A Brief History of Bureaucratic and Organizational Structure with Gary Hamel

October 12, 2018 Sarah Mulcahy

Stacks of papers

Often the aspects of our work and organizational structure that cause the most stress and friction can be traced back to bureaucracy. Forms, hierarchy, lengthy approval processes – these are all vestiges of bureaucracy that Gary Hamel is on a mission to eliminate. He argues there’s a better way – and it’s called a humanocracy.

In advance of his keynote at Workhuman® Live 2019, we spoke with Gary at length about the origins of bureaucracy, the financial toll it takes on organizations, and how HR as a profession can start to distance itself from bureaucratic structure waste.

Below is the first of our three-part Q&A series with Gary. If you’d prefer to listen to the interview on WorkHuman Radio, click the play button at the bottom of this post.

Workhuman: What’s the difference between a bureaucracy and a humanocracy?

Maybe the place to start is the word bureaucracy, which was coined in the early 18th century by a French government minister. Translated, it means the rule of desk. It was the idea of building organizations – not so much around individuals – but around positions, and that the organization would be run by desks. It was a step forward from organizations that were often based on nepotism and an attempt to bring some order to the way we ran our organizations. Obviously, over the centuries, the idea of bureaucracy has metastasized in some ways.

Bureaucracy is a set of organizational principles and practices that are designed to maximize human compliance. In fact, Max Weber, who was a sociologist writing in the early 20th century, said bureaucracy is perfected the more it is dehumanized. The idea was to drive the human element out of our organizations to make them as rational as machines. Weber also said bureaucracy was the best-known means yet invented to achieving what he called ‘imperative control’ over human beings.

“Bureaucracy is a set of organizational principles and practices that are designed to maximize human compliance.”

Clearly, control is a necessity in any large organization. Think about the latest chip in an Apple iPhone, the A12 chip that is built on a 7-nanometer architecture, which requires almost an inconceivable amount of control to create that many millions of data on a chip every time you take a photo with your iPhone. There are up to 1 trillion processing steps in capturing and altering a photo. Control is certainly a necessity, but as an ideology, it has slipped the moorings of common sense, and control has become an objective almost in its own right.

Humanocracy is similarly a set of organizational principles and practices, but they’re to maximize the capacity of human beings to develop and use their unique capabilities. So for me, the distinction is between maximizing control and maximizing human contribution.

We still need a lot of control in an organization, but humanocracy starts with the idea that the organization is built around human beings, not around positions, not around titles, not around job descriptions. The goal is to build organizations where people are encouraged and enabled to bring the best of themselves to work every day.

Workhuman: Why do so many companies default to a bureaucratic management model?

First, bureaucracy as a way of organizing human beings is familiar. Most of us have grown up in and around organizations that fit the bureaucratic mold. Power is vested in positions. Authority trickles down. Big leaders set strategy. Managers define tasks, dole out work, and measure performance. Individuals compete for the scarce resource of promotion. And we use extrinsic rewards, primarily money, to try to align individuals with organizational goals. So that’s a very familiar model, and it’s hard for most of us to imagine an alternative.

The second reason is that it works. Bureaucracy was invented to allow us to achieve high levels of control, which you need when you are delivering complex products and services. It is also a means of coordination and a way of guaranteeing consistency in decision-making. All these things are of great value – control and coordination and consistency. So it’s a struggle to understand how to achieve those through other means.

The focus of my work is on how to get the blessings of bureaucracy – the control, the coordination, the consistency – without necessarily paying the costs that often come with bureaucracy, in terms of overhead and inertia, inflexibility, and so on.

The third reason that the bureaucratic model has been so persistent is that it’s a giant multiplayer game in which millions of people have built their careers. They’ve learned how to accumulate and use bureaucratic power. They’ve learned how to climb the pyramid. And many of those individuals are reluctant to see the game changed.

“The bureaucratic model is a giant multiplayer game in which millions of people have built their careers.”

As a game, bureaucracy often rewards behaviors that are not very helpful. It rewards people who are very good at deflecting blame. It rewards people who are good at hoarding information. It rewards people who will often say ‘no’ when they’re asked to collaborate and simply focus on their task, their job, and their role. It often rewards individuals who are very good at managing up, at reading their boss’ moods, at understanding the prejudices of their leaders, and shaping their behaviors to fit the mood and the beliefs of the people they work for.

Workhuman: Do you think leaders would make a change knowing the cost of letting bureaucracy fester?

