Breaking Down Bureaucracy and Building Up Workers

AI is transforming the world. And it starts with the right compute. ARM is the AI compute platform trusted by global leaders, proudly NASDAQ listed, Built for the future. Visit arm.com discover. Welcome to the hbr ideacast from harvard business review. I'm kurt nickish. Each year the survey firm Gallup asks employees about how they feel about their work. And last year in the United States, just one out of every three people surveyed reported they're engaged in their work. The other two said they're not, meaning they're psychologically unattached to their employer and company. And they put time into their work, but not passion or energy or they're even actively disengaged, meaning they're miserable and spread their unhappiness to others. It's a dismal ratio. Today's guests argue that a big reason for this widespread disengagement is the out of date structures that still dictate the doing of our jobs. Those entrenched systems that we've all come to know as bureaucracy. And they say as much as we love to loathe it, we haven't been able to shake it. They've been studying the ways in which bureaucracy continues to bog us down. And they've been working with large businesses that are successfully breaking through the layers of management to empower workers at scale. Gary Hamill is a visiting professor at London Business School. He co founded, along with Michaela Zanini, the Management Lab, a consulting firm. And they wrote the new book Humanocracy Creating Organizations as Amazing as the People Inside Them. Gary, thanks for being here.

It's a pleasure.

And Mikayla, thank you.

Thank you, Kurt.

Now, I think there are plenty of fans of the message that bureaucracies don't work well, but where do people still fail to understand the magnitude of that problem?

Yeah, Kurt, I think the challenge is that bureaucracy is so ubiquitous and we see it all around us, that in a sense it does become invisible. It's like fish and water. And yet virtually every organization on the planet is still built according to that 150 year old template, that mashup of military command structures and the principles of industrial engineering. So in virtually every organization, you see that power trickles down. Authority is a function of rank. Big leaders appoint little leaders, managers assign tasks and then assess your performance. People compete for the scarce resource of promotion and that creates a set of toxicities. It creates organizations that are inertial, that are incremental, that are insular. They're conservative and timid. And in a sense we kind of all know that, but I think historically it wasn't clear. Are there really alternatives or it's just the price we have to pay. Like smog in LA in the 1970s was the price you paid for, you know, being in LA with a car. You know, frankly, we've just all grown accustomed to it. Thomas Paine, the great political theorist that was at kind of the spark for the US and the French Revolution, said a long habit of not thinking anything wrong gives it a superficial appearance of being right. So I've just kind of grown inured to the reality of this. One of the things we do in the book is really lay out the costs.

Yeah.

Michele, how expensive is it?

Well, in the US we reckon it's about $3 trillion. And that's taking a conservative view of it. Just looking at the direct cost of the missed opportunities that bureaucracy creates. I mean, let me just. Writing in 1988, Peter Drucker in the pages of Harvard Business Review predicted that within 20 years, you know, the average organization would have slashed the number of management layers by half and shrunk its managerial ranks by by two thirds. And when we looked at the data, we noticed how unfortunately wrong that that prediction was. If you just look at the US economy and the number of people working in managerial and administrative positions, which is, you know, the core of the bureaucratic class, you see that over the last 30 or so years it has more than doubled, while the rest of people employed has gone up only by 40% or so. So managers and administrators have grown faster as a share of the total workforce than virtually any other category. And we think that that is largely unnecessary. We describe at length a number of companies that are able to be incredibly efficient and highly innovative with a fraction of the managers and administrators. What if you moved the people who are in managerial positions today and redeploy them to a more productive work?

It's interesting to hear this because you're looking to take some of the decision making and authority and strategic thinking that's in this layer and move it back down to a lot of the people, quote, unquote, doing the work. It's also interesting to hear this after, like all that we've heard about the war for talent, right, that, that you really have to get the best people to, to exceed. And you're essentially saying that the talent is there already. It's just that the way organizations are set up, they're not using it.

