Silo Busting
The Surprise of his life
Dan was frantically preparing for his presentation as part of Andy Grove’s class at Stanford Graduate School of Business. It was 2008 and the focus of his talk, iPhone, had been a commercial success since its launch a year before. What Dan did not know was that Andy had invited a special guest to the class who was generating a stir outside of the amphitheater. Dan was about to have the surprise of his life and probably enjoy the most fascinating discussion about innovation a student could ever have.
Silos at Sony
Howard Stringer, the Welsh-American head of Sony Corporation of America, had just been nominated CEO of Sony amidst mounting losses and competitive pressure from rivals such as Samsung, Sharp, Apple Inc. and Panasonic. When he took the helm, Stringer knew he was facing an uphill battle that was made obvious by the losing war on digital music.
Sony had everything it took to build a successful digital music player. It housed skillful teams of hardware engineers and designers in Japan, a large catalog of artists through its music label Sony BMG and an amazing brand with the Walkman which had been one of the most successful consumer product of all times. With fewer assets but a laser focus on execution, Apple had launched its iTunes (Music) Store a couple of years before, completing its iPod ecosystem and propelling the sales of its fledgling iPod music player. By the time, Stringer tool the reins at Sony. iTunes had already captured 75% of digital music sales and the iPod was selling 23 MM units per year. What was Apple doing different that allowed the company to steal Sony’s thunder?
In her book The Silo Effect, Gillian Tett describes Sony as lacking coordination between its divisions which confirms my experience meeting with executives from Sony’s software, music and movie divisions. She describes how Nobuyuki Idei, Sony’s CEO, unveiled at Comdex 1999 not one but two competing digital music players: the Memory Stick Walkman and the Vaio MusicClip, each running its own proprietary technology and format. In effect, Idei was publicly displaying the result of two divisions working at odds to create incompatible products addressing the same market need. Soon after, Sony released yet another similar product called the Network Walkman from yet another division.
This situation was the logical conclusion of an organizational change that Idei had put in place years before to manage the growing complexity of an international behemoth with 160,000 employees. To allow more freedom to execute, he gave the head of each new internal company the freedom to make decisions over their product lines and responsibility for their profit and loss (P&L). The effect of this incentive structure was to elevate barriers between these internal companies that prevented cross pollination and discouraged risk-taking. Also, the competition for resources would create organizational redundancies and product inconsistencies as was obvious at the Comdex show. How such barriers have prevented your organization from generating innovation?
Lost in Translation
Sony’s board appointing Sir Howard Stringer as first-time non-Japanese CEO was an indication that the company needed a drastic change to re-energize innovation and share price, similar to what Carlos Ghosn had done at Nissan. To bust silos, Stringer sought advice from Lou Gertsner, then CEO of IBM who had broken silos there to revitalize the computing giant away from mainframes and focus more on software.
Similarly, Stringer put emphasis on software making a point of placing top software engineers in the first row at a Tokyo gathering of top executives probably frustrating the traditional Japanese respect for hierarchy. Moreover, he created a rotation program for young software engineers to change assignments across departments to disseminate ideas and best practices. In parallel, Stringer reverted Idei’s change by re-integrating independent divisions into a unified structure as part of "Sony United — Into The Future” initiative.
The challenges Stringer faced proved too difficult eventually. Maybe because he was not an engineer, maybe because he was not a Japanese, did not speak the language and was never willing to relocate to Tokyo, he struggled to fight the inertia of the entrenched old guard at its headquarters. Perhaps also, he did not have the maniacal attention to details that drove Lou Gertsner and Dan’s surprise guest speaker at his presentation at Stanford.
Dan, it’s Steve Jobs!
Yes, it was Steve Jobs himself who Andy Grove had invited to Dan’s presentation on iPhone that day. Put yourself in the shoes of the student who was about to present a slide describing Apple’s mistake to give AT&T exclusive distribution rights of the iPhone in the U.S in front of the legendary CEO!
Like Stringer, Steve had faced a fragmented organization and product lines when he returned at the helm of Apple in 1997. But unlike Sony, Apple had a clear sense of urgency given that it was on the brink of bankruptcy. As a result Steve was able to slim Apple’s offering down to 4 computers using its famous four quadrant strategy: notebook vs desktop, consumer vs pro, killing along the way the printer line and the promising newtown PDA. With layoffs necessary to get Apple out of the red, the leadership team structured the company without redundancies and independent P&L. Unlike Sony, Apple would focus on only one new initiative at a given time allowing executives and resources such as the marketing team to give their full attention to only one product line at a time leading to excellence in execution.
At the end of Dan's presentation, Steve make an important point to the team: Apple has been uniquely positioned to deliver highly innovative consumer electronic products because it had been the only company that had all the necessary skills under one roof: hardware engineering and design, client and server-side software as well as a world-class marketing team and distribution. Moreover, Steve’s insistence to keep all critical teams in Cupertino had been a tremendous asset for high-speed decision-making and execution. In the end, this is what made the success of the iTunes + iPod ecosystem compared to Sony’s unsuccessful efforts in digital music.
Who you’re gonna call? Silo Busters!
Some would say that the strong culture of secrecy at Apple is not conducive for the cross-pollination that leads to breakthrough innovation. While Tim Cook has pledged more openness and transparency, only the top 100 executives at Apple had been privy of details of the entire product roadmap; It is still common for an individual contributor to ignore what his next door neighbor is working on.
There is therefore a form of irony for an Apple employee entering the Steve Jobs building at Pixar in Emeryville California not too far from it sister company in Cupertino. The irony stems from the contrasting openness of the studio’s campus that had been designed by Steve himself to foster random interactions between employees. In his book Creativity Inc., Ed Catmull, Pixar’s co-founder, explains that Steve had designed the building centered around a spacious atrium through which employees had to go to enter and exit the building as well as for meals. Steve pushed the logic so far that his initial design only offered restrooms at the atrium.
Fostering a free exchange of ideas by opening up space is also the choice that Mark Zuckerberg, facebook CEO, made when he moved the company to its new campus in Menlo Park, CA. Formerly owned by Sun Microsystems which fortunes had faded a few years before, the campus featured a lot of walls to segregate teams from each other. Instead, facebook leadership had most walls taken down and built passageways between buildings to ease the flow of people and information. Mark is a famous proponent of the open space floor plan to increase communication and transparency.
Another way facebook works hard at breaking silos is by encouraging engineers to frequently spend time with others teams either through its 6 weeks long onboarding program or by attending frequent hackathons. In doing so, boundaries between teams fade away to eliminate the "us versus them" syndrome that dooms information exchange in large organizations.
These are a few ways tech companies are breaking down divisions to unleash creativity. What have you done lately to create bridges across your teams? Have you had lunch with someone you have no immediate need to talk to? Have you invited someone from another group to give a talk to your team to spark new ideas? Please let me know successful ways of enabling innovation through open communications.