As leaders, we pay attention to the things we can measure. And while some of the costs of bureaucracy, like excess layers of management, show up on the P&L, most of the costs are invisible. It doesn’t mean they’re not real, it just means we don’t have accounting systems that can measure them.

Think about the friction in decision-making. If a decision has to get multiple layers of approval, and that extends the time to get a decision made, there’s a cost to that. If decisions get manipulated and shaped to fit the biases of leaders, that distortion has a cost. If employees feel discouraged from taking initiative or taking small risks, that has a cost. If internal siloes make it difficult to reallocate resources around new ideas, that has a cost. The fact that many people in large organizations have inward-facing roles, that they’re not really directly responsible to customers, that has a cost. The fact that a lot of time is spent in political maneuvering, that has a cost.

All those costs are invisible, in the same way a decade or two ago environmental costs were invisible. Very few companies 20 years ago measured their impact on the natural environment. Very few organizations reported on their environmental impact; now many do.

So I believe one of the first steps you have to take is get a baseline on how much this is costing you. We created something called the bureaucratic mass index, and we have used this survey inside of organizations. We also did a survey with more than 10,000 respondents with the Harvard Business Review.

We found that, in large organizations with more than 5,000 people:

  • 79% of people said bureaucracy significantly slows decision-making
  • 68% said, in their organization, new ideas are met with skepticism or outright resistance
  • 76% said political behaviors highly influence who gets ahead, not competence

So I think you have to start to measure these things, and then measure them year by year by year.

Workhuman: How can human resource leaders help their entire organization move away from bureaucracy?

First, I think you have to get deeply acquainted with some of the alternate models of organizing human beings at scale that are non-bureaucratic.

Think about the group of individuals around the world that’s built Linux, which is now by far the world’s most used software. It’s at the heart of every Android mobile phone and virtually every web server.

This very complex piece of software with more than 25 million lines of code was built with nothing that looks like a formal management structure. There are certainly people at Linux who have more influence than others, but nobody appointed those people. Their power comes from their service to the community.

A Chinese company, Haier, is the largest maker of appliances in the world. Here’s a company with more than 70,000 people that runs with three organizational levels. The entire organization has been divided into more than 4,000 microenterprises, each with about 15 or 20 people. Each of those teams has its own P&L. Every one of those microenterprises can contract, or not, with other microenterprises across the company. And, in Haier, even HR is simply another microenterprise, and it sells its services across the organization. And if units don’t want to buy HR services internally, they can buy them externally.

Particularly with HR, I think there’s a change in attitude, perhaps, that’s required, if I can be so bold not being an HR professional. When we look at the data in the survey, a lot of people are not very happy with the HR function. They’re unconvinced that it’s purely responsive to their needs. It often seems like this imperial rule-making body that is somewhat disconnected from their day-to-day reality.

The deepest change we need is for HR to really see itself as a service function and that its goal is to serve internal clients and to help them achieve business success, by hiring the right people, by improving the entire HR system and functions. It’s a radical idea, but I think internal-lined executives ought to have the power to fire or hire HR as an internal service provider. I don’t think any internal service provider should be a monopoly. They should all be subject to external competition. That can happen either by letting operating units hire outside services on their own to help them with HR tasks or it could be at a minimum, extensively benchmarking the internal HR function to really ensure it is providing competitive products and services.

“The deepest change we need is for HR to really see itself as a service function.”

One of the interesting things that Haier has done, which I find exemplary, is that all internal service providers – this includes R&D and HR – when any of those writes a contract, it always has a performance clause in it. They only get a bonus if the product succeeds in the marketplace. So every single employee has a substantial part of their compensation at risk depending on marketplace outcome. Every organization lives or dies by what it does for its customers.

HR needs to ask, ‘How do we reduce the bureaucratic load on those around us? How do we put our compensation at risk depending on the value we are creating for our internal customers? And how do we measure our value, not around compliance, or the number of lawsuits that we avoid, or the degree to which policies are followed? How do we start to measure our value in terms of the impact great HR practices make to our ultimate customers?’

Stay tuned for part two of our interview, where Gary discusses what employee rewards and performance development looks like in a humanocracy.

About the Author

Sarah Mulcahy

Sarah is senior content marketing manager at Workhuman. When not writing and reading about all things culture, leadership, recognition, and appreciation, she enjoys iced coffee, running, and spending time with her daughters, Mabel and Eva.

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