Since we organize to serve a purpose, our sense of order is context dependent, not an absolute. In other words, while everything could be in order, the order in which each is in is not the same—all order is not the same order. For example, the order of my desk suits my purposes and the order you create on your desk supports yours’. To the degree that our purposes are different, correspondingly it is likely our desks will be ordered and managed differently.
With many business enterprises seeking the same purpose—profit maximization—it is not surprising that they are similarly organized and managed. The age-old issues of who should be in-charge of what and how many one can have direct authority over seem to be operative. Effectually the organizing structure is a means to bring about order by dividing the labor (or work of the business) into more manageable clusters or compartments. Accordingly, the organizing structure becomes the instrument for controlling the assorted skills and efforts of people toward the effective and efficient pursuit of profit.
Traditional Structure
Traditionally organizations are structured using a two-dimension coordinate system as the framework for bringing order to the business enterprise. That is, on the vertical axis runs the amount of authority and on the horizontal axis are the categories or specializations of activities or work disciplines. It is a means for dividing the authority and labor (i.e. the work)—the thinking and the doing.
[Facing a highly dynamic business environment, many have become enamored with the notion of being or becoming a flat organization. Supposedly this makes for a more flexible and adaptable enterprise. The fact that form means little without function and intent, seems to be overlooked in the application of the same two-dimensional framework.]
When we design the structure of a business enterprise with little to no attention to the nature of the core work of the business and the needed strategy supporting capability, then we inevitably facilitate fragmentation. Not understanding the work as a system along with seeking to control the work, will inevitably lead to dis-integration and a growing inability to learn and to develop knowledge. Talk about shooting ones’ self in the foot!
Hidden Cost
Consider the following as illustration. I recently worked with an organization structurally designed in the traditional manner. Every compartment had its responsibility and each was managed independently, when in fact the work requires interdependence. Yes silos were evident and collaboration and synergy were obstructed.
Hence if you had dealings with one compartment in the past and you began working with a different compartment, information could not be shared or transferred. So the new compartment had to re-create the exact same information. This requires far more effort, energy, and unnecessary costs, where a simple keystroke would do the job.
The structure of the organization supported control over of each compartment, as well as the dis-integration of the organization’s work. The result is greater costs; costs inherent in the very structure, work processes and associated management of the enterprise. Since these costs are woven into the very design, and thus not captured as such on anyone’s spreadsheet, how would those in authority know?
Now extrapolate this throughout an entire organization and you can easily see the unnecessary costs created all for the sake of management control. In short, efforts to control can, and often does, lead to increased costs.
Moreover, given that most properties of the organization are emergent—such as the performance of the enterprise—designing and structuring an enterprise in this way will very likely lead to less than optimal performance.
Continuing as if the business of business is profit is both limited in perspective and limiting to capability and performance. If people are really concerned about the quality of the organization and if knowledge creation is central to viability of the business, then why continue organizing and managing this way? Wouldn’t it be more prudent to ensure the wholeness of the work of an enterprise?
Gregory Gull 
I hesitated to comment on this post only because I wasn’t sure if I could add value to it. But I will try, anyway.
Businesses can and do make profits in spite of being organized into what you have called “compartments.” For example, if all the players in an industry are operating in this way, there aren’t any visible penalties for it, though there are obviously opportunity losses. That is to say, if one of the players bolted from the pack and implemented a higher form of organization, it would fairly quickly begin to displace its competition. It would, for a time at least, earn the equivalent of “franchise” or monopoly rents.
In addition to the duplication and waste you described so succinctly, there are other wastes, other displacements of productive energy, that characterize organizations with silos. One of these is what I call “trepidation” costs. Organizations with silos are usually very “political,” in the pejorative sense of the term. People are more worried about looking good and advancing their careers than in doing the right things. The ones that get ahead are the best at managing perceptions. The ones that don’t eventually find out that hard work and diligence don’t pay, and lose their edge, resigning themselves to the mere quest for security, which usually means doing whatever it takes to stay off upper managment’s radar scope with the least effort. They seek meaning in their lives off the job, and save their energies for their off-the-job activities.
Such energy as they have left over for work is further dissipated by their private longings to be somewhere else, perhaps even by seeking opportunities elsewhere. They waste energy thinking about how to look like they are doing the right things rather than how to do the right things. They protect their time to dream about a better life that they may never find. The main thing is, they aren’t working for the organization when they are in this mode. They are incurring trepidation costs.
Trepidation costs take away from the quality of one’s thinking/planning and drain time and energy from execution. From both personal experience and from over thirty years of studying my fellow beings’ behavior at work, I conclude that as much as thirty percent of an organization’s capacity to produce–to deliver on its value proposition–is displaced by trepidation costs. Where you find silos, you will find trepidation costs of this order of magnitude. But you will have to look hard to see them, for one of the skill sets that evolve in organizations like this is the ability to look like you’re working when you’re actually doing something else. . .
Given that there are known ways to fix the problem of silos, it is irrational for businesses to continue to run this way. Yet they do, because it’s hard to change, and if nobody else does, why should one expend the effort? So the managers of such businesses go on producing “successful” careers. The widgets that their companies make are just by-products of this, their true core process.
I have written about this and related topics in a book I wrote last year (that I haven’t published yet). If any of this doesn’t make sense to you, please let me know so I can improve the clarity of my thinking about it. And thanks again, Gregory, for continuing to post these stimulating and fruitful discussion topics.
Rick, the trepidation costs you speak of are very real; all part of the incalculable costs of mis-management. Thank you for advancing understanding.
Silos and compartments, “Trepidation costs”. We see it. We also see something better. What can we do about it or is this just how the game will be played for the next 100 years?
What is inherently lacking in rigidly organized structures such as you have described is fluidity and flexibility. Apart from the unnecessary associative costs that restrict growth and limit profits, there is the greater human cost of a country full of Employees who fail to develop or to fulfill their potential.
Yes the human cost is ignored; we seem to have great concern for externalities when the more serious issue is self-inflicted crime against humanity
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