If Your Organization Operates As A Multi-Layer Bureaucracy, It’s Headed For Extinction

masterthefuture permissionless transformation Jan 10, 2023

Happy New Year! 

Ram Charan and I co-authored an article just out in this month’s Harvard Business Review about how technology is creating the conditions for what we call the “permissionless” corporation. In it, we suggest that corporations organized like conventional bureaucracies are going to give way to organizations that have figured out new ways of working.

To explain why, let me build on another great piece about the evils of bureaucracy co-authored by Gary Hamel and Michele Zanini, called “What we Learned About Bureaucracy from 7,000 HBR Readers.”

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Elements of the permissionless organization

Obviously, there is a need and essential role for leadership in any human social group – someone has to determine strategic priorities, figure out who is supposed to do what and provide guidance as to goals. What we suggest in our article, however, is that many of the bureaucratic tasks of reporting, giving assignments, collecting status updates and providing metrics are now able to be handled by technology with far more speed and accuracy than by using conventional management methods.

A ’permissionless’ organization, therefore, is one in which groups that have all the essential functional skills (engineering, marketing, design, and so on) are given a single objective to work on full-time for a short period of time.  It looks a lot like the realization of agile ways of working that we have been learning about for some time now.

Among its core attributes:

  • Agreement on key metrics; in particular, leading indicators of important outcomes.
  • Using digital technologies to bring operating information right to the front lines.
  • Communicating context using simple heuristics that allow everyone to align without the need for time-consuming meetings.
  • Switching to multi-functional, often asynchronous, teamwork.
  • Identifying and promote leaders who are motivated by team accomplishment, not by political or power goals.

So why do we believe that eventually this way of working will make traditional bureaucracies obsolete?  Let’s lean into Hamel and Zanini’s research to sketch out the answer.  They received responses from over 7,000 readers of the Harvard Business Review who filled out their Bureaucracy Mass Index diagnostic (try it – it’s free and fun!).

Bureaucratic pain is felt most deeply at the ‘edges’

One striking finding from the research is that “individuals working in customer service, sales, production, logistics and R&D were more likely to feel that bureaucracy was growing than those working in functions like HR, finance, planning, purchasing and administration.  In other words, the individuals who feel most hamstrung by bureaucracy are the ones most directly involved in creating customer value.”

Recent research by Tiffani Bova of Salesforce finds that firms in which employees have poor experiences are likely to be foregoing significant value and potential revenue growth.  So it stands to reason that bureaucratic processes undermine the ability of an organization to please customers, eventually undermining their competitive advantages.

I’ve also pointed out that many of the so-called clever automated systems for customer service are actually creating the conditions for enraging customers.

More than three quarters of respondents also said that front-line employees were either ‘never’ or only ‘occasionally’ involved in the design and development of major change initiatives or programs.  If you’re not involved, it’s hard to be enthusiastic, a major predictor of failure for organizational change.  I’ve said elsewhere, if you want to keep on top of the pulse of what’s going on, you need to build robust flows of information to the edges and back again.

Bureaucracy sucks up time with no corresponding creation of value

The survey respondents reported spending an astonishing average of 28% of their time – more than a whole day each week – on feeding the bureaucratic beast.  Preparing reports, attending meetings, dealing with internal requests, getting approvals and working through staff function requirements all consumed time that could be much better spent with a different organizational design.

In the permissionless structures we highlight in our article, most of these activities are kept to a bare minimum and are mostly handled either by making sure all the people with necessary skills are working on intact teams devoted to a single objective at any given time and by moving the controls and cross-checks to technology platforms.

Bureaucracy slows things down

Two thirds of the survey respondents – and more than 80% in the largest companies – reported that bureaucracy slows down decision making.  Getting approval for an unbudgeted expense, for instance, could take as long as 20 days or more.

In permissionless structures, budgeting cycles are short and flexible. For more on how this can work, please see Bjarte Bogsnes’ excellent work on “beyond budgeting.”

Bureaucracy increases the return on politics

This one was a shocker.  Survey respondents said they spent fully 42% of their time on internal issues, such as resolving disputes, competing for resources, HR issues, negotiating targets and other internally-focused issues.  Even worse, the proportion grows with the seniority of the survey respondent.  The unfortunate implication is that those who need to be most externally focused to pick up weak signals, understand markets and spend time with customers are the least free to do so!

70% of big-company respondents to the survey indicate that political behaviors (such as blame-shifting, resource hoarding and turf battles) are “often” observed.  64% said that political skills often or almost always influence who gets ahead, with that number going to 76% for the larger organization.

As Safi Bahcall has pointed out, when the return on politics exceeds the return on innovation, that’s a competitive drag on performance.

Bureaucracy stifles experimentation and innovation

One common trait shared by innovative companies – 3M, Lego, Adobe, Spotify and many others – is that experimentation by people at the front lines is encouraged, made easy and is modestly resourced.  The survey respondents report a completely different reality.  80% reported that new ideas were likely to encounter indifference, skepticism or outright resistance.  Even worse, 96% of people working in companies with more than 1,000 employees said it was ‘not easy’ or ‘very difficult’ for a front-line employee to launch a new initiative.

Going permissionless and eliminating bureaucracy requires a new leadership model

As we describe in our article, the organizations that successfully made this transition are conscious that leaders who got ahead in the old hierarchical systems are unlikely to be thrilled to give up the power and perks that often came with having a high-status role.  At Fidelity Private Investments, one of the case studies we use, the attention to a new kind of leader was taken so seriously that only people who could demonstrate that they were people-maximizers were considered for leadership positions. Others had to find new organizational homes elsewhere.

One of the more interesting findings from the research is that both front-line staff and senior executives don’t doubt that their operating staff are capable of managing themselves.  Only 26% of the CEO’s and 36% of front-line employees felt that a lack of information or competence was a barrier to devolution of authority and responsibility.

Hamel and Zanini end their article with the hope that we will eventually figure out the processes necessary to dismantling bureaucracy.

Our piece offers specific examples of firms that have figured this out.  Beware to those who haven’t.