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Silos – The Real Problem

One has to really wonder whether anyone has a clue about the right business model especially for banks. Gretchen Morgenson wrote an excellent piece in the New York Times on January 18th, SundayBusiness section, “The End of Banking As We Know It“. She starts with, “the concept of the financial supermarket – the all-things-to-all-people, intergalactic, behemoth banking institution – bit the dust last week.” She goes on to talk about Citigroup and then talked about Bank of America. While she made some excellent points I do not understand how the Bank of America strategy could be deemed appropriate while Citigroup is deemed a failure but that is for another piece.

Based on my experience the failure of Citigroup can be summed up in one word, silos. Very few organizations have learned how to manage across silos only within silos. I think back to one of my first consulting assignments with New York Life. They like most companies were looking for a silver bullet that would invigorate their business and increase sales and profits. We did our due diligence and discovered what we thought was the Eureka solution. At time New York Life had eight independent business groups, each with its own infrastructure, salesforce, etc. Our specific assignment was to look at the life insurance side of the business, why, because it was the biggest and most profitable. The Eureka moment I speak about involve life insurance but was so much more. What we learned was that less than 20% of all consumers who bought a New York Life life insurance policy also owned more than one other New York Life product.
The solution seemed simple, sell more New York Life products to the consumers who already had a relationship with New York Life. At least it seemed simple at the time. It was when we attempted to communicate this Eureka moment that we began the difficult chore of navigating silo-itis. Getting division managers, never mind the sales forces, to even consider selling one another’s products appeared to be and in fact was an impenetrable problem. As we stood in front of the executive committee presenting what I am sure was a simplistic answer to what they thought was a business conundrum did I came to realize that one does not “force” the division manager to do anything even if it meant building the business. The year was 1984, and it became clear that getting divisions to work together and breaking down the walls that made up the silos was an unsolvable problem.
This lesson was reinforced in spades in the late 80s and early 90s when I worked with Citi which at the time was deemed unstoppable. The bank ever bank wanted to be. This was way before Citigroup, when it was just Citi and basically a bank. Whether it was our work with the bankinf group or the credit card group, it was clear they had their own set of objectives and to a certain degree saw each other as competitors. It was obviously clear that silo-itis would not get solved as they added more businesses, as more consumers overlapped and if those consumers were to be treated as a loyal customer it would only be by one silo and not “everything Citi”.
Let us not think for a moment that this is a phenomenon limited to the financial industry. While I regret to admit that in less than 60 days I will be going on Medicare the experience has been eye-opening to say the least. One does not have to be an efficiency expert to identify incredible duplication and waste in the whole process of signing up for Medicare and Medicare supplemental insurance. One would think that a person who had been successful in business and has a Masters degree would be able to navigate this process. I am getting off subject although I encourage you to look forward to more on this in the future.
The point I want to make has to do with supplemental policies that are required, or at least highly recommended, to pay for those expenses not covered by Medicare. Whether I called Anthem Blue Cross Blue Shield or United Healthcare, two of the largest, I learned that the silo effect was alive and well. Again without getting off subject there are three basic parts to Medicare; Part A pays for doctors, Part B is for hospitals, and part D is for drugs. I guess because supplemental insurance is so lucrative it is easy to call an 800 number to get questions answered. In fact, one counselor can actually help with both Part A and Part B but not part D – that is a different department. To make matters worse while the “counselor” could give me an 800 number she should could not transfer me to someone who could either answer questions or sell me Part D insurance.  She made it easy to look elsewhere.
A last example which I cannot resist because it is one of my favorites. Because my wife and I wanted the advantages of an iPhone our cellular provider is AT&T. In Connecticut where we live our landline is AT&T. In Florida where we have a vacation home our landline is AT&T. In none of these cases did we choose AT&T. In each case, we are a customer by default (monopoly is still alive in America.) In fact, we really are not a customer of AT&T at all but Cingular, SNET, and BellSouth. All acquisitions because AT&T could not find a way to successfully grow organically. Like so many companies AT&T wants you to pay your bill online. I have three separate online accounts with AT&T to pay my bills, to get information or reach customer service and none of these “AT&T” sites can talk to one another because they are still years later really Cingular, SNET, and BellSouth . Another case of silos where the customer is inconvenienced and the company loses any hope of leverage either from a cost-saving point of view or cross-selling its consumer because the silos defend their turf rather than benefit the consumer.
Once again we have met the enemy and it is us. If corporations began to look at their silos and dictate their destruction they would grow their consumer base, they would lower their costs and most importantly they would build brand equity.

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