The other day I came across a 2018 Harvard Business Review (HBR) article, written by Gary Hamel and Michele Zanini, called ‘The End of Bureaucracy’. Given my interest in organization design and adamant belief that it is time for a new model, I was excited to give it a read.
No surprise the authors make it clear that bureaucracy is not just alive – but thriving. They reveal that “since 1983 the number of managers, supervisors, and administrators in the U.S. workforce has grown by more than 100%, while the number of people in all other occupations has increased by just 44%”. They add, “with its clear lines of authority, specialized units, and standardized tasks, bureaucracy facilitates efficiency at scale”.
But today, the authors argue “employees are skilled, not illiterate; competitive advantage comes from innovation, not sheer size; communication is instantaneous, not tortuous; and the pace of change is hypersonic, not glacial.” It’s time for a change. Or as I often say, to #ReThinkOrgs.
Unfortunately, their solution – and example – falls short. But oh so close. Let me explain.
As an example, the authors use Haier, which at the time of the article, is the world’s largest appliance maker with 75,000 employees globally and revenue of US$35 billion. According to Hamel and Zanini, over the past decade, Haier’s gross profits and revenue have grown 23% and 18% per year respectively. Clearly, whatever they are doing differently is working.
Instead of one large top-down controlled organization, Haier uses smaller micro-enterprises (ME). Which makes sense, as we know smaller size is a key design element of team- and learning- based organizations. Smaller organizations by nature tend to be more responsive and adaptive. Haier has also introduced a higher degree of choice or decision-making autonomy which is another key design element. As the authors put it, “every ME is free to buy services, or not, from other ME’s”. Competitive forces within the larger organization keeps results at the forefront. Next, smaller units work together because they are linked within platforms by a larger purpose (again, another design element) focussed on the end customer.
Finally, Haier addresses one key design element most organizations ignore – compensation/rewards. At Haier, MEs have “the right to set pay rates and distribute bonuses”. Because as the authors note, when choice (or autonomy) is combined with compensation (or gainsharing) amazing things happen. As proof, they cite a U.S. National Bureau of Economic Research study that found companies that offered both gainsharing and autonomy had half the voluntary turnover of companies offering just one or neither. Haier uses a powerful combination of bonuses, dividends and profit sharing that along with the autonomy creates a VERY unique organizational model.
But it’s still a bureaucracy! As I always say, “don’t confuse participative management with team work” or in other words, a truly unique, fully collaborative organization.
It’s clear Haier employees have a VERY high degree of autonomy. But not 100% full autonomy. And as employees, they share in a VERY high percentage of the organization’s success. But they aren’t owners – they don’t share 100% of the profits.
So yes, Haier’s approach represents progress. They have moved to the edge of what is possible within the bureaucratic model. And have seen remarkable results. Just imagine what awaits those ready to move completely into the realm of 100% autonomy – 100% ownership.
And with that shift – to organizations based on the collaborative, not control state – we will see the true end of bureaucracy.