Bureaucracy Must Die
Almost 25 years ago in the pages of HBR, C.K. Prahalad and I urged managers to think in a different way about the building blocks of competitive success. We argued that a business should be seen as a portfolio of “core competencies” as well as a portfolio of products. By building and nurturing deep, hard-to-replicate skills, an organization could fatten margins and fuel growth. While I still believe that distinctive capabilities are essential to distinctive performance, I have increasingly come to believe (as I argued in an earlier post) that even the most competent organizations also suffer from a clutch of core incompetencies. Businesses are, on average, far less adaptable, innovative, and inspiring than they could be and, increasingly, must be.
Most of us grew up in and around organizations that fit a common template. Strategy gets set at the top. Power trickles down. Big leaders appoint little leaders. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Managers assess performance. Rules tightly circumscribe discretion. This is the recipe for “bureaucracy,” the 150-year old mashup of military command structures and industrial engineering that constitutes the operating system for virtually every large-scale organization on the planet. It is the unchallenged tenets of bureaucracy that disable our organizations—that make them inertial, incremental and uninspiring. To find a cure, we will have to reinvent the architecture and ideology of modern management — two topics that aren’t often discussed in boardrooms or business schools.
Architecture. Ask just about any anyone to draw a picture of their organization — be it a Catholic priest, a Google software engineer, a nurse in Britain’s National Health Service, a guard in Shanghai’s Hongkou Detention Center, or an account executive at Barclays Bank — and you’ll get the familiar rendering of lines-and-boxes. This isn’t a diagram of a network, a community, or an ecosystem — it’s the exoskeleton of bureaucracy; the pyramidal architecture of “command-and-control.” Based on the principles of unitary command and positional authority, it is simple, and scaleable. As one of humanity’s most enduring social structures, it is well-suited to a world in which change meanders rather than leaps. But in a hyperkinetic environment, it is a profound liability.
A formal hierarchy overweights experience and underweights new thinking, and in doing so perpetuates the past. It misallocates power, since promotions often go to the most politically astute rather than to the most prescient or productive. It discourages dissent and breeds sycophants. It makes it difficult for internal renegades to attract talent and cash, since resource allocation is controlled by executives whose emotional equity is invested in the past.
When the responsibility for setting strategy and direction is concentrated at the top of an organization, a few senior leaders become the gatekeepers of change. If they are unwilling to adapt and learn, the entire organization stalls. When a company misses the future, the fault invariably lies with a small cadre of seasoned executives who failed to write off their depreciating intellectual capital. As we learned with the Soviet Union, centralization is the enemy of resilience. You can’t endorse a top-down authority structure and be serious about enhancing adaptability, innovation, or engagement.
Ideology. Business people typically regard themselves as pragmatists, individuals who take pride in their commonsense utilitarianism. This is a conceit. Managers, no less than libertarians, feminists, environmental campaigners, and the devotees of Fox News, are shaped by their ideological biases. So what’s the ideology of bureaucrats? Controlism. Open any thesaurus and you’ll find that the primary synonym for the word “manage,” when used as verb, is “control.” “To manage” is “to control.”
Managers worship at the altar of conformance. That’s their calling—to ensure conformance to product specifications, work rules, deadlines, budgets, quality standards, and corporate policies. More than 60 years ago, Max Weber declared bureaucracy to be “the most rational known means of carrying out imperative control over human beings.” He was right. Bureaucracy is the technology of control. It is ideologically and practically opposed to disorder and irregularity. Problem is, in an age of discontinuity, it’s the irregular people with irregular ideas who create the irregular business models that generate the irregular returns.
In this environment, control is a necessary but far from sufficient prerequisite for success. Think of Intel and the extraordinary control it must exert over thousands of variables to produce its Haswell family of 14-nanometer processors. This operational triumph is tempered, though, by Intel’s failure to capitalize on the explosive growth of the market for mobile devices. More than 60% of the company’s revenue is still tied to personal computers, and less than 3% comes from the company’s unprofitable “Mobile & Communications” unit.
