Watch the recording from our webinar on how to launch an initiative towards a post-bureaucratic enterprise here https://implementconsultinggroup.com/article/post-bureaucratic-operating-model-study-results-2021/.
1. Bureaucracy kills customer and employee proximity
History has taught us that it is important for organisations to employ stable, precise and stringent processes to achieve reliable results. This thinking dates to the beginning of the 20th century when people were perceived as production machines and were not expected to think for themselves.
The idea of bureaucracy has taken hold in organisations. At first glance, this may not seem to be a problem, and yet the organisational form must always adapt to the environment and not vice versa. It is precisely in these volatile, uncertain, complex and ambivalent times that the question arises as to what companies should look like to be more responsive to the demands of today’s employees and will therefore be more successful in the long term.
Many companies and their front-line functional units are too bureaucratic. Hamel and Zanini reached this decisive conclusion in their global studies on bureaucracy, developing a new measure: the “Bureaucracy Mass Index” or “BMI” for short.
Employing ten questions (figure 1), they assessed companies’ levels of bureaucracy (measured on a scale from 1 to 100; 100 = highest level of bureaucracy, 0 = lowest level of bureaucracy).
On average, about a quarter of our working time is spent on internal and external compliance without any economic value being added or customer benefit being created. On top, it is alarming to note that studies show an increase in bureaucracy in companies year over year. This raises the question of the extent to which bureaucracy can be eliminated to improve the performance of companies.
This question was also the starting point for the collaboration between the Swiss Marketing Association (German: Gesellschaft für Marketing) and Implement Consulting Group, which ultimately led to the implementation of a study in Switzerland. By interviewing 120 sales and marketing executives, we determined, among other things, the BMI of the respective companies.
With a median score of 48 points measured on a scale from 1 to 100, Swiss companies can be described as moderately bureaucratic. Only a few companies show a low BMI and therefore a low level of bureaucracy while there are still many companies with a high one (figure 2).
Comparing the determined BMI values with the respective companies’ economic success (sales and profit growth in the last five years), a clear result emerges: the lower the level of bureaucracy, the greater the economic success (figure 3).
Above all, non-bureaucratic companies are more accurate in recognising customer needs and are faster and better in translating the knowledge gained into products and services. Conversely, this implies that bureaucracy is a major impediment to the performance of frontline functions.
Given these results, we investigated the following questions:
- What is the level of bureaucracy in Swiss organisations, and where do we see the biggest room for improvement?
- In which aspects do successful companies function less bureaucratically than others?
- What does an operating model look like that is “fit for humans and fit for the future”?
- How can the transformation to a post-bureaucratic company succeed?
2. Five core principles to become fit for the future
What needs to be done?
What steps should companies take to become fit for the future? Four seemingly simple but difficult-to-implement principles must be realised
No. 1: Focus on needs
Customer focus is a generally accepted and self-evident principle. As emerging customer needs and expectations are usually not visible, aligning corporate value creation with them is difficult. In fact, customers may not even be aware of them themselves. The aim is to fulfil “unmet needs” far beyond the profile of existing customers as well as to identify potential customers at an early stage and incorporate them as a guiding principle in all commercial decisions.
No. 2: Embrace uncertainty
Organisations are aware of the need to change, to transform, to become different in order to respond in an agile way to the challenges they themselves recognise as volatile, uncertain, complex and ambiguous (VUCA). Most companies know that in this VUCA world, their traditional way of doing business could be disrupted and challenged by new competitors – and even more so by the emerging needs of a next generation of customers inspired by different values, enthusiasm for technological innovation and a new sense of entitlement.
Management must systematically promote awareness of permanent change. Employees should not perceive adaptation and transformation as a threat but as a pleasure principle of entrepreneurial action.
Furthermore, they should be prepared for changes in context. Rita McGrath calls it “seeing around corners”. In this regard, a large number can foresee more than just a few.
Especially in marketing, where two-thirds of the action now happens “without us”, i.e. we have relinquished control, we need to implement new principles like experimentation.
Successful companies have learned to integrate uncertainty and unpredictability into their corporate culture. In iterative and creative processes with intensive feedback on prototypes, Design Thinking proves to be a suitable instrument for developing new solutions. The concept has proven itself in a dynamic world to such an extent that it has long been used in strategy work, the development of new value propositions or adjustments to the operating model.
No. 3: Foster autonomy and proactivity
Just 34 percent of employees describe themselves as motivated or not apathetic. Meanwhile, 60 percent of transformation projects in companies fail. Although these projects may be correctly identified, they are not successfully executed and implemented. The level of bureaucracy is to a large extent the main reason for both, as inner distance from work and a correspondingly high level of frustration cause employee engagement to atrophy.
