The Real Cost of Bureaucracy: Lessons for HR Leaders from Gary Hamel


What keeps employees from realizing their true potential? What keeps them from innovating? Gary Hamel says it’s organizational bureaucracy. We spoke to the management guru on the sidelines of UNLEASH America about meritocracy, innovation and the need for radical change in the way businesses operate.

Gary Hamel is one of the world’s most influential and iconoclastic business thinkers. He has worked with leading companies across the globe and is a dynamic and sought-after management speaker. Hamel has been on the faculty of the London Business School for more than 30 years and is the director of the Management Innovation eXchange.

Consider this scenario. A large, established, rich and powerful multinational with the best brains in the business is caught napping as a small startup comes in and beats them at their own game – either using a new technology or creating a unique customer experience or some such ‘disruption’. We use the term disruption – but what really caused that disruptive win for the small startup? It is easy to say the technology or the campaign – but what that response hide is the mindset of the organization and its people – the kind of freedom to innovate that they may have – the kind of agility and the passion that gets applied into conceiving and executing great disruptive ideas.

It is these layers that Gary unpeels with his commentary around bureaucracy and control, and the new ‘gift economy’ which –when harnessed- can create the kind of winning disruption every business leader can only dream about. This feature is a paraphrasing of that commentary and discussion that ensued between Gary, HR Technologist, and other attendees, on the sidelines of the recent Unleash AmericaOpens a new window in Las Vegas.

The problem with bureaucracy

The single biggest issue with bureaucracy is that it shackles people with rules that prevent them from doing the best thing for the organization, the best thing for customers and the best thing for themselves – so in a way it imprisons human capability – in a jail of rules and procedures – a lot of which is more about control and disempowerment and doesn’t add much value. What that means, in the new age economy, is that this top-heavy, rule-driven culture will make them miss new opportunities, misallocate resources, and misuse or underuse their talent.

How can companies release themselves from these shackles?

  1. Count the cost: What is the cost of insularity, politicking and decision-making inertia? While CEOs do vaguely recognize the cost of bureaucracy, very few have actually calculated it.  
  2. Believe that there are alternatives. Says Gary ‘the idea that you can run a billion-dollar business with virtually no management layers at all blows people’s minds – it’s hard to imagine what you’ve never seen.’
  3.  Find a migration path between the present and the future: If you’re a more traditional company, the transition path is much more complicated – because even with its downsides, bureaucracy serves a purpose. Discarding it abruptly will cause operational chaos – so leaders need a migration path.
  4. That path should lead to the principles of openness, meritocracy, and experimentation:. Ask yourself, ‘if we were really serious about openness, what would we change?’ Throw it open to everyone and then evaluate the responses – by degree of cost, resistance, difficulty to execute – and start putting things into practice. Build in layers of increasing openness and freedom and empowerment over time, step by step. As Gary puts it, follow a method of “revolutionary goals and evolutionary steps.”


Why do we need a radical change?

Citing the difference between the day when we had only 3 or 4 TV channels to today – when we are streaming content on the go, Gary asks how many business leaders saw this coming back in the day.

He challenges leaders to imagine radical changes in business models – which is relatively easier as we have already seen it happen in media, finance, and retail – and then imagine a similarly radical change in how we run large organizations in the context of human co-action. Most leaders simply can’t.

Business leaders – and most definitely HR – have to question the assumptions they hold about how to run an organization. We just assume that power trickles down, we assume you need managers to manage, we assume that control is imposed from above. In fact, these are just ‘technologies we created to get things done’. It may be time to look at new technologies to get things done.

Many organizations will experiment with their website or with a service offering – but not with management processes. And yet, the only way to evolve something as complex as running an organization is to experiment.

Technology, control, and radical meritocracy

Technology can dramatically change the way our organizations are run – how we find and hire and keep the people we need. Unfortunately, technology has so far been used for simplistic models of collaboration – as just another tool for white-collar productivity – which is useful but not revolutionary.

It has also been used to aggregate information with the aim of exerting more control – the job of a manager today is to control.

If you take people who believe they’re being paid to control, and who live in fear of surprises – and you give them a tool that helps them get more information or insight, guess what they are going to do with it?

So, in the short term, Gary’s bet is that “technology will be used more to disempower than to empower”. (Often in the guise of so-called ‘empowerment’ tactics like Bring Your Own Device or choosing to work from home some days). But leadership needs to activate the really bold empowerment strategies. The one that gives employees control and a real shot at participation.  Gary asks “Why don’t we have design your own job or ‘pick your own colleagues’? All this sounds completely insane until you see someone else doing them and you’ve been disrupted. For example, at Whole Foods (pre-Amazon)- if you wanted to work there you, would work for a couple of weeks with one of their in-store teams and it took a 70% vote from the team to hire you.” Unfortunately, we are so used to thinking about people as needing parents at work that we can hardly imagine a world without the policing and parenting.