Unfettered controlism cripples organizational vitality. Adaptability, whether in the biological or commercial realm, requires experimentation—and experiments are more likely to go wrong than right—a scary reality for those charged with excising inefficiencies. Truly innovative ideas are, by definition, anomalous, and therefore likely to be viewed skeptically in a conformance-obsessed culture. Engagement is also negatively correlated with control. Shrink an individual’s scope of authority, and you shrink their incentive to dream, imagine and contribute. It’s absurd that an adult can make a decision to buy a $20,000 car, but at work can’t requisition a $200 office chair without the boss’s sign-off.
Make no mistake: control is important, as is alignment, discipline and accountability—but freedom is equally important. If an organization is going to outrun the future, individuals need the freedom to bend the rules, take risks, go around channels, launch experiments, and pursue their passions. Unfortunately, managers often see control and freedom as mutually exclusive—as ideological rivals like communism and capitalism, rather than as ideological complements like mercy and justice. As long as control is exalted at the expense of freedom, our organizations will remain incompetent at their core.
There’s no other way to put it: bureaucracy must die. We must find a way to reap the blessings of bureaucracy—precision, consistency, and predictability—while at the same time killing it. Bureaucracy, both architecturally and ideologically, is incompatible with the demands of the 21st century.
Some might argue that the biggest challenge facing contemporary business leaders is the undue prominence given to shareholder returns, or the fact that corporations have too long ignored their social responsibilities. These are indeed challenges, but they are neither as pervasive nor as problematic as the challenge of defeating bureaucracy.
First, only a minority of the world’s employees work in publicly-held corporations that are subject to the rigors and shortcomings of American-style capitalism. Bureaucracy, on the other hand, is universal.
Second, most progressive leaders, like Apple’s Tim Cook or HCL Technologies’ retired CEO Vineet Nayar, already understand that the first priority of a business is to do something truly amazing for customers, that shareholder returns are but one measure of success, that short-term ROI calculations can’t be used to as the sole justification for strategic investments, and that, since corporate freedoms are socially negotiated, businesses must be responsive to the broader needs of the societies in which they operate. All this is becoming canonical among enlightened executives. Yes, work still needs to be done to better align CEO compensation with long-term value creation, but that work is already well underway. And while some CEOs still grumble that Anglo-Saxon investors are inherently short-term in their outlook, their argument breaks down the moment you realize that investors often happily award a fast-growing company a price-earnings multiple that is many times the market average.
Simply put, at this point in business history, the pay-off from reforming capitalism, while substantial, pales in comparison to the gains that could be reaped from creating organizations that are as fully capable as the people who work within them.
I meet few executives around the world who are champions of bureaucracy, but neither do I meet many who are actively pursuing an alternative. For too long we’ve been fiddling at the margins. We’ve flattened corporate hierarchies, but haven’t eliminated them. We’ve eulogized empowerment, but haven’t distributed executive authority. We’ve encouraged employees to speak up, but haven’t allowed them to set strategy. We’ve been advocates for innovation, but haven’t systematically dismantled the barriers that keep it marginalized. We’ve talked (endlessly) about the need for change, but haven’t taught employees how to be internal activists. We’ve denounced bureaucracy, but haven’t dethroned it; and now we must.
We have to face the fact that any change program that doesn’t address the architectural rigidities and ideological prejudices of bureaucracy won’t, in fact, change much at all. We need to remind ourselves that bureaucracy was an invention, and that whatever replaces it will also be an invention—a cluster of radically new management principles and processes that will help us take advantage of scale without becoming sclerotic, that will maximize efficiency without suffocating innovation, that will boost discipline without extinguishing freedom. We can cure the core incompetencies of the corporation—but only with a bold and concerted effort to pull bureaucracy up by its roots.