By contrast, maximum personal responsibility, defined autonomy and inspiring leeway promote employees’ entrepreneurial skills and their motivational power.
No. 4: Establish marketplaces of ideas
Markets are more capable of balancing needs and resources than centralised control mechanisms like top management. When areas such as marketing, sales or customer service are exposed to competition with external providers or similar units within the organisation, oftentimes better results emerge. A market leads to the retention of internal departments only if there is an internal demand for them.
3. Seven elements lay the foundation of the operating model
The questions of how a sustainable organisation should be structured, what goals it should pursue, and what principles should be anchored in it. A company lays the foundation for answering these questions with its operating model (figure 5) – in other words, the way in which a company functions in order to generate added value for customers and employees. In this regard, principles and ways of working are more important than the organisational structure or fixed rules.
Figure 4 shows several pioneering companies that have recognised and understood the principles discussed above and have restructured their organisations accordingly. This resulted in a massive reduction in bureaucracy and, at the same time, a remarkable increase in performance.
Their focus was not primarily on financial success. What these companies have in common is that they have radically changed the way they work and deal with employees – especially in their customer-facing functions.
How does the reduction of bureaucracy succeed, and what does it require?
The post-bureaucratic operating model
A post-bureaucratic operating model consists of seven design elements, each of which can develop its full effect when properly coordinated with the others. By designing the elements according to clear design principles for post-bureaucratic companies, they meet the requirements of new market conditions as well as those of demanding employees. In the following, the aforementioned seven elements are presented and illustrated with concrete best practice cases.
Core mission: Everyone owns the purpose
The core mission defines the purpose of a company and thus the answer to the question of what added value is provided for which customers or other stakeholders. In classic companies, the corporate purpose and the core value proposition are often specified top-down. Not only does this approach result in a loss of proximity to the customer, but it also usually leads to a loss of identification and dedication on the part of the employees.
Unlike the classic operating model, in a post-bureaucratic company each person is granted autonomy and financial incentives allowing them to see themselves as the owner of the core mission and to act accordingly.
The target oriented mode of operation is ensured by setting up team oriented success calculations. These are linked to the core mission, whereby teams bear full responsibility and decision-making power.
Processes: Experimentation as a philosophy
Processes serve to standardise, from the execution of tasks, to the creation of products and services, to the further development and optimisation of the company. The underlying premise is that the environment is known and static, so that standardised planning would appear to make sense.
In post-bureaucratic companies, processes continue to be important. However, they are designed in such a way as to encourage experimentation with new approaches and solutions. This allows complex problems to be solved in new ways. Every company is thus able to reinvent itself on an ongoing basis.
Companies that have defined experimentation as a core process go so far as to ensure that it is not the plan or the business case that decides whether ideas or projects are pursued but successful experimentation.
Governance: Decision-making close to customers and employees
Governance defines how decisions are made and by whom. In a post-bureaucratic organisation, this means that decisions should not be guided by rank or political competence but rather by the talent, skills and performance of the individual. Governance thus functions as a meritocracy.
In concrete terms, this means that an employee’s decision-making ability should always be considered in its thematic context. Thus, the competence and performance rating of a colleague, for example, could be significantly higher than that of a former cadre member. This grading of decision-making capability is based on peer reviews and transparent to all employees.
Structure: Small, competent, customer-focused and empowered teams
The structure defines the functions and roles as well as the division of tasks and responsibilities in the organisation. In post-bureaucratic companies, customer needs gain even more prominence. Small, autonomous teams that make complex decisions in real time close to the customer can gain a better customer understanding.
Capabilities: Curiosity and openness as the highest good
Capabilities refer to the competencies that an organisation must develop to meet the needs of customers and to distinguish itself from the competition. In a modern and non-bureaucratic organisation, curiosity and openness are celebrated as core competencies needed to develop and implement brilliant ideas.
As a result, dissenting opinions are not only tolerated, but quite specifically encouraged.
Culture: Psychological safety and trust are a must
Culture is the guiding compass of an organisation and is based on a shared pattern of thinking, feeling and acting. In a post-bureaucratic company, culture is the most important good besides the customer and promotes a trusting relationship between employees. It promotes acceptance and psychological safety and thus the freedom to fully unfold the “I” and to contribute to the work environment.
