What is Silo Mentality in Business Planning And Why Does it Happen?

What is Silo Mentality?

Business planning is a process that involves multiple departments. For example, in supply chain management, we have demand planning or supply planning. Demand planners forecast product demand while supply planners plan the supply for them. Other departments may include procurement, logistics, sales, etc.

To predict demand, demand planners can work with sales and marketing departments to provide input. Supply planners need to cooperate with procurement, logistics, etc., to maintain sufficient output to match supply with demand. Within these collaborations, departments need to collect information and insights to have the most accurate forecasts to back effective and spot-on decisions.

However, the reality is much more complicated than the theory. Not every department is sharing information with its peers. We call the lack of transparency in communication “silo” and the departments’ tendency to do this “silo mentality.”

The word “silo” originally referred to the big cyclical containers for grain or missile storage. Now it is used to describe separate entities that pile information without sharing. In business, organizational silos refer to business units that operate independently and avoid sharing information within the organization. Generally speaking, the silo mentality is the reluctance to share information with employees of different divisions in the same company.

Why Does Silo Happen?

“Silo” exists due to multiple reasons: lengthy process to extract and share the right data, unaware of demand for information from other departments, lack of communication between parties, system limitation, etc.

In most harmful cases, the silo mentality is a top-down issue arising from competition between senior managers. The reclusive attitude towards information sharing begins with management and is taken to by subordinates. It also may be seen between individuals who may hoard information for their own benefit. The patterns emerge between employees of competing departments, such as marketing and sales.

Besides the matter of clashing managerial interests, a silo mentality can reflect a narrow vision. The employees only focus on daily tasks so that they fail to grasp the bigger picture or see themselves contributing to that bigger picture. Sometimes, they are just unaware of the value of the information they are having on others.

Regardless of the reasons, a silo mentality exists because senior management allows it, which is harmful.

What are the Consequences of Silo Mentality?

Silo mentality is harmful to a company. This attitude reduces the organization’s efficiency and productivity, damaging corporate processes and culture. The lack of cross-departmental communication can negatively impact workflow as information is not flowing freely across the organization. This can leave some departments working with inaccurate or outdated information.

Coupled with other operational inefficiencies resulting from silos, they hinder the ability to deliver value to customers and hamper profitability. A silo mentality depletes morale, especially when employees become aware of the problem but cannot do anything to change it.

How to Address Silos in Business Planning?

Managers of successful firms generally encourage their departments to be open to sharing insights so that the business and planning can run seamlessly.
Companies are always looking to enhance their capabilities with solutions software that can help them eliminate silos. Some of the most in-demand software include demand planning software, Sales & Operations Planning (S&OP) software. Usually, these solutions come from vendor development companies, which offer their clients the overall business planning capabilities on cloud platforms. These platforms are also known as integrated business planning (IBP) platforms. And with the utilization of them, silo will cease to be a harmful force for organizations worldwide.