With talk of a second wave of Coronavirus sweeping across the country, most of the conversations I am having with the business community are about how they can reduce their overheads. So today I am going to talk about the cost of bureaucracy. It’s a significant cost.
According to a research paper** written 4 years ago “busting bureaucracy would add $3 trillion to economic growth in the US alone.”
What is Bureaucracy?
So, what is Bureaucracy and how does it manifest itself in your business?
Let’s start with the definition from the Oxford English dictionary which defines bureaucracy as “excessively complicated administrative procedure”
You’d expect it to be limited to large corporations but start-ups should also beware because as you scale up you will gradually layer bureaucracy into every day life.
From my experience I see it take 2 forms
- Low level value management processes
- Organisational structure.
Low level value management processes
If you don’t know what I mean by that let me give you some examples
- 8 signatures required to sign off a purchase order which slows down the purchase and sits in people’s inboxes waiting for action
- An excessive number of pages in a contract, which takes a long time to be written and a long time for each relevant party to read
- Drag within the process where process, procedures, policies and rules slow the flow of work down
- Internal process – too much time spent on internal issues such a levelling of people’s performance scores, preparing endless re iterations of budget submissions
You get the picture? These are the easiest things to fix.
This is so much more complicated because it requires a bigger culture change, which I’ll go into in more detail later but first let’s look at some examples.
- Stove piped organisations where communication and collaboration become stymied.
- Spans and layers in an organization where businesses are often top heavy in management roles and there are too many layers between CEO and team member
- Too many people have been employed due to excessive tasks and rules in place
- Fat in the organization with too many back office or administration people such as support teams, HR, Finance etc.
- Lack of autonomy – people not able or empowered to make decisions that benefit the customer and the business
- Risk aversion – scared to take risks, usually for career reasons.
- Barriers to change where managers are hanging on to their teams and reluctant to change
- Politics – infighting, battling for power and influence
Ringing any bells?
So why does it happen?
Created in the belief It protects the company or makes it more efficient
Often bureaucracy comes about when people in the business genuinely want to increase efficiency and reduce waste within the business.
If we take the example of the exceedingly lengthy contract, the person that wrote it didn’t want the company to be liable for anything. It’s the same for processes, procedures and policies which are put in place for seemingly logical reasons, but are not balanced with the potential operational difficulty and increased cost that they may incur.
Created as companies grow
As a start up, or any other business grows, new functions are added to deal with new scenarios. The ratio of managers to team members goes up. Back office, offline and centralized functions are developed and grown.
The centralized functions provide internal services to market facing operational units which dictate policy and can have customer unfriendly processes. How many of you who are customer facing and are reading this find that dealing with Finance, HR or IT is a barrier to getting things done?
Created by employees to protect their interests
As a transformation expert I tell employers and clients that I should save them more than I cost and that, if I do my job right, I should do myself out of a job. But how many of your direct reports come to you and say ”I reckon I could reduce the size of my team/organisation by 40%?”
It just wouldn’t happen would it? If anything, they will build their role and organisation and request more people not less, and this is because Managers see a large team or organisation as a representation of the value they have within the company. Would they still get a seat at the table with a smaller organisation or would you merge it with another team and lose them? It’s a risk and one they may not be willing to take.
What are the risks and consequences of bureaucracy on the business?
Complexity increases and costs go up
Eventually the number of employees that have a direct customer facing role with actual impact on the bottom line is overtaken by the number of centralized functions that are there to supposedly make sure the business runs smoothly.
More layers are built between the CEO and the frontline staff which means the senior managers become isolated and lose touch, not only with their customers but with real life on the shop floor.
As the company grows so does the need for more meetings, more reports, more performance management, all to ensure that the operation runs smoothly.
People become disempowered
Frontline employees aren’t able to make decisions that are right for the business because there is friction within the process, and time is taken trying to overcome the company’s policies and barriers to getting things done.
They feel disempowered and leave the company which drives even more cost into your business as time spent training is wasted and time spent recruiting is incurred.
One example I saw recently was the customer care agents who were not allowed to refund customers £1.50 because the company was worried it would be open to abuse with agents refunding their friends and family. The current process meant they had to raise an offline activity where another agent raises the refund and, another agent checks the raising of the refund.
Now factor in customer dissatisfaction where the customer is owed money and has to wait days for it to be authorized and there you have the perfect example of bureaucracy, slowing the company processes, costing time and money, disempowering the employee and dissatisfying the customer.
A simple fix of measuring the number and value of refunds that agents give means the process can be monitored and anomalies investigated. The agent is empowered to solve the customers problem there and then in minutes rather than it take 3 agents a matter of hours and sometimes days, depending on queue volumes.
You can’t assess an individual’s actual contribution
With more layers and more specialized functions, it becomes more difficult to accurately assess individual contribution. Rather than being accountable for a P&L, employees are accountable for a variety of measures that relate to their individual contribution or to their function eg getting x number of reports completed on a weekly basis. They are then paid their bonuses on these individual contributions even though they are not directly impacting the bottom line.
Because it’s not evident what an individual or a team or a function does then its hard to demonstrate their value when it comes to performance management. How do their weekly, monthly and quarterly goals and objectives impact on the bottom line. What would happen if they stopped doing their job from tomorrow? Would you notice?
It takes longer and longer to make a decision
The decision making process isn’t agile. Because people aren’t empowered more meetings have to held and there is a bottleneck when the decision maker is higher up in the organization and it unavailable.
People who have different agendas will influence decisions in one way and others will have a different view. Equipping employees with the right skills so you can devolve decision making to lower levels will remove some of the drag in your current decision making processes
So knowing bureaucracy costs the US$3 trillion, it’s probably safe to assume there are some cost reduction opportunities with your own business so what next?
