It is not the first time that Gary Hamel has warned of organizations’ bureaucracy. Maybe the most alarming fact is that his research has detected a significant growth in the last decade: “The number of bureaucrats managing the U.S. economy has grown 114% while the rest of the categories have increased by less than 50%.” And even worse, “there is a correlation between this increase in bureaucracy and the constant decrease in productivity in the OECD countries. We are not facing a competitiveness problem between individuals or companies, but within the economy itself.”
As usual, Hamel provides solutions. Thanks to the Insight to Impact Adventure series – an initiative by Thinkers50 and Outthinker that provides global, collaborative learning through a combination of webinars with the brightest international thinkers and insight implementation led by coaches – Hamel shares the main ideas and recommendations from his latest book, Humanocracy, “a guide for creating organizations that are as wonderful as the people who make them up.”
We’re living in extraordinary times. The pandemic is testing our resilience like never before, large bureaucratic organizations are barely responsive, and solutions are emerging all over the world from networks of doctors, health workers, and caregivers. Everyone who thinks and works from a horizontal perspective is sharing information and data in real time, and is dedicated to improving protocols and developing solutions. But clearly, the pandemic is not the only challenge we are facing. Climate change, the impact of migrations, worker mobility, social and racial injustices, the problems that technology and robotics have generated by eliminating jobs, and current geopolitical conflicts are all occurring at the same time.
In this unprecedented age we need to be able to take advantage of all the ingenuity that humanity has, take advantage of the tremendous opportunities that will bring us innovative solutions such as IoT, 5G, AI or biotechnology, and above all, set loose each person’s capabilities. That’s reason enough to conclude that we need a revolution in management.
“In this unprecedented age, we need to take advantage of the ingenuity that humanity has, and unleash the capabilities of each individual.”
We commonly use the term “management” to refer to a group of individuals who manage others, but management is also a compendium of actions and performances that bring people together to do things that individually they would not be able to.
Today’s social capital needs to reinvent itself. Our potential as a species is limited by our ability to agree and coordinate to achieve results and collective success.
Let’s think about the enormous transformation experienced in the last decades in business models, not in organizational or management models. We have moved away from paying with checkbooks and turned to making trillions of digital transactions through Apple Pay and AliPay, from a very limited number of television channels to over 30 million channels on YouTube… We are facing radical transformations and the question is: Can we imagine a similarly radical change in the way we manage organizations? In the way that organizations select their leaders? In how they hire people?
Most of us find it difficult to imagine these changes, but it is essential to think about clear arguments against the status quo of the management world. I am convinced that an extreme transformation is urgent.
According to Gallup, only 15% of workers are feeling committed to their work, 18% show total lack of interest in management or its responsibilities, and 60%, although physically present, are disengaged, not contributing with their abilities, ingenuity, passion, or courage. This data has not changed since 1980, regardless of what has been done. The striking thing is not merely that only 15% of people in the current workforce are truly committed to their work, but also the fact that 89% agree and are comfortable with the role they perform, however they indicate “how” they are managed as their main problem.
Just as striking is that we admit that 70% of work done needs little or no originality (data from the U.S. Bureau of Labor Statistics). This data says it all when it comes to our idea of using people as programmable resources. Although it is common to hear economists and politicians talk about jobs that require only minimal training, I am totally against that concept. There is no work that inherently requires low skills or qualifications. So-called low-skilled jobs are also categorizing the people who do them incorrectly. These jobs often don’t give people opportunities to grow their skills nor the value of their contribution.
“There is no job that inherently requires dropping qualities or qualifications, but there are plenty of jobs that do not provide people with opportunities to grow their skills.”
According to the study that we conducted together with Harvard Business Review within large organizations, 65% of employees perceive that the ideas they contribute are addressed with disinterest, even hostility; but perhaps the worst statistic is that 76% affirm that politics and bureaucracy in their organization are both very relevant when it comes to internal promotions and raises.
