London Business School’s Gary Hamel on Why Bureaucracy Needs to Die in Business — And How to Kill It

Mary Ellen SlayterLeadership2018 05 15
London Business School’s Gary Hamel on Why Bureaucracy Needs to Die in Business — And How to Kill It
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In a world of accelerating change where knowledge is a commodity and innovation is essential to survival, businesses need to be flatter and more nimble than ever to succeed. Instead, the opposite is happening as organizations are increasingly relying on centuries-old bureaucratic structures, argues London Business School professor Gary Hamel.

Hamel, who is one of the world’s most influential business thinkers and who has worked with leading companies across the globe, will share his insights into why and how large, established organizations can unleash latent entrepreneurial energy during his keynote address at UNLEASH America in Las Vegas. The director of Management Innovation eXchange contends that while research shows entrepreneurship flourishes in organizations that are bold, simple, flat and open, organizations of all sizes remain reluctant to adopt these structures.

Hamel took time out to speak with us about the inertia of bureaucracy, how some innovative organizations are proving these outmoded structures are unnecessary and how to create organizations as amazing as the people inside them.

What will you be talking about in Las Vegas?

Many years ago I wrote a piece called “The Core Competence of the Corporation,” and I think if I was rewriting that article today I would call it “The Core Incompetence of the Corporation,” because when you look around the world of organizations — public, private, large, small — most have a set of common disabilities. Most struggle to change as fast as the world around them, most have a hard time bringing game-changing innovation to the market, and many organizations really fail to get the best out of the people who work there. There’s an enormous wealth of empirical data that backs that all up. Perhaps there was a time when that didn’t matter, but that time is long past. Today we are facing a world of head-snapping change where organizations that lag behind stay permanently behind.

We know that innovation is becoming if not the most critical advantage, certainly one of the top advantages for any organization. It’s the only way to stay relevant, it’s the only guarantee of long-term customer loyalty and it’s the only way to avoid the curse of commoditization. And then we also understand that to build an adaptable and innovative company, you have to have people who are filled with passion, who come to work every day believing that this is a place where they get to make a difference in the world.

My talk is going to focus on how do we overcome those disabilities. I have worked with dozens, maybe hundreds of organizations now, and more or less they all suffer from those same challenges. You realize it doesn’t really have anything to do with a particular organization. There’s something deeper — there’s something more fundamental that’s impairing our organizations.

What is driving this? Is it a cultural problem or something that’s a structural component of capitalism?

I think the causes are several and they’re very complicated. The first thing is that bureaucracy is the most ubiquitous social technology in the world. Facebook may have 2 billion users, but there are more people who work in bureaucratic organizations than that. Whether it’s the Chinese prison system, whether it’s Britain’s National Health Service, whether it’s Boeing, whether it’s Facebook, all of these organizations are still bureaucratic at their core.

Number 2, it’s quite well-defended. When you say to leaders “we need to fundamentally increase the autonomy of front-line employees,” their heads explode. They literally don’t know how in the world they get control and discipline, alignment and conformance if people have more freedom. We’re familiar with it, and we can scarcely imagine an alternative. People who have power are very good at getting more power. No CEO is ever going to say “I want more bureaucracies,” but I’ve hardly ever heard a CEO say “we’re going to kill it” either.

What are the solutions?

We have to find an alternative to bureaucracy. The fact is that many organizations have tried — they’ve taken out a layer here or there or they’ve tried to simplify some of their processes. Nevertheless, 99 percent of organizations around the world still adhere very closely to the bureaucratic template: power trickles down, big leaders appoint little leaders, resource allocation decisions are made at the top, managers assign tasks and dole out rewards, people compete for the scarce reward of promotion. Whatever we’ve done, in most cases, we really haven’t changed the fundamental nature of our organizations.

People have been hoping that we could defeat bureaucracy for a long time. Thirty years ago Peter Drucker said that in the next 20 years most organizations would need to have half the layers and half the number of bureaucrats — and that simply hasn’t happened. In fact, I’ll share data from our research that says across the board, bureaucracy is increasing, not decreasing. It seems like managers are fans of everything lean except lean management. The challenge then is “alright, how do we change this situation?” I’m going to focus on four keys to doing that.

Can you give us an example of a company that’s implementing this approach?

There’s a plant in General Electric in Durham, North Carolina, that assembles the most complex jet engines in the world. It has about 400 employees, and obviously this is very critical work with all kinds of safety implications. In this plant with 400 employees few of them would have a college education, although virtually all of them have technical qualifications — they’re all certified airframe and power mechanics. They have in that plant a single plant manager, so the plant is run on a 1-to-400 span of control, while the average span of control in U.S. organizations is 1 to 7. So if you tell a leader that it’s possible to run an organization doing very complex and difficult things with a 1-to-400 span of control they think you’re an idiot. But it is possible. You find that this plant is organized into small teams and they behave like general managers. Most of the work of managing the planning, the resourcing, the discipline, the HR issues, all of those things have been distributed out to the edges of the organization.

I’ll give you another great example. The most complex thing that human beings have ever built is the Atlas detector at the Large Hadron Collider in Switzerland. This is a device with more than 10 million components that is designed to detect the conditions in the first few milliseconds after the Big Bang. It is enormously complex, with tens of thousands of subsystems and decisions that had to be made at every step around trade-offs between competing engineering goals. It was built with a community of about 1,800 scientists and academics without any management superstructure at all — no management hierarchy, nobody in the whole process had a veto, nobody had the final say or the final sign off — and yet they found a way of working collegially. When they had big disputes they’d have red team/blue team competitions where people would present the alternate points of view to their peers and the peers would make a decision. The project came in on time and on budget. If we’re able to build the most complicated thing we’ve ever built and do it in a way that is nonhierarchical and nonbureaucracy, there are just no more excuses.

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