Organizational silos: before connecting a company to the market

In this Italian-language video, shot at the Metropolitan Museum, I say that connections with customers, partners and investors are the last part of my work, and that the connections inside the company come first. Here I discuss the research of a sociologist who measured where good ideas come from in a large company, and I explain why the answer is about departments first and the market second.

Video transcript (translated from Italian)

One of the central points of my work is creating connections.

Connections between companies and their customers, between companies and investors.

Like here in New York, for example, where I often come to present projects or companies to potential international partners.

But this is only the last part of my work.

Before getting here, there is a process inside companies that can last months or years.

In fact, before getting to external connections, that is, between the company and potential investors, customers or partners, you have to start with internal connections.

An initial part, a large part of my work, is working on the connections inside the company: between leadership and marketing, between design and communication, between analysis and production.

Only when these worlds start talking to each other again does the company become coherent and able to present itself credibly to the outside world.

So I work alongside companies through this transformation.

I help them build a legible identity, define a direction, become interesting to the market and to investors.

Because every effective strategy comes from a balance: between inside and outside, between thought and action.

Connections with the outside are the last part of the work

In New York I go to meetings with the Italian companies I prepare for the U.S. market, as I explain on the page about international expansion. It is the most visible part of the work: a partner, a distributor, an investor sitting at the same table with a company they did not know until a few months earlier. And it is the part that depends most on what happened before, far from that table.

Before connecting a company to customers and investors, you have to connect it with itself.

In some companies leadership and marketing do not talk to each other, or production finds out what sales has promised only when the order arrives. A company like that speaks to the outside world in different voices. An attentive counterpart notices quickly, sometimes as early as the first meeting, from the questions they ask. The external connection is worth as much as the internal one that supports it.

Ideas arise between groups that do not talk to each other

In 2004 the sociologist Ronald S. Burt, of the University of Chicago, published a study in the American Journal of Sociology titled “Structural Holes and Good Ideas.” He had asked the 673 managers who, in 2001, ran the supply chain of one of the largest U.S. electronics companies to name the one thing they would change to improve it. Of these, 455 answered. Two executives, each at the head of a large division, rated the ideas without knowing whose they were, judging how much value they would produce if carried out well.

The ideas judged best came disproportionately from people who had contacts outside their own group. Burt uses the term structural holes for the breaks in the flow of information between groups that each work on their own. He shows that people close to those breaks are more likely to express an idea, less likely to see it dismissed and more likely to have it judged valuable. With a touch of irony he writes that “people who stand near the holes in a social structure are at higher risk of having good ideas.”

Ronald Burt showed that the best ideas come from people who connect groups that do not talk to each other; in a company, those groups are often the departments.

There is nothing mysterious about the mechanism. Within a group, people know more or less the same things and think in the same way. Someone who moves from one group to another brings along a problem that is unsolvable in one place and already solved in another, or a practice that is obvious on one side and that no one on the other side has ever seen.

Leadership and marketing, design and communication, analysis and production

In the video I name three pairs that, in the companies where I work, often talk to each other less than they should. Each one is a structural hole in Burt’s sense. Leadership decides and marketing translates, but if marketing does not know the reasons for a choice, it translates it in its own way. Design gives shape to products and communication tells their story, and sometimes the two tell different stories. Analysis produces figures that production does not use, because no one asked production what it needed.

That is why my work is largely a matter of making connections: I connect the people who decide with the people who carry out the work, and departments with one another, so that each knows what the other needs. This does not mean tearing down the boundaries. Specialized departments are a strength, and a company where everyone does everything is simply more confused. It means building the links where they are needed: the meetings where two functions decide together, the information one function must give the other, the people who act as bridges. These people are often in middle management, the level at which a strategy flows or stalls, as I explain in the entry on the frozen middle.

When these connections work, the company becomes legible from the outside too. The American partner who asks the sales manager a question gets the same answer production would give. That is what it takes for a company to look interesting to the market and to investors, and it is the work on organization and culture that makes it possible.

A bridge that does not become a toll

In his 1992 book Structural Holes, Burt had also described the less noble side of the person in the middle. Someone who connects two groups can gain precisely from the fact that the two do not talk to each other directly: this is the tertius gaudens, the third party who benefits, who controls the flow of information and draws power from it. In a company, this is the risk run by any intermediary, internal or external, the strategist included.

A connection that always runs through one person creates dependence: the work succeeds when departments learn to talk to each other without intermediaries.

That is the test worth applying to the work of anyone who makes connections: after a few months, leadership and marketing should need that person less than before. The sign of a successful business strategy is a company whose departments have learned to talk to each other without needing the person who connected them.

What to do and what not to do

• Look for the points where two departments depend on each other and do not talk.
• Give those points a home: a meeting, information that must be passed on, a person responsible for the handover.
• Listen to the ideas of people who work between two groups, because they see what cannot be seen from inside either one.
• Do not confuse connecting departments with merging them.
• Do not let a connection always run through one person alone.

Sources

• Ronald S. Burt, “Structural Holes and Good Ideas,” American Journal of Sociology, 110 (2), September 2004, pp. 349–399. https://snap.stanford.edu/class/cs224w-readings/Burt04StructureHole.pdf
• Ronald S. Burt, Structural Holes: The Social Structure of Competition, Harvard University Press, 1992.