In our previous post we argued that an excess of bureaucracy costs the U.S. economy more than $3 trillion in lost economic output, but defeating bureaucracy won’t be easy. Bureaucracy is familiar, entrenched and well-defended. The challenge for would-be bureaucracy fighters isn’t unlike that faced by campaigners who, in years past, set out to change deeply rooted social institutions such autocracy, racism and patriarchy.
Long-standing realities change only when the beliefs that underlie them change. As Thomas Paine put in Common Sense, a tract that proved pivotal to the American and French revolutions, “A long habit of not thinking a thing wrong gives it a superficial appearance of being right… .” Thus the first battle to be won is against indifference. In this regard, no argument has proved more irresistible than the one which asserts that every human being should be free to exercise and profit from their natural gifts, and that human-crafted impediments to that pursuit are unjust.
What’s the least efficient activity in your organization? What sort of work delivers the least value per dollar? We think it’s management and administration. The fault isn’t with any particular leader, but with the top-heavy, bureaucracy-infused management structures that predominate in most organizations. We believe that an excess of bureaucracy costs the U.S. economy more than $3 trillion in lost economic output, or about 17% of GDP. Here’s the data.
According to the U.S. Bureau of Labor Statistics, in 2014 there were 23.8 million managers, supervisors and administrators in the American workforce. (This figure does not include individuals in IT-related functions). That works out to one bureaucrat for every 4.7 employees. Overall, bureaucrats comprised 17.6% of the U.S. workforce and received nearly 30% of total compensation. (See Figure 1.)
Figure 1. Employment and compensation share of U.S. managers, supervisors and administrators.
The question is, how many of these 23.8 million overseers do we actually need? We can get an answer by looking at the management practices of a small but growing number of post-bureaucratic organizations. Their experience suggests it’s possible to run large, complex businesses with less than half the bureaucratic load found in...
Writing for Harvard Business Review in 1988, the renowned Peter Drucker predicted that in twenty years the average organization would have slashed the number of management layers by half and shrunk its managerial ranks by two-thirds. Yet despite the recent emergence of the “gig economy” and the “sharing economy,” there’s no evidence that bureaucracy is on the ropes—quite the opposite, in fact.
In 1993, 47% of U.S. private sector employees worked in organizations with more than 500 individuals on the payroll. Twenty years later, that number had grown to 51.6%. Large organizations, those with more than 5,000 employees, increased their employment share the most—from 29.4% to 33.4%.
Meanwhile, the percentage of Americans who are self-employed dropped to an all-time low. Today, of the roughly 120 million Americans working in the private sector, 62 million work in organizations that are big enough to have the trappings of bureaucracy. To this number we must add the 22 million souls who work in public sector organizations, where bureaucracy seems as inescapable and unremarkable as coffee-stained carpeting.
Within these organizations, the “bureaucratic class” has been growing, not shrinking. Between 1983 and 2014, the number of managers, supervisors and support staff employed...
Innovation starts with the heart—with a passion for improving the lives of those around you. When the iPad was introduced, Jony Ive, Apple’s head of design, talked about his passion for creating things that seemed “magical”—that were so far beyond what any customer might have imagined, they seemed like wizardry. You don’t achieve this by paying attention to customers, by putting them first, or even delighting them. You do it by setting out to amaze them—and it all begins with an attitude.
You have to be achingly eager to do whatever can be done, within the limits of physics and economics, to raise the quantum of human happiness in the world.
“Yes,” you say, “but in business, we have to be pragmatic. We have to focus on things that can actually be accomplished.” Fair enough, but often, we are blindly pragmatic. We are so conservative, so utilitarian, so process-focused, so data-driven, so obsessed with meager efficiencies, that we can scarcely dream of doing something “insanely great”—to borrow one of Steve Jobs’ favorite phrases.
Large organizations of all types suffer from an assortment of congenital disabilities that no amount of incremental therapy can cure. First, they are inertial. They are frequently caught out by the future and seldom change in the absence of a crisis. Deep change, when it happens, is belated and convulsive, and typically requires an overhaul of the leadership team. Absent the bloodshed, the dynamics of change in the world’s largest companies aren’t much different from what one sees in a poorly-governed, authoritarian regime—and for the same reason: there are few, if any, mechanisms that facilitate proactive bottom-up renewal.
