“What we have here is failure to communicate.”
Movie lines become legendary, and ingrained in our cultural makeup for many reasons. In the example above, it’s because it represents an all-too-common life experience and because what it describes is so pervasive. The same is true in source-to-pay organizations, where silos are as much about communication failure as anything else.
If you look at graphic representation of a procurement purchase for instance, you see nice clean lines leading from a sourcing event to supplier interactions to contract creation, purchase order, invoicing, receipt, payment and on and on. The reality is often very different, especially post-award contract and relationship management. Why? Siloed functions that have each department doing their piece of the process and passing it on.
As Kelly Barner mentions in our upcoming ebook on the Procurement Maturity Curve, no function is an island — not if process efficiency and organization-wide effectiveness is the goal. A recent post by McKinsey explores the Silo Effect and its detrimental outcomes in great detail, and it resonates because of our own experience of customer challenges. If you think about it, organizations are ecosystems and there has to be a seamless flow from one area to the next for the whole to function properly. As McKinsey points out, this is as true for a sports team as it is for a corporation — or by extension, a hospital complex, school system, government agency, etc. Silos hinder work.
The three most common silos in source-to-pay organizations:
People often become siloed just from the shear amount of daily work on their desks, and the unrelenting focus they need to apply just to get through it all. This unintentional siloization is interesting in that it can feed a vicious cycle; by contrast, if there was more collaboration it might actually lighten the workload or make it more efficient.
This silo can also be a case of protective territorialism, building “barriers” that can either give a feeling of job security, or power, depending on where you sit in the hierarchy. This may provide fodder for the end-of-quarter “look at me and all I did” reporting, but belies the fact that those results could probably look a whole lot better if more teams or functions were working in concert. As the McKinsey post highlights, this insight from The Silo Effect by Gillian Tett pretty much says it all: “Silos can create tunnel vision, or mental blindness, which causes people to do stupid things.” For source-to-pay organizations, those stupid things can include overspend, risk creation, lost opportunities and an ugly horde of other unpleasant results. The quick fix? Constant communication, and lots of it.
Kelly Barner explored the pervasiveness of siloed processes in her recent blog series on the Procurement Maturity Curve and associated ebook. Siloed processes often result from “that’s how we’ve always done it” apathy, and/or because of siloed technology. This is something we see quite often at Determine in speaking to companies that are looking to improve their efficiency and effectiveness.
In most cases, the process silos just happen because, for instance, the procurement team is using X solution, the sourcing folks are using Y solution and the legal/contract department is using spreadsheets. This could be the result of inequities in how rapidly the different departments adopt new technology, or many times it happens during mergers, acquisitions and other structural changes.
As an example, a decade ago I worked for a huge financial firm that over the previous decade had gone on a small firm buying spree. Along the way, they inherited umpteen CRM, ERP and other systems, approaches and methodologies – and no overall integration strategy was ever applied. It made for difficult internal management processes, but the worst effect was on the customers, many of whom left. (As far as I know, they’re still trying to fix it all.)
If you think about a source-to-pay organization, disparate processes between procurement, suppliers and contracts are going to make it difficult to: control compliance purchasing leading to maverick spend; verify supplier validation and certifications, making efficient onboarding and lifecycle management impossible; create and manage contracts that optimize the relationships for all parties involved. The risk potential is enormous. The quick fix? Get the heads of all departments – including IT and senior executive stakeholders – in a room and communicate.
Data disaggregation is a fancy way of saying “hot mess.” This data silo, like processes, often stems from different systems that don’t fully integrate, many times in combination with manual processes that exacerbate the issue. In my bank example above, this created a classic example of Donald Rumsfeld’s unknown unknowns; we had very little accurate data about, much less insight into, the customers we were actually communicating with. Or more accurately, miscommunicating with. It was expensive.
Whatever created your data silo, fixing it is probably the most important of these three silos to eliminate first. If your supplier data is wrong, then your sourcing events are faulty, your procurement people are wasting money, your contracts are risk prone and your sales team are losing opportunities. Like a game of telephone, data inaccuracy just gets amplified the further it moves along. The quick fix? None — roll up your sleeves, you’ve got work to do.
Replace silos with seamless.
The big takeaway from the McKinsey post, the book by Gillian Tett and the blog series and ebook by Kelly Barner is, that eliminating organizational silos will happen by eliminating siloed thinking and mentality. That means replacing what psychologist Daniel Kahnemann refers to as being “blind to our own blindness” with a shared vision of what’s possible. Then, don’t fail to communicate it.
If you’re ready to see how you can replace silos with seamless in your people, processes and data, schedule a no-obligation demonstration of our integrated, modular source-to-pay solutions on the Determine Cloud Platform.