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(originally published by Booz & Company)


Get Out of the Silo

Many high-tech electronics companies, on the other hand, continue to be bound by their product silos, and struggle to move toward the kinds of silo-spanning, integrated systems solutions customers are looking for. The IBM Corporation story illustrates this dramatically.

When Louis Gerstner arrived at IBM in the early 1990s, he found an entirely product-driven silo culture. It had gotten so bad that executives were considering breaking the company up into seven separate firms. So Gerstner did some dramatic things. He changed the central marketing budget from 10 percent to 50 percent of the total marketing budget. He slashed 70 ad agencies down to one. He started to measure how collaborative the people in the organization were. He changed compensation so that it was driven by employees’ contribution to the company as whole, rather than to the individual silo. And he got rid of people who couldn’t adjust.

But most importantly he changed the organization from being product-oriented to being customer-oriented. Salespeople had always had the budget to talk about their newest devices. But their customers weren’t interested in buying devices, their customers wanted integrated systems solutions. It was a huge disconnect. But after the changes, teams of marketers and sales people started selling all of IBM into a particular customer sector — the service sector, for instance, or government — wherever they were located. All these moves were dramatic and culture-changing.

S+B: What’s the biggest risk companies face in dealing with silo problems?
AAKER: This kind of transformation is never easy. To people used to working in silos, a centralized marketing organization is a major cultural change. It’s not their mind-set and it’s not their incentive structure. Their incentive structure is always based on maximizing the performance of their silos. Diverting resources to corporate marketing means their silos will take a short-term performance hit.

So inevitably, there will be tension and a significant adjustment period. You have to change the incentive structure and change what you measure and what you reward. You’ve got to start rewarding communication, cooperation, team-building, and team solutions.

If the goal of the centralized marketing team appears to be to centralize and standardize, there is a significant risk of organizational resistance or even rebellion. Such changes can easily be perceived as threatening, and they can destroy what’s great about decentralization — vitality, flexibility, accountability, and so on. So the goal should rather be to address silo-driven problems in part through improved communication, trust, and cooperation. Harness those silos and make them work for you by turning them into a source of ideas and a testing lab for the best ideas. Don’t just eliminate them. It may be that centralization and standardization will eventually be part of the process, but it should not be the goal.

S+B: How can the risks inherent in radically changing the marketing culture be mitigated?
AAKER: That very much depends on how the CMO, the company’s chief marketer, manages the transition. An aggressive change agent who takes authority and flexibility away from silo managers can be a recipe for failure. Instead, his or her task is to recognize that the objective of the transition is to address the problems created by siloed marketing, and not simply to centralize and standardize the marketing function. Given how entrenched these siloed cultures can be, that means he or she must assume a number of nonthreatening roles: facilitator, service provider, consultant. But all these roles must promote what I see as the most important activity of the CMO — to boost communication and cooperation.

Many of the problems caused by siloed marketing are a result of poor communication and a lack of cooperation. If you have strong communication and cooperation, you’ll be able to market silo-spanning brands much more clearly and consistently. You’ll see opportunities for silo-spanning offerings. You’ll be able to share and scale marketing programs. And the organization as a whole will be able to allocate resources much more efficiently.

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  1. David Aaker, Spanning Silos: The New CMO Imperative (Harvard Business School Press, 2008): Aaker expands on his argument that CMOs must market across internal corporate boundaries if they want to succeed in a globalized age. 
  2. Geoffrey Precourt, ed., CMO Thought Leaders: The Rise of the Strategic Marketer (strategy+business Books, 2007): Interviews with top marketers on what customer-centric marketing really means.  
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