Organizational and cultural silos continue to exist within most financial services players. Silos sap energy and distract employees from serving customers and combating competitors; instead, they lead to a focus on internal politics and policies. The net effect is to limit the ability of a bank to cooperate across organizational lines, thereby increasing costs and decreasing the organization’s effectiveness in selling and servicing customers and prospects.
Silos Continue to Thrive Within Banks Large and Small
Organizational silos seem to occur for one or more of three reasons: accounting or reporting rules, protectiveness (or fear), and/or culture.
Accounting issues can encourage silos if they emphasize individual line of business (LOB) P&L’s rather than linking bottom line results to performance across business units. For example, the retail branch system can have goals that are, in effect, “stand-alone” or goals that are shared with product areas and other lines of business (for example, small business and wealth management).
Protectiveness evidences itself in many instances and, typically, involves a bank LOB keeping “its cards close to its vest” by not sharing information, not allowing access to the customers it serves, and/or maintaining customers in its portfolio who might better be served elsewhere. For example, we often see companies that can be served as effectively and more cheaply in the small business area being maintained in the middle market or commercial banking LOB. The commercial bankers can come up with multiple rationales why they should continue to serve a small account. Frequently, however, the real reasons include a distrust of another LOB’s capabilities or a desire to maintain the status quo.
Both the above issues are also tied into culture. Senior management at many companies has allowed a silo-oriented culture to develop. Look at events at Morgan Stanley. Silos existing between the traders/investment bankers and retail brokers hobbled the company and played a key role in recent management turnover. A columnist in a September Financial Times article wrote: “The kind of defensive, political behavior that encourages silos is a function of corporate culture.” Senior management often implicitly, if not explicitly, encourages silos and allows them to exist. What it should be doing is showing zero tolerance for them and blowing them apart.
Where Do Silos Occur Within Banks?
In practice, some of the most common silos we see include the following: small business versus commercial banking; retail versus non-retail; wealth management versus branch and commercial banking; credit card versus non-card. The list goes on and will vary at each individual bank. P&Ls and reporting structures may encourage a silo orientation. In addition, certain business lines may operate with either greater status internally (commercial banking) or self-image (commercial banking and wealth management), encouraging not just a desirable positive esprit but also a more negative silo mind-set.
At its worst, we have seen instances in which one part of the bank, in effect, roots against another part. A Financial Times columnist recently referred to silos within companies as “divisions or departments that would rather burn in hell than cooperate with anyone or anything at any time.” Harsh words, but they indicate the extreme to which silos can go.
Step one in dealing with silos is for senior management to recognize that they exist, understand why they are destructive, and commit to breaking them down.
What Can Be Done About Them?
If silos are allowed to continue, a bank will underperform those competitors that are moving lockstep to cross-sell and send a uniform message to customers and prospects. Banks need to understand the destructiveness of silos and their opportunity cost.
We suggest evaluating the organizational structure and the leaders to assess how best to eliminate silos. Oftentimes, silos result from the “messages” that senior management gives to line heads. If a LOB is incented for its own performance alone with little or no incentives for cross-sell with other areas, it is natural for silos to emerge. Banks are addressing this issue by establishing incentives that cross over between areas such as retail and small business or commercial and wealth management. Suddenly, these businesses and their employees benefit economically from cooperating.
Years ago, Jack Welch talked about the need for senior management to address the capabilities and styles of different types of managers. One was the well performing manager who did not fit in culturally. Senior management may need to step up and deal with personnel who have performed well in their job but are constitutionally incapable of working outside the silos in which they have long operated. Senior management has to communicate to these people that the old ways are no longer acceptable and, if necessary, replace them. However, the fact is that most managers are very slow to act in this area, allowing old approaches to continue and slow down the organization.
Concluding Thought
Banks need to provide product packages and solutions to customers and prospects. They need to mine the depths of the organization to present customers with the best of the institution wherever a capability can be found. Allowing false barriers to limit effectiveness puts a bank at a competitive disadvantage and, potentially, harms the customer relationship.
Ultimately, a bank’s culture needs to transition to one in which cooperation is second nature. While we believe a cooperative culture exists at a minority of banks today, that minority is growing as banks recognize what is at stake. Culture will break silos, but until the culture develops, management needs to be more explicit and directive in leading or pushing its bankers to change. At the Financial Times writer states, “The tone is set from the top.”