360 Degrees Group Inc.

THE SILO EFFECT

The functional structure served organizations well for a number of years because it enabled them to cope with the challenges generated by their rapid growth. Over time, however, this system developed a serious drawback. Put The Functional Organizational Structure 3 simply, people in the different functional areas came to perform their steps in the process in isolation, without fully understanding which steps happen before and which steps happen next. They essentially complete their part of the process, hand it off to the next person, and then proceed to the next task. By focusing so narrowly on their specific tasks, they lose sight of the “big picture” of the larger process, be it procurement, fulfillment, or any number of other common business processes. This tendency is commonly referred to as the silo effect because workers complete their tasks in their functional “silos” without regard to the consequences for the other components in the process.

A key point here is that the silo nature of the functional organizational structure and the cross-functional nature of processes are at odds with each other. That is, while workers focus on their specific function, each business process involves workers located in multiple functional areas. A major challenge facing organizations, then, is to coordinate activities among the different functional areas. Viewing a company from a process perspective requires employees to “think sideways”—in other words, to view the business across functional boundaries and focus on the end-to-end nature of the process and its intended outcomes. Learning to view a process from end to end is essential to understanding how enterprise systems help businesses manage their processes efficiently. Not surprisingly, then, this understanding has become a critical skill that companies have come to demand from their employees.

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