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Organization, Silos & Market Success

March 11, 2010

Dustin Mattison pulled together some interesting comments on Toyota and its ‘silo-based organization’.

It is of course remarkable how quickly people, institutions and companies can switch from ‘hero’ to ‘villain’ status. So recently Toyota was hailed as such a successs story, yet now everyone appears to have known that this was just based on … what, a myth, good luck?

Business results prove that  Toyota did a lot of things very well for a considerable period of time. What it perhaps did not do so well was adjust to changing conditions – among them, its own successful growth (but it shares that fault with most industrial Leviathans). I have commented in previous blogs that the warnig signs were there (for example, the reports issued by Professor John Henke). Based on my contacts, it is certainly true that the highly devolved organizational model, on which Dustin comments, prevented strong business functions from developing. I believe that in the field of contracts and relationship management, there was virtually no central oversight. Yet let us not forget that many suuppliers loved this model and felt strong loyalty to Toyota. Before the cynics observe that this lack of central control meant higher margins for the supplier, let me say that there is no strong evidence of that, and even if they did, I suspect the overall relationship costs for Toyota were much lower.

The problem with Toyota’s organizational design is that it depended on the competence and insights of a small executive team. The model appears to have lacked appropriate checks and balances and this deficiency became more severe with rapid growth. I agree with comments by Forrest Breyfogle that modern technologies allow very different and better balanced structures, supported by high quality information flows that enable insight and decision making in a far more collaborative way. The old ‘centralization versus decentralization’ see-saw through which most of us have lived is now anachronistic. A matrix that brings together the relevant expert groups (business units and support functions) to have joint and several responsibility for key business activities and processes appears to be the way forward.

Silos always accompany any sort of specialism and to some extent are desirable (for example, ‘professions’, by their nature, are exclusive and therefore create both progress and conflict). Rather than seek to eradicate silos, we have to ensure that the contention they generate is creative rather than destructive.

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