“Based on my data, HR is the fastest growing function of all corporate functions – more than planning, more than IT – and it’s had the consistently lowest rates of approval and value-add.”

How can HR take the lead in empowering people and driving a culture of collaborative innovation?

“By building a culture of radical meritocracy – where the scope of your influence is determined only by the quality of your ideas and the ability to attract sponsors – it has nothing to do with where you sit in the organization or anything else.”

Enabling collaborative innovation: collaborative innovation for deep change is not really mainstream because people are not trained to think like game-changers or innovate. “If you want a company of golfers, you have to teach everyone to golf, right?”

Building networks of collaborators: Companies today simply can’t afford to miss out on the next big idea just because that person is not a manager or in an executive position.

Gary cites the example of Mexican cement company Cemex which has several thousand self-organized online communities that come together around the big challenges in their business – from environment to branding. They solve problems collaboratively. For example, a group of middle-level managers built the company’s first global brands without ever having a Chief Marketing Officer. Yet, in most companies, the typical response to every problem is ‘let’s create a new CXO’ – so you have Chief Digital Officer, Chief Transformation Officer, Chief Learning Officer or Chief Experience Officer. “Instead, you could just create a platform where people who have similar interests come together and solve those problems. But that’s not the way our mind thinks.

Our minds think ‘Somebody has to be in charge. We need to build another mini-bureaucracy – that’s how you solve this’.

The ‘Hierarchy of Human Capability’ and the notion of the ‘Gift Economy.’

HR pros –  like it or not, the world is moving to another model.  A model that appeals to the higher order capabilities of human capital.

“If you think of the ‘hierarchy of human capability’ at the bottom you have obedience (because you do need obedience. Then a level up from that is diligence – people who are committed –  they’ll work hard and take responsibility for results. That’s also important. A level up from diligence is competence – people who are well-trained and have expertise and tools.”

The problem is if HR stops there. Today, these capabilities have become commodities. “You can buy those almost anywhere in the world for almost nothing. Today, what you really need are the higher order capabilities in that hierarchy.

You need initiative: people who are not bound by their job description. Beyond that you need creativity – the ability to learn from other industries, bring in new ideas and challenge conventional thinking. And finally, you need people who will have passion. People who see their work as ‘how they make a difference in the world.’

The dilemma is – and that’s what the engagement data tells us – that people are generally obedient and diligent and competent. But **the higher-order capabilities– initiative, creativity, and passion – these are gifts which people choose to bring to work. You cannot try to command them**. Any leader at any level has to recognize “I am now working in a ‘gift economy’ – the skills that are most important to the success of my organization are not something I can put any KPIs around.”

The Organization as the instrument

In the old model, the institution hires people as resources to create products and profits – the human

being is an instrument. How much passion are you going to get out of any human being who thinks they’re merely an instrument in your grand plan right? “Even today, the leader’s mindset is ‘how do I get these people to serve the organization?’

If you want to tap those higher-order capabilities, the question to ask is – ‘how do I create a work environment that’s inspiring? Where people have the chance to contribute and grow so they will willingly bring those gifts to work every day’? That takes a very different kind of leader.

The problem with the old hierarchical model is that hierarchy cannot build a network and it cannot beat a network. Secondly, young people simply won’t put up with it. They have grown up in a digital environment where influence as a concept is one where people chose to follow you-you can’t make somebody follow you. (think social networking sites).

“Companies that are stuck in the old model are going to find it harder and harder to hire the best people

because they don’t want to work in an organization where they will spend the next 10 years fighting their way up a hierarchy. Originally the word Bureau meant office or position or title – so in a bureaucracy, the thing that’s central is the position. You organize around central titles or positions.

In a human-ocracy (my clumsy alternative to bureaucracy), you start with the human being and what they can do. Instead of ‘institutions hire individuals to create products and services’, I would rather say ‘individuals join a community to make a certain kind of impact in the world – and also to earn their living. In this model, the institution is the instrument – not the person.

HR is still catching up to that. If the starting point for HR was ‘how do we make you more effective in your job’ to ‘how do we help you add more value and make a bigger impact’, they could be more effective too. The secret to creating good jobs is not about software or coding skills – it is a job in which people have the ability to develop and grow their problem-solving skills and capabilities – that creates more value for the company and for them. **HR must ask ‘how can we recognize the inherent gifts that everyone has’?** Gary concludes.