Functional Silos
Dys-Functional Silos Can Threaten Your Corporate ProfitAbility!
The scenario is a typical one; the Marketing team develops a volume plan for a new product launch and gets the required investment signed off by senior management. The Sales team puts forward a demand plan which is considerably lower than the Marketing plan but which is in line with taking a conservative view of the opportunity (some might call it “sandbagging”!!). The Manufacturing team looks at both numbers and decides to plan in a figure somewhere between the two based on “our previous experiences” and the fact that there are a few capacity constraints caused by the requirements of other brands. The end result? Almost certainly a problem in the market. Whether that problem is too much stock (“we had to put those numbers in to justify the investment”), too little stock (“we thought it better to be conservative than over-forecast”) or no stock at all (“the promotion on Brand X is an amazing success so we have had to delay starting production”) the outcome is dissatisfied customers, raging Regional Directors and probably a hit to both the top and bottom line
Why does this kind of thing happen with depressing regularity in many businesses? It essentially boils down to one or more of three things; a lack of communication, the failure to understand the challenges and issues faced by other functions in the company and misaligned functional objectives.
To illustrate the point we will briefly relate a real-life example observed during a recent assignment in a large market with a leading global client of ours. The company works with a large number of distributors to get its products to market and was about to launch a major consumer activity involving special promotion packs. To ensure that all distributors began selling the pack at the same time, the Sales Force had been briefed to start selling in from the 25th of the month. One of the Sales Managers happened to be at the company depot on the 22nd and was alarmed to see the promotional packs being loaded onto a truck for delivery to one of his distributors. When he queried the Warehouse Manager he was informed that the instruction had come from the Supply team at HQ and he had to abide by their instructions. The Sales Manager called the relevant colleague and was told that she had targets to meet on depletions from the depots and was therefore unable to hold the order, whatever the consequences. Those consequences in the mind of the Sales Manager were potentially dynamite; if one distributor got a head start in selling the promotion customers of other distributors might flock to him causing major unrest with those who lost out. Whilst one could criticize the Supply manager, her bonus was partly based on depletions so her actions are understandable. In the end, a compromise was reached; the shipment was made to the distributor but he agreed (under threat of massive sanctions if he reneged) to keep the product in his warehouse until told it was time to begin selling
If this is a situation which you encounter from time to time in your company, what can you do to change things so that it stops happening? The simple answer is to improve communication and inter-functional understanding and ensure that functional objectives are all pointing in a common direction. The matter of individual and functional objectives can be tackled by HR or the General Manager who can take a sense check to identify potentially conflicting priorities. Improving communication and developing an understanding of the issues and challenges faced by other functions in the company is an area which the Corporate ProfitAbility workshop can be a great catalyst for change. Running the business simulation with multi-functional teams involves all members of the team in making decisions about business and portfolio strategy, pricing, marketing investment, capex and customers. It is very encouraging to see Finance people beginning to understand what it is like battling in a competitive sales environment just as it is to see the penny drop with Sales managers who understand, when their fictitious company runs out of cash, why being obsessed with managing working capital is so critical to business success. If these learnings are subsequently carried back to the workplace (our action planning session ensures that they should be) then scenarios such as the real-life one described above can be avoided simply by having a greater understanding of the broad business picture