What action can you take?
Before you leap into action you need to consider the following
Removing bureaucracy is no mean feat. Not so much for removing bureaucracy within the processes, but it takes a huge paradigm shift to make any change within the organisational structure and It takes some significant incremental steps to get there.
So if you need to decide on taking this action is then here are the next steps.
1. Put measures in place and gather data
The extent of the problem needs to be visible so don’t do anything without taking this step first. Without gathering data and agreeing a baseline you won’t know the improvement you have made.
Some things will be hard to measure, such as the percentage of employees involved in key decisions. If you don’t have the data then don’t spend too much time on it. Guess. If it’s 1% that should be enough to raise a red flag, and similarly if HR make up 20% of your organization then that should be a red flag too.
Measures could include:
- How many departments or organizations are there within the business?
- Within each department or organization how many layers of management are there?
- How many direct reports does each manager have?
- Employees who are not directly customer facing shown as a volume and percentage of the overall headcount
- Employees who do not directly contribute to the bottom line shown as a volume and percentage of the overall headcount
- Percentage of employee time spent on internal compliance activities rather that growing the company
- Percentage of employees who are involved in key decisions
- Percentage of employees who get to see the financial data/performance for their unit
- Percentage of manager who only “manage”
2. Decide on some over arching principles
This huge cultural shift which will need a roadmap to get them from point A to point B. Empowering, upskilling and cross skilling employees in order to remove layers and spans of management will not happen overnight so going all in and ripping off the band aid can only lead to disaster. First you will need an over arching set of principles to help you understand what the roadmap needs to look like.
Also consider Kotter’s 8 step model of change
- Create a sense of urgency
- Form a powerful coalition
- Create a vision for change
- Communicate the vision
- Remove obstacles
- Create short term wins
- Build on the change
- Anchor the changes in corporate culture
The aim should be to evolve the organisation with a clear objective and a view of what good looks like in the end. This gradual evolution will overcome the fear
3. Align the objectives and the organisation
- Write a clear statement of what your business does. What is the objective?
- View the organization. Are all of the business units aligned to the objective. How do they contribute to the overall objective? Are they even aware of the objective, of what the organization is trying to achieve?
- internal functions objectives and compensation and rewards package is tied to customer facing business units so if they fail then they all fail. Bonuses are not paid on the individual operating objectives but on the business as a whole. After all it’s a bonus and is based on the company succeeding. I have seen Customer facing teams fail to get a bonus but the IT does because they delivered their requirements on time this way every business unit within a company is invested in ensuring the customer facing units succeed and encourages people to quickly come together to resolve the problem
4. Simplify the processes
- Identify any unnecessary processes, that cause friction, that slow things down. Consider processes that that don’t actually deliver anything.
- Ask your employees for ideas. What are their barriers.
- Maybe conduct a hackathon
5. Empower your employees
- Think about the example I gave earlier around refunds for small amounts needing multiple sign offs. What processes do you have where employees might feel like they are not trusted or constrained?
- Remove as many micro management activities as possible. If you are a company who allowed homeworking during the lockdown then consider how people responded. Did you lose productivity or was it quite the opposite? If employees can work without being micro managed then does that remove the need for managers?
6. Open up communications
- Bureaucracy often leads to a siloed workforce where one team doesn’t talk to another. This can lead to a form of politics where one team blames another and a “them and us” “situation comes about. This can be quite destructive in an organization.
- Consider building your organization by project/product than by function. This allows a whole business unit to work together as a team and allows cross skilling and up skilling.
7. Consider creating internal consultancies
Finance, HR, IT, legal and reg are all non customer facing business units that are there to support the main operation. However, they can sometimes be a barrier to getting things done.
They can’t be “fired” by the operating units they serve and appear untouchable.
In some companies, that are breaking away from bureaucracy, they are implementing a new business structure model where the centralized functions are re-inventing themselves as small consulting firms that can be used by the operating units…..or not. In this model the operating units can go outside of the business if they feel they would be better served, but whether they use the internal or external consultants they have budget to pay for either. The internal HR team will bid against an external service and it keeps them customer focused.
8. Better collaboration
In startups it’s much more of an all hands on deck approach where people of all skills sets and functions come together to thrash things out and resolve problems. The employees often have a financial stake in the company and there is high level of autonomy.
But as a company grows, and operating units become more siloed, that co operation becomes more difficult to organize and usually stops happening entirely. Think about how you can collaborate across functions. Make the employees feel like owners as studies show that when employees have autonomy and are offered gain share they are less likely to churn
What does good look like
Small, autonomous teams that are empowered to make key operational decisions, including hiring, staffing, pricing, and equipment purchases.
- Compensation models that tightly link pay and profitability and encourage employees to think like business owners.
- Support services that are provided to operating units at cost (or are optional).
- A strong sense of competition and collaboration between operating units.
- Significant and on-going investment in the financial, commercial and technical skills of front line employees.
- A high degree of transparency around financial and operational information.
- Deeply shared norms and a strong sense of mutual responsibility for unit and enterprise success.
- Multiple channels for lateral communication and a reliance on ad hoc teams to address coordination issues.
- Radically simplified planning and budgeting processes which don’t rely on topdown targets or operate on a fixed calendar
Post bureaucratic organisations have reduced their costs and improved their efficiency so it does surprise me that more research and analysis isn’t taking place on new models of organization and business management.
It must feel like a big risk to take away certain safety nets and dismantle entrenched views that certain functions, organisational hierarchies, and bureaucratic processes need to exist. Remember You don’t have to make the people redundant you can redeployment them onto revenue generating activity.
But imagine if your company was one of those that found significant benefits and was part of the $9 trillion global opportunity. Now wouldn’t that be something