The Silo Effect – Gillian Tett

The Silo Effect is Gillian Tett’s follow up to 2009’s Fool’s Gold which documented 2008’s financial meltdown and its causes better than any other account.  Tett is the US managing editor and columnist at the Financial Times and has won awards galore for her columns over the years.  Her column in Saturday’s FT Weekend supplement has been a favourite of mine for years.   She’s also a dead ringer for Gillian Anderson.

If you work in consulting you’ll recognise the condition that she tackles in this book. How often have you seen initiatives flounder due to either the inability or unwillingness of people to collaborate across functions?  I’m always amazed at how finance people assume the role of merely costing and pricing a new service, product or initiative when they could be more invested in how to come up with the best possible solution that brings a positive and creative tension to the overall initiative.  I’ve met plenty of accountants who are creative in their extra-curricular lives but once they walk through the office door at 9am on a Monday morning they assume the spirit and creativity of the living dead.

Tett taps into her training as an Anthropologist along with the work of Pierre Bourdieu to explain why we structure and classify the environments we live, work and play in the way we do.

“Bourdieu believed that human society creates certain patterns of thought and classification systems which people absorb and use to arrange space, people, and ideas.  Bourdieu liked to call the physical and social environment that people live in the “habitus,” and he believed that the patterns in this habitus both reflect the mental maps or classification systems inside our heads and reinforce them.” 

The first half of the book examines how silos stifle creativity and conceal risks.  She uses the example of how Sony fell from its perch and ceded its position as paragon of all things extraordinary in the field of computing and electronics to Apple to illustrate how a bureaucratic and clogged up organisation can turn inward and seem incapacitated.

She draws on her work from Fool’s Gold to show how the management of UBS lost billions in the financial crisis due to 1. Their inability to have an overall and accurate view of the risk profile across the entire organisation.  2. The classification of Collatoralised Debt Obligations (CDO’s) as client risk – which was supposedly benign and less risky than proprietary risk 3. The ability of the New York desk’s exposure to CDO risk to hide in plain daylight due to this misclassification.  UBS senior management were virtually unaware of their exposure to CDO’s when the financial crisis struck.

The second half of the book deals with the benefits involved in “silo-busting.”  The steps that Facebook have taken to avoid silo-type behaviour over the first decade of its existence have already been well documented and adopted by many other tech companies with varying degrees of success.

I read the account of Toby Cosgrove’s initiative to make the medical professionals at the  Cleveland Clinic work across functions and disciplines with great interest given I’m still waiting for an orthodontist I’ve been referred to for root canal treatment to arrange an appointment over 72 hours after the fact – I’m on painkillers and antibiotics.  Cosgrove’s work has led to the Cleveland Clinic having lower prices than its competitors as well as winning awards for patient experience and satisfaction as well as medical practitioner expertise.

The story that will probably interest finance professionals the most is how the management of BlueMountain capital  took advantage of the silos and classification systems within JP Morgan to make a killing on a CDO trade.  For every winner in a trade there is also a loser and in 2011 BlueMountain quietly took up a position on the other side of a JP Morgan CDO play that enabled it to make a killing while JP Morgan lost billions across a series of “Whale Trades” in its CDO business.  JP Morgan were so impressed with BlueMountain  that they invited them in as consultants to help them dispose of the rest of their losing CDO positions.  In all BlueMountain made $300m from their dealings with JP Morgan.

Tett never trained as a finance professional and her command of the detail, especially in the financial stories, is very impressive.  She puts a lot of her success as a journalist down to having an outside perspective due to her training as an anthropologist.  At the end of this very worthwhile and interesting read she highlights six principles from anthropology that can help us to challenge our silos and classification systems:

  1. Anthropologists tend to take a bottom-up view of life.  They usually get out of their offices and experience life on the ground
  2. They listen and look with an open mind and try to see how all the different pieces of a social group or system interconnect
  3. Because anthropologists try to look at the totality of what they see, they end up examining the parts of life that people do not want to talk about, because they are considered taboo, dull , or boring
  4. They listen carefully to what people say about their life and then compare it to what people actually do…They are obsessed with the gap between rhetoric and reality
  5. Anthropologists often compare different societies and cultures and systems
  6. Anthropology celebrates the idea that there is more than one valid way for humans to live….Anthropologists know that the classification systems we use to organize our worlds and minds are not inevitable; they are usually a function of nature not nurture.

I’d recommend this book to anyone who is interested in organisational or service design as Tett  is far better at identifying and articulating the issues and their root causes than any consultant.

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