this involves changes in consumer behavior, Google couldn’t just survey the public. The cardinal rule in market research is that you can’t do market research for a product that doesn’t exist because the customers have no experience of it. The services driving Internet usage today weren’t even conceived in the early days of the internet. The only way to find out what will happen when Google offers service speeds that are 100 times faster than today’s service at comparable prices is to prime the pump and learn by doing.

Second, and very importantly, Google is wisely laying the foundation for a frontal attack on silo indifference. The best way to overcome this pervasive roadblock is to develop a showcase project that demonstrates clear, compelling value. With a clear, practical pathway to clearly superior new value, the counterpart managers throughout the company will migrate to the new value proposition. The wonderful thing about a successful showcase is that the managers throughout the company can actually come see it. They can “kick the tires,” and actually talk to the customers.

This is the fastest and surest way to accelerate change, to overcome silo indifference.

Why the phone company failed

Contrast this with the case of a regional Bell phone company about twenty years ago. This very strong, successful company was a regional powerhouse with ample resources. It was deciding whether to deploy broadband/video capabilities, and if so, how to deploy them.

The obvious path was to conduct a study, which naturally showed that the customers were generally interested, but not enough to pay a compensatory price.

At the same time, however, an alternative proposal was offered to conduct a limited showcase project by wiring a small upscale community of about 30,000 with video, and linking the community’s “communities of interest” (i.e. schools, sports, clubs, etc.) through the network. This would give the customers an opportunity to forge new communications pathways and to develop first-hand a sense of the potential value.

In essence, this could have been a forerunner for many of the Internet-based services we now take for granted, and would have catapulted this company far in front of its competitors.

The company had ample resources. But the innovators in the company failed to gather support from their counterpart managers. In the end, the Finance Department killed the project, noting that it could not convince them that it offered returns comparable to those that flowed from the existing operational program of replacing old switches. Silo indifference in action.

What happened to the company, at the time a very well-respected industry giant? It languished and ultimately disappeared, merged into another regional Bell, then both into another.

Effective Showcases

How can an innovative management team create effective showcase projects that overcome silo indifference? Here is an old family recipe that really works.

  • Just do it. The cost will be very low, often trivial – frequently involving a few well-selected customers or suppliers – and the results can be transformative. There is no downside.
  • Do it all the time. Set up showcase projects in all areas of your company, especially those that are involved in customer and supplier relationships. What do you have to lose? A minute fraction of your revenues and resources are involved, and the upside is enormous.
  • Keep doing it. Very often the most important findings only emerge after the showcase evolves over time (perhaps a year or so). The second- and third-order changes are the most powerful. Remember that very few successful business ventures wind up pursuing their original business plans, but rather the key to success is to learn from experience and to evolve rapidly. The most successful venture investors understand this well.
  • Select the most favorable conditions for innovation. Many companies select important customers or suppliers for showcases. Big mistake. There is too much at stake and the innovations necessarily will be incremental and tactical. Instead, look for a relatively small customer or supplier that is very innovative, where the CEO has “fire in the belly” to do new things, the company knows how to partner, and the operational match is great.
  • Involve your counterparts early. Get your functional counterparts from the other silos involved from the beginning. Let them help shape the project, and in the process they will become champions. The project will almost certainly benefit from their perspective and capability, and the outcome will have the highest likelihood of being adopted.

Compelling results

Showcase projects offer the shortest distance between you and effective change. They are limited in scope, so you often don’t even have to ask permission, but the results are compelling. They are the ultimate change accelerators.

Why not try it?

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