Professor of Strategy and Entrepreneurship; Deputy Dean (Executive Education and Learning Innovation)
Think at London Business School: fresh ideas and opinions from LBS faculty and other experts direct to your inbox
The EU referendum and Brexit isn’t just a story of failed leadership. It is about the UK’s relationship with the rest of Europe, how that relationship needs to change, and ultimately how the EU should be structured. Here, there are profound lessons for business executives. Perhaps your company isn’t as large or unwieldy as the EU, but it likely suffers from some of the same afflictions, albeit on a smaller scale. Lessons from the EU’s failings can shed new light on how you make change happen in larger corporations.
Large organisations from the EU to the British Army, from Walmart to BP, are bureaucratic. No arguments there. But what does the word really mean?
Simply it means coordination through formalised rules and procedures. It involves people taking on specialised roles, within a clear hierarchy. There is nothing wrong with this model; indeed it has served the world of business well for centuries. But the problem is that over time bureaucracies erode. The procedures become more complex, and the people in charge view the procedures as ends not means. Gradually, a bureaucracy turns in on itself, it loses touch with the outside world, and its decision-making grinds to a halt. It is said that the job of the bureaucrat is “to do what can be done to delay getting something done”.
A good metaphor here is the notion of entropy – the idea that the world is gradually degrading into a state of maximum disorder. Or if you prefer a simpler metaphor, just take a look inside a teenager’s bedroom. In similar fashion, every large organisation left to its own devices grows more complex and inefficient until it ceases to function.
The EU may be the ultimate bureaucracy. We deride Brussels bureaucrats for living in a bubble, but actually they are a bubble inside a bigger set of national governments’ bubbles – a double bubble. As a result, Brussels has completely lost touch with those it purports to serve and its structures are underhand. Does anyone outside the political elite actually know the difference between the commission and the council? Or the reporting relationship between Donald Tusk and Jean-Claude Juncker?
These are not supposed to be flippant questions. If we don’t know or even care about these things, it is a sure sign that the EU has lost its legitimacy as a governing body. While I disagreed with almost all the arguments made by the Leave campaign, the one point I was sympathetic to was that the EU was out of touch and needed a good kicking.
So how do you go about reforming an out-of-touch institution like the EU? What does the Brexit vote – and the many years of arguments leading up to it – teach us about bureaucracy busting? And by extension, what does this mean for you as a senior executive trying to keep bureaucracy at bay in your own organization? Here are three basic levers you can work with here, all conveniently beginning with A.
The first antidote is to make bureaucrats properly accountable to those they serve – to keep them looking out, not in. In the UK, MPs hold weekly clinics for their local constituencies, they are grilled and challenged publicly when up for election and their expenses and (increasingly) tax returns are a matter of public record. Alas, this level of accountability and transparency does not exist in Brussels, and it should. Most people have no idea how Mr Juncker actually ended up as head of the commission, or what he does in that role.
The lesson here for business: make sure your senior executives meet customers, suppliers and front-line employees on a weekly basis. Make explicit who the owners of internal processes like accounts payable are and measure how well they are keeping their end-users satisfied. And enforce greater transparency – in terms of what your executives spend their time and money on, and on how well they are performing.
The second antidote is to encourage activism – to give voice and opportunity to those at the bottom to challenge those at the top. This principle is set in stone in most democracies, and you see it happening outside the houses of parliament, through e-petitions, and with the emergence of new political parties. But Brussels falls short on this dimension as well: perhaps the double-bubble is just too hard for activists to penetrate – perhaps the lack of accountability neuters the power of activism. Nigel Farage has been haranguing Mr Juncker in the European assembly for years, but the insults and challenges don’t seem to stick.
The point for the business world is that activism is vital to your long-term success, and you need to provide a mechanism for the mavericks and lone voices to have their say. Activists come in many forms – subversive employees, stroppy customers, activist shareholders who want you to change your strategy. Yes, dealing with these people, the likes of Nigel Farage, can be tiresome and time-consuming. But they serve a vital role in helping you tap into what customers or employees are actually thinking, and they expose you to uncomfortable truths.
One other point on activism – fresh perspectives are vital. Entropy flourishes in a closed system. If your organisation only promotes from within, it will stagnate. Outsiders see things in a new light, and they ask the awkward questions.
The ultimate bureaucracy buster is an attack from outside. When faced with an existential threat, some bureaucrats fight back, some stick their heads in the sand and hope it passes, others use the attack as a lever for reform – think for example of the (temporary) opening up of the Soviet Union after the fall of the Berlin Wall, or the cleaning up of the IOC and (fingers crossed) FIFA after their corruption scandals. As for the EU, well we live in hope. The Brexit vote is a serious challenge to the vitality of the whole European project, and some of the more pragmatic players such as Angela Merkel seem to be taking the threat seriously. But it remains to be seen how the bureaucrats will respond. Will this be the wake-up call they need? Or will they prefer an ostrich-like response?
How does this apply in the business world? Existential threats are much more common in business than in politics, with the average life-span of a company around forty years. So you can wait until your business is facing an existential threat from a new technology or upstart competitor, but the odds of surviving in those instances are low. For every IBM or Jaguar that fought back from the brink, there are many Kodaks, Blockbusters and Nokias that did not make it.
So instead you need an early warning system. Figure out the leading indicators to help you keep one step ahead: declining sales numbers, good employees abandoning ship, new upstart competitors. Get people to game out their own demise: GE had an initiative called “Destroy Your Own Business.com” to imagine how start-ups might steal their market share.
Large business organisations are complex because they are solving difficult problems to benefit their clients and customers. It is the organisations that have clear accountability, encourage activism, and are ready to deal with existential threats that bust bureaucracy – and turn complexity to their advantage.
You must be a registered user to add a comment here. If you’ve already registered, please log in. If you haven’t registered yet, please register and log in.Login/Create a Profile