Our corporations are based on a bureaucratic model where you play a multiplayer game; you must learn how to play it if you want to move up. Those who have learned to accumulate resources, reject blame, and “massage” data in their favor – the rules of the game – will rise, although they will not increase the value of their contribution. That is why, in many organizations, bureaucratized teams have more influence than the real competition when it comes to moving forward.
In our book Humanocracy, Michele Zanini and I provided concrete facts that confirm that while people are brave, creative, and resilient, most organizations are reluctant to make profound changes, they are incapable of managing radical innovations that transform industries.
“While people are brave, creative and resilient, some corporations are reluctant to manage radical innovations that could transform different industries.”
In the end, bureaucracy is a mixture of two concepts: hierarchical militaristic structures that make up the command-control and scientific principles of management. While both ideas are powerful, and not wrong, they are limiting the progress of organizations.
Structures where the power is trickling down are represented with pyramidal images that distinguish between managers at the top and workers at the bottom – the “smart” and the submissive. Such a model is an incredible waste of human capacity and is an obstacle for change. In these organizations, a problem must pierce through many hierarchical layers to reach the attention of the vertex, and by then the reaction is already too late.
As a sample of such hierarchical and pyramidal thinking, here are some quotes.
A.G. Lafley, CEO for two periods at Procter & Gamble, stated: “There are opportunities that only a CEO can see, and decisions that only a CEO can make.” The reality is that the CEO rarely is better positioned than the people around him, because they are usually isolated by layers of management and spend too much time on internal affairs.
Another example is from Dominic Barton, former global managing director of McKinsey. “The CEO, CFO, and CHRO, they must look to the future with a global vision creating the organization’s path, while the rest of the staff should be dedicated exclusively to operations.” An organization with only three people looking at the future will find little future. Barton is an example of the arrogance in our companies … the opposite of Kevin Nolan, CEO of GE Appliances, or Jos de Blok, founder and CEO of Buurtzorg.
We could say that the ideology of the bureaucracy is control, but like all ideologies today, it is about to lose common sense. Obviously, an organization needs some level of control, but when control is a mere solution for the anxiety of its leaders caused by the complexity of the world, or when it is just an impulsive wield of power over people, the result is an ideology that prevents the creative genius from being released.
More than a century ago, a German sociologist, Max Weber, said that “bureaucracy is successful if it is dehumanized.” In other words, bureaucracy has very little room for art, love, creativity, curiosity, and all those characteristics that make us human and that, interestingly, are the ones that generate value today.
Bureaucracy is a 19th century technology. During the beginning of management in different industries, most of the employees were illiterate and administrative skills were not very common. Being a manager in 1890 was the equivalent of being a data scientist or geneticist today.
Thus, the biggest advantage was scaling by volume. Collecting and distributing information was expensive, and the hierarchy was the tool used to process it, elevating it to the upper vertex by a single manager that, previously, had consolidated employee contributions.
Today, information is easily distributed. Anyone can have a global vision of the business and practically all employees have a good education and training, but even so, the bureaucratic model persists. Worse yet, it has grown in the last decade.
Having mapped corporations, we have proved that in the last 35 years the number of bureaucrats managing, supervising, and administering the US economy has grown 114%, while the rest of the categories have grown by less than 50%.
Furthermore, our economies become bureaucratized by the self-preservation characteristics of the bureaucracy itself, not governmental regulations. Each time a company faces a problem, it names someone: A Chief Experience Officer, with a new team at their expense. New jobs like Chief Transformation Officer, Chief Digital Officer, Chief Customer Officer, Chief Compliance Officer, Chief Diversity Officer… carry new teams and justify more regulations, more rules, more instructions… by creating more layers and reducing employee autonomy.
The correlation between the increase in bureaucracy and the decline of productivity in OECD countries is evident, and has serious consequences on the increase of the ordinary employee’s income. The fall of productivity generates greater inequality and does not allow for responding to the pressures of populism. We are not facing a competitiveness problem between individuals or companies, but a problem of the economy as a unified whole.
