Leadership Q&A: Toppling the Fiefdoms

Robert J. Herbold, former EVP and COO at Microsoft, has ideas for breaking up organizational silos that can severely damage performance.

How can finance leaders break up the information silos that block their company's performance? Business Finance editor John Cummings asked Robert J. Herbold, author of "The Fiefdom Syndrome: The Turf Battles that Undermine Careers and Companies -- and How To Overcome Them" (Doubleday Publishing, 2004). Herbold was executive vice president and COO of Microsoft from late 1994 until the spring of 2001, with overall responsibility for a wide range of functions, including finance. He is currently managing director of the Herbold Group LLC.

John Cummings: What do you mean by a "fiefdom," and how serious is the problem that word describes?

Robert J. Herbold: What I'm referring to is when individuals or groups or divisions try to protect their turf and change their environment to gain as much control over it as possible. This stems really from an inclination of managers and employees to become fixated on their own activity and career and territory to the detriment of those around them. They become very insular and lose perspective and awareness of what's happening in the world outside of their control, and they lose their ability to act consistently on behalf of the greater good of the organization. This causes all kinds of things to fracture. The organization becomes several independent fiefdoms.

Within these fiefdoms, people begin to say, "Well, we're doing good work, but everybody else is screwed up." They become overconfident of their work, which cuts off their drive for innovation. There's less sense of urgency; they become quite satisfied and convince themselves that no matter what the state of affairs is, everything is OK and don't sweat it. This really does cause an organization to lose its edge -- to get fat, slow and bureaucratic.

JC: Can you give us an example of this kind of fragmentation as you've encountered it?

RJH: Well, in the book I give an example from Microsoft that's very telling. When I arrived in 1994, all the sales subsidiaries in all the countries around the world had basically gone off on their own. In some places they'd developed their own chart of accounts to report finances and their own information systems. And in some cases they'd built their own data centers. At the end of the quarter it was virtually impossible to close the books. It would take three weeks just to piece things together because to provide a consistent look at the company overall, the finance people had to figure out how the Germans defined a marketing cost vs. the definition used by the Italians. Just exactly how did they define "cost of goods sold" in France, and how did that compare to the desired corporate definition? It was just out of hand.

And the subsidiaries also went out and hired a bunch of IT people on their own and hired some HR people, and they were acting as if they were a separate company. It was costly and caused problems in terms of pulling together the corporate financial results, having too much variability in personnel practices, too many financial systems, etc.