Yeah, I think that's true, Kurt. U.S. bureau of Labor Statistics calculates that 70% of all jobs in the U.S. economy require little or no originality. And that says about the people in those jobs and everything about the way we've constructed those jobs. So even today, the typical organization is still a kind of a caste system that distinguishes between thinkers and doers, between so called managers and employees, between the clever and the compliant. It's not an exaggeration, I don't think, to argue that most organizations waste more human capacity than they use. And bureaucracy is a product of its times. You know, it was invented, again, depending on where you count. It goes all the way back 3,000 years in some senses, if you take those hierarchical structures. But certainly bureaucracy as we know it today is about 150 years old. But it was built clearly to turn human beings into semi programmable robots. The goal was to take human beings and make them as reliable as the machines they served. And so you have to go back to the time, say, well, what was the reality then? Well, the average employee was very poorly educated, often illiterate. Information was very expensive and difficult to move. And the best way of doing that was have 10 people report to a manager. They'd consolidate that information, then that level of managers would consolidate and that would go up. So the hierarchy, the formal hierarchy, was basically an information processing tool. It was also a world in which change was, compared to today's standards, relatively gradual and in which scale was the primary advantage. So getting everybody to do exactly the right thing at the right moment and so on, that was what drove success. None of those things are true anymore. None of them. And yet we're still lumbered with an organizational reality that reflects the way the world worked 150 years ago.

Kurt, can I just build on that and just respond to your question about the war for talent, which in a way reflects a fairly elitist view of talent and skill. In the book we talk about the former managing director of a consulting firm saying that what really matters in a company in terms of value creation is a couple percentage of the people working there. You know, there's a generally accepted view that skill is basically determined by the academic credentials that you have. And we see that as a completely flawed picture. You know, that is not the reality. You know, take Nucor for instance. Most people at Nucor, Nucor is the largest steel maker in the United States and arguably the most innovative and profitable steel maker in the world. No one there, most people, anyway, vast majority of people do not have a college education. There are few if any MBAs anywhere across the company. Yet people working there have the skills. They have the autonomy and they have the incentives for solving problems every day and making big decisions. We've visited several plants at Nucor and you wouldn't believe the number of times we heard that the engineers who designed the equipment, these teammates, as they're called, these frontline employees, how many times they will be surprised that they could take a machine that, let's say was rated for 100 tons a day of production, and within six months, by tinkering, experimenting, trying new materials, try new approaches and so on, would get it to 150 tons. Which is very different from the typical organizational model which says, no, no, the genius is at HQ. The genius is with the MBAs, the genius is with the top scientists and we need to coddle them, give them all the money and the compensation and the incentives and the prestige, and everybody else is basically executing what they say.

You've just given us a glimpse of a more human centered company without these old power structures. And it's interesting that you, you mentioned a steel maker, right? Because I think a lot of people, if they just imagined a more human centered company, they might think of a startup or something out in Silicon Valley. What, what does an employee look like in a company that is human centered?

I think employees who feel like owners. So if you go inside of Nucor, if you go inside of hire, another company that we profile in the book hires the world's leading appliance maker, a company based in Qingdao, China. They also own GE appliances in North America. Haier divided an 80,000 person organization into 4,000 micro enterprises and in that process it eliminated 12,000 middle manager positions. Now, most of those people ended up joining these new micro enterprises, as I say, 4,000 of them. But if you go inside of those micro enterprises, if you go inside the frontline teams that you find at Nucor, what you discover there is people who think and act like owners. We might call them micropreneurs. So these are people that have first of all been deeply trained to understand the economics of the business. They can talk to you about the P and L, the balance sheet. They know what you know, they know exactly what drives customer satisfaction. So they've been given the training and the skills they need to act and think like business people. Number two, they have responsibility for meaningful business decisions. So, so, so at Nucor, for if a plant, for example, is struggling with demand, if you have a recession, every single employee in that plant feels accountable for going out and growing the demand, for finding new solutions, for going out and talking to customers, getting on airplanes and drumming up a New demand. That's, that's blue collar, frontline employees feel accountable for that as a business. The third thing is that, that there's a local P and L, so you're not being managed by some synthetic targets that have been set on high. You've divided the organization to small teams. They have a real P and L. These people think like business people and the goal is to build a successful business where you are.