According to the study carried out in 28 countries by Edelman, 56% of the population think that capitalism is no longer at the service of “normal” people. Instead, investors, CEOs, and billionaires have had magnificent results, compared to ordinary employees that do not experience a correlative improvement and who do not find the dignity and the opportunity they seek in their work.
Faced with such a context: Can we dismantle the bureaucracy? Can we change the social technology we use to manage the world’s organizations?
My answer is yes; we can disrupt it, and to do it, there are the 4 M’s: motivation, mentality, models, and migration.
One of the obstacles in reaching the conclusion of what imperative it takes to end the bureaucratic model is the invisibility of most of the costs it has within the organization. The costs of bureaucracy are not reflected in any income report or expenses. Obviously, increases in expenses will be perceived by staff, but there are other realities – apathy, isolation, domestic politics, conservatism… – that represent very real costs and that are very difficult to detect.
We tend to pay attention to and follow up on the measurable. A decade ago, few companies measured their environmental impact, collected data on the diversity of its workers… Today, it is practically habitual. The same should happen with the costs generated by bureaucracy. That’s why Michele Zanini and I created the BMI: Bureaucratic Mass Index, which allows us to start outlining the level of slowdown and the burden of bureaucracy in organizations. It is a free, downloadable tool at Humanocracy.com/bmi. It is a starting point, but investors and shareholders, among others, ought to ensure that CEOs work on reducing this index.
“The BMI, Bureaucratic Mass Index, lets you begin to outline the level of slowdown and the burden of bureaucracy in the organization”
If we pay attention to the motivation that has gone into transforming pre-existing realities: substitution of the aristocracy by democratic forms of government, the elimination of slavery, the fading of the patriarchies… we see that in all these cases, a utilitarian or economic argument is not important, but rather that every human being has the right to the opportunity to grow and fully utilize their own gifts, and it is from this perspective that we must start.
Although it is a concept linked to motivation, it requires a somewhat more complex process to act out. In every historical moment, there has usually been a structure of dominant knowledge, which has begun with a paradigm at the top and with concepts and fundamental beliefs underneath.
For example: What are the organizations’ purposes? What do they bring to the business world?
What is the role of people within them? These points of view are part of what we will call mentality.
Under this initial paradigm, a series of problems are generated; once these problems are identified, they have to be evaluated to see which merit solving. If we were to say the problem to solve is self-governing, we arrive at concepts such as a judicially independent system, one vote per person, freedom of press and religion…
Once we have created relevant principles in relation to the problem we want to solve, we begin to rationalize these principles through internal processes within the organizations. For example, processes to allocate resources, to generate plans and strategies, etc. These processes condition behaviors daily, as they determine how performance is evaluated… And those practices, in return, motivate the result.
Therefore, we will have a series of paradigms-problems-principles-processes-practices and results that will define the mindset in the organization.
“Our companies today are not much more capable than four decades ago in dimensions like resilience, innovation, or value, although they can be more efficient and a little faster.”
Our corporations are not much more capable today than four decades ago, or at least not in dimensions like resilience, innovation, or value. They can be more efficient and somewhat faster, but not essentially more capable. I think it is because when we work to change an organization, we generally start with processes and practices, such as what they do, what their process for employee approval and development leadership is… We rarely work on paradigmatic visions or principles. If we continue working only at the practice and process levels, we will not change the old paradigms, we will not implement radical changes.
In recent years, there have been radical experiments, but they have been marginalized and bureaucratized. To break this circle, organizations must fight their most deeply rooted beliefs: Paradigms.
The relationship between human beings and organizations in the bureaucratic model is that the institution hires to produce income, products, or services. The cause of why 85% of people do not identify with their work nor commit to it is because the individual is considered a servant, a human resource; workers are also aware that the organization considers them a mere instrument.
