Hidden in plain sight, bureaucracy wastes money and time -- but it can be rooted out of your company
Everyone says that you can't fight city hall. What they really mean is: Fighting the harmful side of bureaucracy is futile. And yet often, overly bureaucratic procedures can lead to tremendous waste, inertia, and inefficiency. So why do we allow these practices to flourish in our own organizations? Mostly, out of benign neglect.
The pain of a loss is much more severe than the joy associated with a similarly sized gain.
Bureaucracies form gradually, quietly, and often for reasons that seem sensible at the time. But a close examination of bureaucracies shows that they're often a response to fear of loss resulting in attempts to regain local control, regardless of overall strategies or needs. These barriers are usually created with the best of intentions, which is what makes them so difficult to spot and combat.
But that's not to say bureaucracies are eternal and indestructible. Every harmful bureaucracy can be dismantled, but you must start by examining how it formed in the first place. What's more, addressing these barriers is critical to organizational success, because the inefficiencies bureaucracies create right under your roof might be costing you more than you can imagine.
Anatomy of bureaucracy
For the purposes of our analysis, bureaucracies are defined as practices and endowments that create harm for the many while benefitting the few. And the first step is to determine why these bureaucracies form.
The research behind our exploration of bureaucracies covered diverse organizations in the public and private sectors, including different industries, countries, job types, and functions. What we learned was that these types of practices generally were created based on a local need, but they became harmful through a series of missteps all based in fear. The evolution of these missteps into silos and bureaucracies followed three consecutive steps: parochialism, territorialism, and empire building.
As activities become more complex, organizations need to divide up functions. Operating a complex organization requires excellence from many functional areas: human resources, production, sales, marketing, accounting, finance, inventory management, compliance, risk management, and more. Organizations also need people to lead and manage those functions. As responsibilities grow for each department, so does the pressure and accountability to meet local goals.
At some point, out of necessity and in response to daily pressures and demands, the leaders of those departments may start to focus much more on their functional goals than on the organization's overall goals. When this happens, making sure that their part of the process is done correctly may become all that really matters, even at the expense of mission success. The group may not only lose sight of the connection between its work and organizational outcomes; it may even stop caring about what happens outside its silo. It defines its world by the piece, not the puzzle.
Gallup calls this condition parochialism. Parochialism develops when a group views the world strictly through the lens of its functional goals, and it judges the relative importance of other activities by the way they affect the group's objectives. Parochialism limits the group to a narrow reference point -- ultimately, everything is viewed from that filtered local perspective.
As Nobel Prize winner and noted behavioral economist Daniel Kahneman, Ph.D., and his research partner, Amos Tversky, Ph.D., found in their landmark work, "Prospect Theory: An Analysis of Decision Under Risk," a person's reference point will determine whether a particular level of performance will create positive or negative value. Different people may have different reference points and therefore different definitions of success for a given outcome. In other words, an outcome may be reasonable for one group but be unacceptable for someone else.
Kahneman and Tversky also found that the pain of a loss is much more severe than the joy associated with a similarly sized gain. Therefore, avoiding loss is a more powerful motivator than an achievement of equal magnitude. When that tendency is combined with a highly personal reference point, people will be tempted to assiduously protect their silos to avoid the possibility of failure or loss. They'll perceive that their own department's risk of failure is due to the "interfering" demands of others, even if those requests would result in greater success for the organization as a whole.
To protect their department from loss -- of time, respect, resources, or power over practices and preferences -- parochial managers may create rules, policies, and procedures that prevent others from infringing on them and impeding their processes and goals. These rules may protect the silo, but they also make interdepartmental work inflexible and unnecessarily difficult.
Another result of growth and increased complexity is scarcity of resources. No company has unlimited money, people, time, or space. Leaders must make decisions regarding who will and who won't get what they say they must have to succeed. And as complexity increases and the number of employees rises, it becomes more and more complicated for leaders to determine how to allocate resources to achieve organizational goals.