This sounds very bottom up, but it's also clear from the way you've talked about it, the strategic decision that Haier made to basically give authority and financial incentives further down into the hierarchy. In that sense, it's clear that this is a top down decision to en the bottom up. Empowerment and growth.

There are lots of reasons why we're still stuck that these predictions from Drucker, War, Bennis and others haven't quite come to pass. And partly it's a power issue. It's hard if you have the power as the leader of a company to somehow give it up. We also don't really think about change and institutional change in, in a way that we think is, is helpful and productive. So we typically like to change organizations. And you know, I think the com again here, the conventional wisdom is that you change them from the top down and you change them through a reorg that specifies, you know, the from to and kind of cascades it down. And it's kind of a binary switch. You know, you go from old, old organization to new organization. And by the way, most of the time the change doesn't quite work very, very well. And so what we take pains doing in the book, showing how to think about change differently and changing a big complex institution in a way that doesn't necessarily require an enlightened CEO, although certainly that helps, instead relies on individuals, you know, wherever they sit, thinking differently about their role and what's possible. And then experiment running experiments locally and then scaling those up.

How, how does an individual go about doing that? Because I can imagine some listeners thinking right now, well, yeah, I agree with this, I want to do this, but if I say anything, my boss is just going to think I'm a whiny millennial.

Well, I think you have to start with new principles. It's not just like, let me do anything, but we argue that, you know, that that old bureaucratic model is based on a set of principles and they're deeply marbled into the systems and processes of organizations. I'll give you an example of a little experiment that came out of work that some of our Colleagues did this is in a large pharmaceutical company based in Europe. And it turned out that they wanted to build an organization with more trust. That was one of the key things. And they felt that their travel policies really worked against that, that if you wanted to travel, you had to get somebody's permission. There was long rules about who could travel and which class of airlines and where you could stay and so on. And so they ran a little experiment. They divided. They created two control groups and two treatment groups. Each group had 50 people, so a couple hundred people overall. And they said at the treatment groups for the next 90 days, you can travel anywhere you like, anytime you like. You don't have to ask permission, fly any airline, any class, and nobody's going to do like a big audit at the end. You have to bring back receipts. And yet when you do come back, we're going to put all of your receipts online so everybody can see where you went and how much you spent. But that's the only control. There's no policy here. Well, at the end of the experiment, they found out that in both of the treatment groups who'd kind of been set free, travel costs actually went down. Just that single change made a noticeable difference to overall employee engagement in the treatment groups. So that's a very simple experiment that you could run for 30 days or 90 days. You can do it without blowing anything up. You don't need a lot of permissions to do it. And yet most companies, while today they'll tell you they're trying to build an experimental culture around products and solutions and they want people to do rapid prototyping, fail, fast fail forward. That ethos does not extend to how we think about the management model. And so asking, giving every employee, in a sense permission, or just encouraging them to take the responsibility to say, gee, we need to be more open, we need to be more meritocratic, and so on. What do I do right now in my unit to try to see if there's another approach? Test it out, and then if it works, we'll try to scale it up.

And sometimes it was just one question at a time, too. I mean, you shared the story of a manager at Michelin, the French tire maker, who asked a team, what part of my job could you do tomorrow? And discovered that basically they didn't really know what he did, that he didn't even have a sense of the work that he was doing.