If an individual could leverage the corporation to, in addition to making a living, have an impact, their change would be tremendous. I remember the first time I met Zhang Ruimin, CEO of Haier. He had read my book The Future of Management, and he told me, “Gary, I like the vision you propose. Has someone done this before?”
I replied, “Not yet.”
“Then we’re going to jump in the pool and we’re going to do it. We want to give all employees the right to be their own CEO, because employees are not a means to achieve a goal”.
What Haier has done begins with that premise and the change has been radical and incredible.
As in the bureaucratic model where people are a production factor, the problem of compliance (conformity) underlies. How do we get people to do what they are told? To accept new standards and ways of working, in addition to managing customer requirements?
With vigilance and activities aimed at acquiescence, you get more control, but what about compliance? There are even banks that spend billions of dollars every year on compliance. From my perspective, it’s something unnecessary. The bank that has been most consistently profitable of the last decade has been Svenska Handelsbanken, which has no structure for compliance. In a bureaucracy, the problem lies in maximizing compliance; in a humanocracy, the solution is based on maximizing contribution. We will need control, but the goal is to make people willing to give their best every day. In the bureaucracy, the problem lies in maximizing compliance, whereas in the humanocracy, the solution is based on maximizing contribution.
After the paradigm shift comes the change in principles, because the old ones will not always be able to solve new problems. This does not mean all principles are bad, but that some no longer work.
For 20 years, our research has focused on the post-bureaucratic vanguards. After analyzing companies that are being managed with one or two layers of managers and incredibly capable teams on the front line, we have observed that they build their management with new principles. In Humanocracy we dedicate an extensive chapter to this, but I would like to highlight some of them here.
The main one is the sense of ownership. In these organizations, each employee feels like the CEO of the Company and has autonomy to make real business decisions; working on something that feels like their own, benefiting from a financial income and return plans. In this sense, these workers have become entrepreneurs.
The second principle of humanocracy is markets – the best way to allocate resources. With millions of investors moving money quickly and providing resources to new companies, markets are the best coordinating activities. In companies like Haier, there are thousands of independent micro-businesses that contract with each other, giving and receiving services internally in a dense social market, where coordination occurs under market mechanisms, and not through different layers of coordinators and managers.
In these corporations, the meritocracy dominates, because they know that the hierarchy has very little or no correlation with who really generates value. The formal hierarchy is established, in the best scenario, by administrative competence; at worse, it is a hierarchy of political capacities, without expertise, knowledge, or actual contribution.
Moving to organizations with multiple hierarchies we see how, naturally, influence correlates with what each person provides. It is created through real knowledge and added value.
The fourth principle is community. People work better when they feel part of a group. Small, close, and covering each other’s backs. High-trust environments are where decisions are made risky. According to Gallup, only 2 in 10 employees say they have a close friend at work—we need organizations that are communities.
Experimentation is critical. The companies that want to anticipate the future need to be laboratories. This is only achieved with the freedom to experiment with resources. They also must be open, restless, curious, able to learn from the outside and close agreements with third parties. Again, Haier is an example in this.
One last principle is paradox. In bureaucracies, we see paradoxes as scale and agility, discipline and freedom, efficiency and creativity. Improving in these areas means, firstly, being able to identify the balance between them. The front line should know how to combine the necessary information and knowledge to dynamically manage stressors in real time, giving the best aggregate results.
These principles of humanocracy must be deeply embedded in the DNA of every organization.
Originally published in Executive Excellence, Spanish Edition number 170 and translated from Spanish.
The Adventure “Humanocracy: How to Hack Management” has presentations by Gary Hamel, Helen Bevan, Jos de Blok, Bill Fischer, and Kevin Nolan. All presentations are available to watch on demand; register a ticket to the Humanocracy Adventure and get immediate access.
Thinkers50 is the world’s most reliable resource for identifying, ranking, and sharing the leading management ideas of our age.
The Outthinker Strategy Network helps strategists and their organizations step into the future and execute with clarity.