Second, large organizations are incremental . Despite their resource advantages, incumbents are seldom the authors of game-changing innovation. It’s not that veteran CEOs discount the value of innovation; rather, they’ve inherited organizational structures and processes that are inherently toxic to break-out thinking and relentless experimentation. Strangely, most CEOs seem resigned to this fact, since few, if any, have tackled the challenge of innovation with the sort of zeal and persistence they’ve devoted to the pursuit operational efficiency. Their preferred strategy seems to be to acquire young companies that haven’t yet lost their own innovation mojo (but upon acquisition most likely will)....
We live in a world where never before has leadership been so necessary but where so often leaders seem to come up short. Our sense is that this is not really a problem of individuals; this is a problem of organizational structures—those traditional pyramidal structures that demand too much of too few and not enough of everyone else.
Watch Gary Hamel, co-founder of the Management Innovation eXchange (MIX), discuss how to make innovation an everyday, everywhere capability. In this video blog, Hamel lays out three critical questions you can use to test the depth of your organization’s innovation competence.
The following is an excerpt from Gary Hamel's forthcoming book, What Matters Now , to be published in December 2011 by Jossey-Bass Business.
In 1997 I bought an e-tablet from A.T. Cross, the pen company. Codeveloped with IBM, the CrossPad was hailed as a breakthrough product that would open up a whole new category--portable digital notepads. I'm a copious notetaker, so the idea of turning my scribblings into digital files was too good to ignore.
Truth is, I'm not so much an early adopter as an easy mark. Who was I to argue with "Ozzie" Osborne, head of IBM's Pen and Speech Business Systems business unit, when he declared that the CrossPad would "redefine how users perceive pen and paper?" Yet within a month, the CrossPad was sharing shelf space with all the other "revolutionary" products that had promised to change my life but somehow hadn't.
Over the years I've become a tad less susceptible to the utopian visions of technology's self-proclaimed prophets. Recently, for example, I walked out of a Sony store without a 3-D television. I've learned to my sorrow that a lot of geeky gadgeteers are hucksters...
The need to empower natural leaders isn’t an HR pipedream, it’s a competitive imperative. But before you can empower them, you have to find them.
In most companies, the formal hierarchy is a matter of public record—it’s easy to discover who’s in charge of what. By contrast, natural leaders don’t appear on any organization chart. To hunt them down, you need to know . . .
Whose advice is sought most often on any particular topic? Who responds most promptly to requests from peers? Whose responses are judged most helpful? Who is most likely to reach across organizational boundaries to aid a colleague? Whose opinions are most valued, internally and externally? Who gets the most kudos from customers? Who’s the most densely connected to other employees? Who’s generating the most buzz outside the company? Who consistently demonstrates real thought leadership? Who seems truly critical to key decisions?
A lot of the data you need to answer these questions is lurking in the weeds of your company’s email system, or can be found on the Web. Nevertheless, it will take some creative effort and software tweaks to ferret it out.
In a WSJ post I promised that I’d lay out a blueprint for building a company that’s as nimble as change itself—and I will, but first I’d like to share an anecdote about a simple experiment in workplace freedom.
In most organizations, the decision-making freedoms of frontline employees are highly circumscribed. Sales reps, call center staff, office managers, and assembly line workers are usually trussed up in tangle of top-down policies, “best practices,” and standard operating procedures. Yet it’s impossible to build a highly adaptable organization without first expanding the scope of employee freedom. To create an organization that’s adaptable and innovative, people need the freedom to challenge precedent, to “waste” time, to go outside of channels, to experiment, to take risks and to follow their passions.
Interestingly, humanity’s most adaptable social system—democracies and markets—are those that extend the greatest freedom to their constituents. In a democracy, you don’t need anyone’s permission to form a new political party, publish a politically charged article, or organize a “tea party.” And in open markets, individuals are free to buy and invest as they see fit. When compared to the typical corporate leviathan, these systems are remarkably under -managed....
