Yes, You Can Eliminate Bureaucracy

Gary Hamel

Michele Zanini

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <h5>The Problem</h5>
  <p>Big companies end up creating big bureaucracies, which sap their organizations of creativity, willingness to take risk, and productivity. Though many executives express the desire to stamp it out, bureaucracy is thriving.</p>
  <h5>Why It Happens</h5>
  <p>With its clear lines of authority, specialized units, and standardized tasks, bureaucracy promotes efficiency at scale. It is also familiar, varying little across industries and cultures. Some believe it is the natural outcome of dealing with a complex business environment.</p>
  <h5>The Solution</h5>
  <p>A new organizational form is challenging the bureaucratic model. Exemplified by the Chinese appliance maker Haier, it makes employees energetic entrepreneurs directly accountable to customers and organizes them in an open ecosystem of users, inventors, and partners.</p>
 </div>
</article-ideainbrief><p>Bureaucracy has few fans. Walmart CEO Doug McMillon calls it “a villain.” Berkshire Hathaway vice chair Charlie Munger says its tentacles should be treated like “the cancers they so much resemble.” Jamie Dimon, the CEO of JPMorgan Chase, agrees that bureaucracy is “a disease.” These leaders understand that bureaucracy saps initiative, inhibits risk taking, and crushes creativity. It’s a tax on human achievement.</p>

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<p>While most business leaders recognize that bureaucracy squashes initiative, risk taking, and creativity, it continues to thrive. In a complex global environment, it&#8217;s seen as a necessary coping mechanism.</p>
<p>Many look to start-ups for an answer. But the most promising solution may have emerged in an unlikely place: the world&#8217;s largest appliance maker, Haier. Under a renegade CEO, it has been divided into 4,000 self-managing microenterprises. About 250 are market facing (&#8220;users&#8221;), and the rest (&#8220;nodes&#8221;) supply them with components and services like IT and HR support. Users can hire and fire nodes&#8212;or contract with outside providers&#8212;as they see fit, and nodes&#8217; revenues are tied to their users&#8217; success.</p>
<p>Ultimately, everyone is accountable to the company&#8217;s customers. Everyone is also encouraged to be an entrepreneur. All targets are ambitious, and rewards are tiered, performance based, and potentially hefty. So far that formula seems to be working beautifully, producing 18% yearly revenue growth for a decade and $2 billion in market value from new ventures.</p>

The End of Bureaucracy

While most business leaders recognize that bureaucracy squashes initiative, risk taking, and creativity, it continues to thrive. In a complex global environment, it’s seen as a necessary coping mechanism. Many look to start-ups for an answer. But the most promising solution may have emerged in an unlikely place: the world’s largest appliance maker, Haier. Under a renegade CEO, it has been divided into 4,000 self-managing microenterprises. About 250 are market facing (“users”), and the rest (“nodes”) supply them with components and services like IT and HR support. Users can hire and fire nodes—or contract with outside providers—as they see fit, and nodes’ revenues are tied to their users’ success. Ultimately, everyone is accountable to the company’s customers. Everyone is also encouraged to be an entrepreneur. All targets are ambitious, and rewards are tiered, performance based, and potentially hefty. So far that formula seems to be working beautifully, producing 18% yearly revenue growth for a decade and $2 billion in market value from new ventures.

The End of Bureaucracy

Summary.

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