Organisational silos are an often unacknowledged problem within retailers. Business Dictionary details the Silo Mentality as a mindset present when certain departments or sectors do not wish to share information with others in the same company. This mentality will reduce the efficiency of the overall operation, reduce morale and could potentially contribute to the demise of a productive company culture.

Let us consider the tensions of being both highly optimised and highly flexible.

Retailers are confronted with two conflicting imperatives when they discuss performance. The first is to achieve operational excellence – the repeatable, scalable, effective and profitable way of running a business. The second is to be agile, responsive and flexible – adapting to ongoing changes and ensuring progress.

Unfortunately, it’s difficult to be both highly optimised and highly adaptable at the same time. This is a modern challenge for retailers, generally referred to as a problem of ‘silos’. The hypothesis here is that departmental hierarchies and politics inhibit the retailer from adapting at the necessary speed in order to fend off competition from nimble retailers like Amazon.

The Nature Of Silos

Silos arise largely as a function of specialism and expertise. As professionals in an area optimise their procedures, skills, knowledge, and craft to become ever better at a set of tasks within a domain, so they became ‘less like’ other people. In evolutionary terms, they optimise for their tasks and their particular environment.

When we ask silos to flex and change, we have to acknowledge the potential cost of that change. If we believe in testing new practices in order to optimise then we must also believe in – and support – failure. By definition, in an A:B test, both results cannot be optimal, and so businesses need to give permission for performance to be ‘sub-optimal’ during experimentation. This means giving employees permission to fail or deliver lower ROIs. However, rarely is this discussed at the board level with no agreement on a ‘failure and learning’ budget, or a reduction in efficiency allowed.

Many retailers are adopting a “try new things” mentality to stay relevant and competitive, choosing innovation over the tried and tested. This is evident, for example, in Walmart’s acquisition of Jet.com and Amazon’s continued exploration into drone delivery. As the drive to win online customers continues, we are seeing more and more companies allowing themselves to take risks with new contemporary ideas.

Perhaps the notion of operational excellence is itself outmoded. If the pace of change is so rapid, it is possible retailers won’t have time to optimise changes before it is time to change again? If true, this could herald a time of lower margins as the twin effect of never-achieving optimisation meets the ongoing cost of change. Newer businesses, often funded for years to make losses while they achieve market dominance, have been able to learn without the pressure of quarterly profits. This is not the case in established retail.

Leadership Issues

When considering silos within the organisation, it is important to acknowledge the role of leadership and culture to effect change. Businesses must maintain and exploit the expertise of the staff who lead the silos, yet they also need to work together, across specialisms. This requires a change in how the industry talks about, and measures performance. In addition to rewarding leaders for running their own areas efficiently, they need to be tasked with how they have contributed to and learned from the work of others.

Business-wide KPIs need to be separated from solely silo-focused metrics. Retailers need to give permission for experimentation and resource it appropriately.

There are certain trends that are helping this transition. The free-flow of data across the organisation enables new conversations such as: how much have you contributed to data collection? How well have you exploited the aggregate data? How well does your team enable the success of others? In addition, a change to focusing upon the customer’s experience – across all touchpoints, over many interactions and channels – is becoming a binding narrative and offers sets of performance measures that help us to look outside of our silos. Each leader or employee has a defined skill (their ‘silo’), but they need to work together effectively for the team to thrive with the breaking down of the silos needing to be headed up by each of the leaders.

This has been the strategy that has driven success for Yoox Net-A-Porter group. This year its multichannel strategy has seen strong growth and behind this success is the leveraging on strong company cultures to build one group and one team. In 2017, the organisation launched its first online flagship store which integrated artificial intelligence and smart data to provide customers with increased personalisation. A global strategy, continuous innovation, backed by relentless execution, is keeping YNAP one of the world’s leading online luxury fashion retailers.

A final consideration is the perceived risk of change. In order to run a silo, an individual leader has to have been an expert in their field for many years. In asking for flexibility and change, retailers need to ensure they don’t undermine the very basis of expertise, but rather seek new ways to deploy those skills, capabilities, and experiences.

The Business, Not The Silo

Retailers need to provide leadership, cultural support, metrics and techniques that will enable all their expert leaders to work together within a performance framework focused upon business success rather than silo success. It is essential to value adaptability in process and approach, especially where working across (current) silos is involved. Businesses need to give permission for some sub-optimal returns, or even let go of the notion of optimisation within a season or year. We need to be tolerant of failures when the reasons and approaches are valid.

It is also key, of course, to give customers the service they demand at the price they will pay. In the last century, capital was a competitive advantage in retail with the ability to buy the best location, the best machinery, and to invest in stock. Then systems (technology and business processes) became the advantage. The change in recent years comes from the fact technologies can be rented cheaply via SaaS and deployed rapidly.

Start-ups can have enterprise-grade capabilities from their outset, and therefore competitive advantage is now more about data, customer connection and reach, and product and service differentiation. Business structures need to be effective for these new differentiators and not focus on the last century’s competitive advantages.

Flexible performance is not easy, and the industry will continue to map the efforts in the sector to accomplish this feat. We can be certain though that ‘silos’ in theory are not the problem: the challenge is to create a framework for the collaborative deployment of expertise that’s suited to the fast-paced reality of modern, experiential and customer-focused retail.