Do you feel hamstrung by your company’s IT policies? Are the IT tools you have at home more up-to-date than ones you’re forced to use at work? Do you wish you had more control over your IT environment at work? If so, you’re not alone.
A while back in the Wall Street Journal, Nick Wingfield dared to question the totalitarian policies of the average corporate IT department–and boy-oh-boy does he make some good points.
How is it that employees can be trusted to take care of important customers, safeguard expensive equipment and stay within their budgets, but can’t be trusted to use the Web at work, choose their own IT tools, or download programs onto the workplace PCs? Do IT staffers really believe that conscientious, committed employees turn into crazed, malicious hackers when you give them a bit of freedom over their IT environment? Or are the nerds in IT all secret control freaks—the sort of folks who alphabetize their DVD collections and have separate drawers for different-colored socks and put on protective clothing before pounding a nail? Either way, if they had the budget, they’d probably hire hall monitors.
I’ll bet you know a natural leader. Maybe you are one.
Maybe you’re a mom who started a support group for the parents of children with special needs.
Maybe you’re a concerned citizen who mobilized a group of preservation-minded neighbors to halt the destruction of a venerable old building.
Maybe you’re a churchgoer who convinced some of your fellow parishioners to help mentor at-risk kids.
Or maybe you simply organized your company’s first softball league.
In business, we talk a lot about leadership, and often take pains to differentiate between “leaders” and “managers.” Usually, this dichotomy hinges on the “vision thing.” Leaders imagine a future state and a chart a course to get there—they’re change agents. Managers simply preside over the status quo—they’re administrators.
While this distinction is useful, it doesn’t go far enough. Leaders in traditional organizations usually derive a large share of their power from their positions—that’s the case for CEOs, cabinet officers, and high school principals. In other settings, a leader’s power may reflect the freely given support of peers and followers—examples include Mother Teresa, Linux creator Linus Torvalds, and Wikipedia founder Jimmy Wales.
At one time or another, most of us have probably worked for a boss who was self-absorbed, vindictive, or just plain inept — a real-life equivalent to Dunder Mifflin’s Michael Scott. One of my first jobs was for an HR manager who thought the best way to humble a cocky new MBA was to have him spend hours sorting files into alphabetical order. Needless to say, he didn’t get the best out of me or anyone else that worked for him.
During the recession, companies around the world have cut costs in all the usual ways—by reducing headcount, slashing capital budgets, and trimming overheads. All these measures are vital. But in their quest to root out inefficiencies, companies should also be focusing on the hidden but substantial costs of supercilious and overbearing bosses.
A global survey of 90,000 employees by Towers Perrin , conducted in 2008, revealed that only 21% of employees are highly engaged in their work. The other 79% may be physically on the job, but they’ve left their enthusiasm and ingenuity at home. This is a scandalous waste of human capability. It’s also a virtually bottomless reservoir of creative potential that has yet to...
Most of the industrial pioneers who created “modern” management—individuals like Frederick Taylor, Frank Gilbreth, Henry Ford, Alfred Sloan, and Donaldson Brown—were born in the 19th century. These bold thinkers would no doubt be surprised to learn that their inventions, which included workflow optimization, variance analysis, capital budgeting, functional specialization, divisionalization, and project management, are still the cornerstones of large-scale management systems.
It is difficult for contemporary observers to appreciate the profound impact these revolutionary breakthroughs had on the organization of economic life in the early decades of America’s industrial revolution. In 1890, nine out of ten white males worked for themselves, and the ones who didn’t were referred to disparagingly as “wage slaves.” At the time, the average manufacturing company had four employees, and few factories had more than 100 laborers. Yet within a generation, Ford Motor Company would be making half a million cars a year, Sears, Roebuck & Company would be operating a continental-scale distribution system, and US Steel would be able to boast of a billion-dollar market value.
This transition from an agrarian and craft-based society to an industrial economy required an epical re-socialization of the work force. Unruly and independent-minded farmers, artisans and day...