Yeah, it's a pretty amazing story. It comes from a plant in France. And so the way they resolved that is that he shadowed the production team he was supervising for a week, and then a group of three members of his team then shadowed him for a week. And it was through that kind of mutual discovery that they could understand at a granular level not only what they could each did, but then what aspects of the supervisor's role could be syndicated out to the team. And it does point to the fact that you really do need to get really specific at the level of tasks. You then need to experiment because there may be an opportunity for the team to do scheduling on their own. But can they really do it? And what is the best way to do that? So you need to have the ability to try different ways of making that, making that happen. That is outside of the prescribed kind of process. And then, you know, you do need this kind of lived experience for you to change your mindset. So there's, it's, you know, you can go to a workshop about how to let go and be a high EQ leader or what have you. That might be an inspiring session. But then if you don't practice what you learned in everyday interactions with your team, it's likely going to atrophy. You'll forget about it and go back to your old habits. And so this notion of changing personally alongside changing the institutional practices of the organization is very key. And often we either do one or the other. We do leadership development on the one hand, or we roll out new practices on the other. And that's why there's often a disconnect and things don't really advance as much as people might have hoped for.

It's really, I think, important to acknowledge that bureaucracy does not advance absent human intention. And that bureaucracy, as we describe it in the book, it's a massive multiplayer game, and it's played for the stakes of positional authority. And the way you get ahead in your career is climbing that ladder and getting a bigger title and the salary and the things that come with that. One of the most interesting pieces of data that came out of a big survey we did with Harvard Business review was that 76% of the respondents said that the primary way you get ahead in our organization is you become a better bureaucrat. You get better at that kind of bureaucratic infighting. And it's quite a challenging thing to go to somebody who's become a kind of level 10 player of that bureaucratic game and say, now we're going to change the game on you, so we have to be patient with people. Now the good news is, in our experience, people, even leaders who have a Lot of power. And you might expect them to be very reluctant to give it up. Their jobs get better as well when you make the shift. The Gallup data says that managers are even less engaged than their employees because they're getting it from both sides. Nobody wakes up in the morning saying, I really want to go out and be a micromanager today. Most of us are quite glad when our children grow up and start making wise decisions on their own. We do not want to be in that parental role forever. And yet our organizations infantilize employees and put managers in that position of kind of, you know, being the adult supervision that doesn't work for anybody. And so what was very interesting at Michelin, even though you might expect people to be quite reluctant to give away their authority when they had the time to do it, when it wasn't imposed on them, when they could figure that out with their teams, their jobs got better too. As supervisors, they weren't getting woken up at 3am on a shift like sorting out some HR problem. They could work on things that were more interesting to them. They could shift into a mentoring role, which was far more rewarding. So everybody's job gets better. But it does take a while to kind of rid yourself of those old habits. And we argue that you need to be actually quite intentional about that. And looking at, well, here's the sorts of behaviors that bureaucracy tends to produce. Where am I acting out of that old model? And can I ask my team to hold me accountable when they see me falling back into those old behaviors and mindsets? So nothing changes until we change ourselves.

You answered exactly the question I was going to ask. You know, the people high up in these organizations are probably the least likely to want change because of the behaviors they've learned to get to where they are. You've also showed that their jobs can get better if they do this. Is that the key thing is to show what's in it for them?

Yeah, I think it's certainly part of it, but I don't know that you can always wait for that epiphany to happen. I think it will happen. The work we've done in organizations to help them kind of hack management at scale has really been about using technology to do that. And typically, the way we'll do that is we'll have a little course, and every week people get introduced to a new principle, and we'll ask them, well, if we took this thing seriously, what changes? We did this in one, a large organization here in the United States, And I think 3,000 employees submitted more than 4,000 management hacks. And then there were 10,000 peer reviews to get the best of those to the surface. And then the best of those got turned into actual experiments. And so, you know, I don't think you want to wait until you build some kind of consensus among the top 20 or 30 or 50 people in an organization to do this. I think you put the challenge out there, you invite people to do it. And the leaders who embrace this, they're going to take the lead. They're going to be. And other people have the choice, like, you know, do I resist or do I follow? But ultimately, yeah, ultimately there has to be a sorting of people who are willing to think about how you accumulate and use power in new ways. Not all will make it, but you give everyone the chance to make it. But you don't necessarily wait for them all to raise their hand and say, yes, I'm ready to go on this journey before asking your organization, let's get started.