Technology: Automatised administration and autonomy through digital systems and processes
Since the beginning of the pandemic at the latest, organisations and employees have been aware of the importance of digitalisation. Digital systems and processes manage to reduce administrative tasks to a minimum by taking over routine tasks. As a result, employees can focus on creative and challenging tasks, and corporate development and customer needs are better addressed with the help of the transparency created.
4. Top performers lead the way
GFM study profile (2021)
In the Swiss survey, approximately 120 marketing and sales executives were asked about their business success, the company bureaucracy and the parameters of the operating model. Besides presenting the current situation, we focus on the potential and the discrepancy between successful and unsuccessful companies with regard to their operating model.
Accordingly the following key parameters were measured:
The companies’ success was measured on the basis of sales and profit growth. In order to determine the current status and a suitable classification, the five-year development as well as the industry benchmark were taken into account. Our sample resulted in a classification into low (n = 16), average (n = 49) and high performers (n = 49).
Operating model excellence:
Operating model excellence is a measure comparing the existing working practices in the sales and marketing organisation with the ideal post-bureaucratic operating model. To this end, 15 pertinent questions were formulated, and the respective answers were measured on a scale from 1-10 (1 = does not correspond at all to the target operating model; 10 = corresponds to the target operating model).
Bureaucracy Mass Index (BMI):
The BMI was determined by Hamel and Zanini employing the established ten questions (see figure 1). The focus of the study is the comparison of the operating model excellence of low and high performers.
In the empirical part of the study, we aim to show the correlations between success, bureaucracy and operating model excellence, focusing in particular on the exploited and unused potentials for companies.
What are successful companies doing differently?
Two important findings can be shown or proven by measuring operating model excellence. On the one hand, it is clear from figure 6 that low and high performers differ significantly in almost all criteria. High performers tend to have a more pronounced post-bureaucratic operating model across all criteria. This clearly shows the advantages of the post-bureaucratic operating model.
On the other hand, empirical research shows that even high performers still have significant potential for improvement and success. While the average rating of operating model excellence for low performers is 5.3, high performers also have room for improvement with an average rating of 6.7.
The details show what top performers do better than low performers:
The flow of information between the relevant commercial departments (e.g. product management, customer service, branding and sales) functions smoothly and quickly. Silos are avoided as far as possible and reduced in favour of the common goal of customer satisfaction.
Feedback from customers, partners or employees is methodically collected, evaluated and iteratively processed in a continuous improvement process. Growth hacking, Design Thinking and the like are widely used. The operating model is not designed for administration but for permanent improvement of all elements.
The contribution of the individual marketing/sales employee leads to better career prospects – corporate policy and pure number optimisation are secondary. The energy and motivation of employees are not wasted on career optimisation but are channelled into value-creating projects.
In sales, employees are incentivised as a team – lone wolfism leads to self-optimisation, and customer needs fall by the wayside. Top performers carefully weigh individual short-term financial goals against long-term company goals.
Also, in the eleven criteria measured above and beyond this, the top performers are characterised by better communication, collaboration and agility as well as more pragmatism.
5. Top-down and bottom-up leadership initiates the transformation
The requirements for a future-proof organisation seem to be high, and accordingly, many companies may be reluctant to embark on major transformations. The following reasoning should encourage to set out on the journey nevertheless and thus to tap into some of the described benefits.
The transformation is to be understood and created as a movement. Start small, build momentum and continuously achieve small successes.
Experience shows that the project must be approached top-down and bottom-up simultaneously.
You cannot do it without top-down control. In at least three respects, a movement also requires a minimum of central control:
- Develop a shared ambition for the goal and journey (often called Northstar). Emphasise the WHY – what makes this ambition and journey important and right for everyone?
- Get the leadership team behind this ambition and ensure that they stand up for the chosen path at all times.
- Establish a new understanding of leadership, if necessary.
The movement’s power is developed bottom-up. This involves the following:
- Identify and start little flames/initiatives within the organisation in order to spark a wildfire in the medium to long term.
- Adopt best practices from different departments and teams.
- Support the scaling of initiatives by the leadership team. Get movement going by making flames bigger and successful, and planting and driving them elsewhere in the organisation – start small, scale fast.
In order to gain clarity about the starting point of the journey, it has proven useful to assess the organisation. Management is often surprised to discover how many small fires are already burning in their organisation, which now need to be fed with more oxygen and allowed to spread. For the assessment, the BMI instrument presented here is suitable, for example, as it initiates a very simple discussion. More courageous companies start with a management model hackathon or an action to detox their project and change engine.
Any attempt to launch an initiative towards a post-bureaucratic enterprise should be supported. The results at all levels show that the journey will be worthwhile.