Pitfalls of Silo Mentality
From an organizational standpoint, the existence of functional silos becomes problematic when the direction of focus creates barriers that do not serve a reasonable business purpose and negatively impacts the unit's ability to serve their role in the broader mission of the organization. Most insurance companies grapple with problems that arise from insurance agents, officers and staff having a silo mentality. Such a mentality, when deeply entrenched makes it very difficult to reorganize or rededicate resources to engage in profitable channels. The tendency to downplay importance of reorganization and adaptation to changing business environments from an overall organizational standpoint makes such an undertaking a monumental task. For such a task to be successful, a willingness to put the interest of the company above that of the department and abandon silo mentality is crucial. This article aims to shed some light on how a number of insurance companies managed to overcome this problem and emerge better equipped to increase their market share and bottom line performance.
CHANGING ORGANIZATION STRUCTURE OF MANAGEMENT TEAMS
The American United Life Insurance Company (AUL), made a drastic change in its organizational structure of its management team to break down functional barriers that stood in the way of the organization. Bill Yoerger, AUL’s Senior Vice President of Retirement Services said “Before the management structure change, we were not only siloed, we had a bunker mentality, saying, in effect, that if we can’t keep the money in our own division then we’re doing something wrong. Now, we’ve come 180 degrees to ask, ‘How we can better leverage the Individual division?’ The company established an internal retention unit to assist with payout strategy and rollovers and started holding collective meetings devoted to product development. By making a fundamental shift in the way business was being managed by challenging assumptions that they held, they were able to steer the focus away from the individual divisions to the organization as a whole. Another company, Ameriprise Financials set up a loose affiliation of executives that were tasked to focus on how the company could capitalize on a specific target market such as the retirement market. The discussions that ensued culminated in the formation of a structured and welldefined approach of coordinating all of the company’s external messaging to consumers as well as internal messaging to its financial advisors about Ameriprise’s approach to the retirement market. This immediately set the scene for a ramp up in sales in that target market. “The change was a very tactical and tangible force in the organization,” says Rusty Field, Ameriprise Vice President for Financial Education and Retirement. “It wasn’t an issue from a systems perspective, but rather a matter of working across the silos in the business, getting everybody talking about retirement the same way, and having the right degree of focus on the opportunity, given the magnitude of the numbers.”
INTEGRATING KNOWLEDGE ASSETS
Professor Dan Denison, in his book Leading Culture Change in Global Organizations: Aligning Culture and Strategy uses the Swiss Re case study below to outline how the integration of knowledge assets manage to unshackle silo mentality. One of the foremost reinsurance companies in the world today is Swiss Re Insurance. With thousands of employees employed in more than twenty countries worldwide, this company generates around USD 30 billion in sales. When faced with the need to change the strategy of its business given very challenging market changes, the company sought to leverage on its knowledge assets by encouraging knowledge sharing and eliminating silo mentality among its workforce. In Swiss Re, three functional units had to work in a very coordinated manner in order to develop, propose and close deals for their clients. These functional units were actuary division, underwriters and client representatives. However, deals fell through due to poor coordination and communication between these functional departments in the company due to the existence of deeply entrenched functional silos. Management decided to integrate the departmental focus of all these three departments and in the process enhancing the level of coordination among them. Setting up a platform for knowledge sharing was done to accomplish this objective. The platform set-up included making changes that were very small and inexpensive. These changes included installing espresso machines in the company and relocation of management board offices to opportunities for increased interaction. This was done as a structural reorganization to facilitate smoother and increased interaction between members of different departments. The emphasis on encouraging more informal discussions enabled face-toface tacit knowledge to be shared in a non-threatening and comfortable setting. The tacit knowledge sharing process over time led to a better understanding of the key challenges faced by client representatives, the actuary and the underwriters. They began to understand how their work impacted other departments and ultimately the company as a whole. This came about only after they had closer, more informal and loosely knit interactions that brought key common issues to the fore. In this way, over time, its customer requirements, business projections and operational documentation including insurance contract drafting were integrated in a way that emphasized the needs of the client. This process of knowledge assets integration and tacit knowledge sharing ultimately led to a completely different business model that enabled Swiss Re to derive a competitive edge that enabled it to increase its customer base and profit margins steadily from 2001 to 2008. This change in the business model involved an integration of existing knowledge after realizing how critical the knowledge assets from client representatives; the actuary and the underwriters were towards closing the deal profitably. Through continual and planned interaction and dialogue, problems and issues raised were resolved and opportunities for closer collaboration surfaced. Gradually, this contributed to a culture of knowledge sharing and openness to ideas. This type of culture was necessary for bottom line performance to increase.
The tacit knowledge sharing process over time led to a better understanding of the key challenges faced by client representatives, the actuary and the underwriters. They began to understand how their work impacted other departments and ultimately the company as a whole.
The efforts paid off. In two years from 2000 to 2002, the division’s results were nothing short of remarkable. The premiums were up by over 50 percent and this was accompanied by strong profit gains and a marked decrease in expenses. Hence what transpired was a deliberate and very timely knowledge based realignment that gave the company the lifeline it needed to steer itself into achieving higher bottom line performance. In doing so, the functional silos were gradually dismantled and the silo mentality was replaced by a customer first mentality across all functional units. The example relating to Swiss Re Insurance demonstrates how understanding the needs of the client by the client representatives, preparation of the best policy possible by the actuary and drafting the relevant contracts by the underwriters could occur seamlessly and in an integrated fashion in the absence of a silo mentality.
ADOPTING A HIGH PERFORMANCE, KNOWLEDGE SHARING CULTURE
Like Field, AUL’s Yoerger also believes that the necessary change should be viewed primarily in cultural terms. “First and foremost,” Yoerger says, “you have to have a cultural shift to be able to get people to talk together and be able to work together to then cross-market products. The technology is only of limited value if the cultural mindset doesn’t encourage that kind of communication.” The key lesson that could be learnt from the cases above is that managing breaking down silo mentality is a critical component when attempting to improve bottom line performance. This can be done by reorganization of the management structure and integrating knowledge assets. However to sustain these efforts requires a cultural shift altogether. Breaking down functional silos is difficult to achieve if the organizational culture that exists encourages knowledge hoarding and inward functional focus as opposed to knowledge sharing and being customer focused. Hence what is needed is to change the organizational culture from a low performance, functional focused culture in which having a silo mentality and knowledge hoarding is a norm to one that is high performance and customer focused one that thrives on knowledge sharing. For this to occur, a culture profile assessment will have to take place. Based on the culture profile, a strategy that addresses the limitations identified by the culture assessment with regard to why silo mentality manifests, how entrenched it is and what needs to be done to steer the company away from low performance silo mentality to a high performance mindset. In summary, it appears that for any organization that seeks to break down silo mentality and improve bottom line performance, an assessment of the existing organizational culture is required as a first step. Through such an assessment, relevant and appropriate strategies to eliminate silo mentality may be easily identified and monitored for effectiveness over time. As evidenced by the case study presented for Swiss Re, this approach has worked very well for the insurance and financial institutions and has brought the desired outcomes. For more details on how to overcome the pitfalls of silo mentality by making a shift in the organizational culture, please contact Dr Rumesh Kumar of Sharma Management International at email@example.com or visit www.denisonconsulting.com
Breaking down functional silos is difficult to achieve if the organizational culture that exists encourages knowledge hoarding and inward functional focus as opposed to knowledge sharing and being customer focused.