Yeah.

The power of the approach that Gary described is that it builds critical mass horizontally across the entire organization in a way that then cannot be simply ignored or shut down easily by skeptical executives. I mean, one of the most typical ways in which some of the most interesting experiments, management experiments in past decades were shut down was, you know, having the leadership change in one plant that was doing an interesting experiment in one part of the company. So those are kinds of experiments that are easy, easy to pull the plug on, right, because they just affect a few people in a particular part of the company, and they're highly dependent on the leadership support of one person. And so that if that person goes away, the experiment could be killed quite easily. If you are involving tens of thousands of people in diagnosing what's wrong with our particular organizational model with respect to challenges like innovation, customer centricity, or what have you. If you then engage people in generating solutions, hundreds or thousands of solutions around that particular set of problems, and then if you basically carry out experiments that are very limited in kind of scope at the beginning, but very ambitious in terms of the end goal, it's hard to argue against that, and it's hard to just shut that down. It's more of a distributed kind of problem solving and innovation effort that we think is highly resilient in a way, in a more modest way, if you will. The Michelin story is quite similar. And they chose teams, 37 teams across 17 plants. So they didn't say, well, let's just take this plant or this particular team and try it out and see if it works. They did this at the level of an entire manufacturing network. And that really made it much more powerful and much less easy to stop.

Well, I have to think about when Pope Francis, shortly after assuming his role, I think it was in 2013, he was very public in saying that he wanted to reduce the bureaucracy in the Catholic Church, that he wanted to shift authority out. He wanted the church to be more responsive and to deal better with some of the challenges and the scandals that had plagued it for years. And somebody asked him just recently, how was that going? And he said, I feel like I'm cleaning the sphinx with a toothbrush. And we meet a lot of CEOs who feel like they're progressive. They understand. In fact, it's interesting, Kurt, I would say most CEOs today that we talk to for any length of time, they're quite willing to admit that the real constraint on their organization is not the operating model, it is not the business model, it is the management model. And yet they really don't know how to change it. And like the Pope, like, you know, they just feel kind of impotent against the challenge. They don't have enough hours in the day, they don't have enough time to go one leader by one leader and say, like, what do we need to change? And are you going to change? And so, you know, our advice to Pope Francis is you got to get more toothbrushes by syndicating and opening this up and creating. And in some organizations, you know, we've had 70,000 people on a platform kind of raising ideas, and that seems to us the way to go forward. You know, the most fundamental principle of design thinking is you start with the user. And in large organizations or any organizations, the users of all those systems and processes are the frontline people who are out there creating value, interacting with customers and trying to make a difference. And so it just seems foolish to us to try to do any large scale change program that doesn't start with those users. And one of the hopes I have for ultimately the impact of the book is that nobody ever talks again about change cascading and that we think about change not rolling down, but we think about change rolling up. Because I just think going forward, every important change program is going to have to be socially constructed. Let's involve the whole organization in a collective journey where they can inspire each other, learn from each other, and where no single group of leaders or executives or anyone else has the power to stop it.

Gary and Mikaela, it's great to hear the passion in your voices and for this topic. And hopefully you've given some people out there some more toothbrushes to work with. Thanks so much for coming on the show to talk about this.

Thank you, Kurt. It was a great pleasure.

Thank you.

That's Gary Hamill, a faculty member of the London Business School, and Michaela Zanini, a co founder of the Management Lab. Along with Gary Hamill, they wrote the new book Creating Organizations as Amazing as the People Inside Them. This episode was produced by Mary Dew. We get technical help from Rob Eckhart. Alice Adam Buchholz is our audio product manager. Thanks for listening to the HBR IdeaCast. I'm Kurt Nickish.