If an organization is already suffering from parochialism, then competition over resources can become intense. When this occurs, leaders may start to lose sight of what's best for the company and focus just on what's best for their small part of the organization. Loss aversion kicks in, creating a natural tendency to protect and maintain excessive control over headcount and resources. If allowed to continue, the result may be territorialism, or the exertion of control over one's turf to an extent that harms others in the same organization.
The difference between territorialism and parochialism is the focus. Parochialism is defined by rules that protect a functional area from outsiders, while territorialism is focused on controlling resources and headcount inside a functional area.
Fear of loss of control can lead to overly restrictive limits on the staff within those functions. Employees become prisoners of their departments. Overall goals of the organization are overshadowed by the fear of not meeting local goals.
It takes a tremendous amount of will, consistency, and courage to dismantle bureaucracies.
Increased business complexity tends to increase the interdependency between departments. Groups become much more reliant on shared services, such as human resources, IT, or training, or they may become more and more dependent on how quickly other departments complete their part of the process. What's more, if an organization is rife with parochialism and territorialism, cooperation between groups may have already become strained as each group begins to focus more on its own view of success, which may not match the view of other groups.
As a result, a department may take steps toward self-sufficiency to maintain control, fend off loss, or assert authority. In an environment where one group's success is limited by another group's constraints, a manager may feel compelled to begin empire building -- the attempt to gain control over functions or responsibilities that are controlled by another group -- either by asserting control over that group or creating a duplicate function.
Attempts to control another group can be overt or covert. Overt attempts may involve reorganization to subordinate one group to another. Covert control can be achieved by instituting rules, procedures, check-offs, or approvals that guarantee the controlling group has final say over what the other group does.
If other departments can't be subsumed, empire builders often create duplicate functions -- creating their own IT or HR group, for example, or their own marketing or sales department. This creates tremendous inefficiencies for the organization as a whole and invariably leads to conflict. Duplicate functions make it more difficult to operate under a consistent, unified strategy. They also make it difficult to allocate resources effectively across the organization. In fact, duplicating functions in multiple departments often makes things worse by unnecessarily increasing headcount and reducing the resources available for mission-critical tasks.
In short, what may seem like a way to increase efficiency and get around an internal bureaucracy results in additional costs, complexity, and conflict -- and more bureaucracy.
Knowing what bureaucracy is made of and how and why it forms provides the blueprint for its demolition.
Because parochialism is built and enforced primarily through a combination of local goals, rules, and procedures, barrier removal would involve:
- revamping goals to create a view broader than the silo
- auditing rules, policies, and practices -- look for ways to meet the need that led to the creation of a rule while eliminating the collateral damage that may accompany it
Territorialism is about controlling resources and headcount within a silo. So remediation would include:
- auditing accountability and empowerment to ensure that the two are in proper balance
- developing guiding principles to allocate resources that align objectives and priorities with organizational needs
Empire building can be addressed through:
- developing a better understanding of departmental needs, priorities, and performance expectations and allocating resources based on those expectations
- implementing a set of guiding principles based on overall mission, which is used as the final arbiter of resource allocation, planning, and decision-making authority
- establishing a feedback mechanism to quickly identify situations in which resource constraints prevent important strategic goals from being successfully met
It's much easier to build bureaucracies than to dismantle them. Implementing this sort of change takes a tremendous amount of will, consistency, and courage. It requires strong commitment from the top along with dedicated effort from all levels.
Why go to all this work? Because rooting out entrenched parochialism, territorialism, and empire building -- though it is arduous and unpleasant -- needs to be done if organizations are to thrive. Removing these barriers in some organizations that have taken on this challenge resulted in dramatic improvements in turnover, higher levels of employee engagement, more engaged customers, better sales conversions, and higher market share.
Whether the problem is an inventory control group ensuring that there is not enough product for sales to meet their goals, a bonus system that encourages gaming, or an inability to adapt to customer needs, barriers like these exist in virtually all organizations. While these types of barriers may seem insurmountable, it is important to remember that they were created internally. And, if they were created internally, they can be torn down internally, and the potential of the entire enterprise can be unleashed. You can fight city hall after all.