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The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

Questions such as these have fascinated sociologists for more than a century. The German sociologist Max Weber identified what he described as the formal rationality of rule-based bureaucratic organizations - i.e. the predictability of organizational outcomes as a result of expertly trained people following established organisational rules as a key element of their increasing success.

These ideas and a series of studies led many organizational theorists to argue that the ‘bureaucratisation’ of our society was both increasing and inevitable. For example over 50 years ago, Alvin Gouldner carried out an extensive study of the below and above-ground management operations of a gypsum mine. His work suggested that there were a number of different types of bureaucracy:

• representative bureaucracy
• punishment-centred bureaucracy
• mock bureaucracy

Each of these exhibited different attitudes to rule-following.

Although in a mock bureaucracy a rule might exist, nobody paid much attention to it. Gouldner, writing of 50s America discussed the attitudes at the mine to the ‘no smoking’ rule. Despite a plethora of signs, one miner is quoted as saying

‘We can smoke as much as we want. When the fire inspector comes around, everybody is warned earlier… The Company doesn’t mind’.

This attitude was in stark contrast to that towards safety. Perhaps for reasons of enlightened self-interest, people here adhered closely to the rules. Safety systems supported by paperwork were devised and relevant statistics collated carefully. In the third bureaucratic type Gouldner identified, not following a rule resulted in direct punishment. Perhaps times have changed. Gouldner found who initiated the rules, whose values were enforced, explanation of why rules were ‘broken’ and how they affected peoples’ organizational status differed markedly between these three organizational types.

In mock bureaucracies, Gouldner found no-one paid much attention to the rules, there was little conflict between different interest groups and joint ‘rule-breaking’ served to reinforce community spirit.

In representative bureaucracies, however, everyone enforced the rules. This might create some tension, but, since there was general agreement on what the rules ought to be, there was little conflict. Indeed, there was a sense in which everyone pulled together to ensure that rules were followed.

The situation in punishment-centered bureaucracies, however, was rather different. Rules set by one group were evaded by others, tension and conflict were rife and rule-breaking led to punishment that reinforced the entrenched (and often negative) attitudes of one group about the other. So what, if any, lessons can be applied from these ideas and historical studies to the present day?

The ‘formal rationality’ described by Max Weber referred to procedures that determine, in numerical or legal terms, how the efficiency of bureaucratic rule-following can be measured. As Weber was at pains to point out, however, just because we can quantify and monitor something, doesn’t guarantee that the rules produce efficiency. Recent evidence- not least from the English National Health and police services - suggest that bureaucratic performance targets can become something of a self-fulfilling prophesy.

Targets may divert peoples’ attention away from other, perhaps more important, concerns. Rule-following and target-achievement can become displacement activities which become ends in themselves. This phenomenon is referred to as bureaucratic dysfunction.

Although there is a lot of quantitative data available about public sector performance, and as such, it provides an easy target, clearly dysfunctional behaviour is not a public sector preserve. Private sector investment bankers’ remuneration provides a topical, if now rather well-worn, example of just how badly wrong things can go for everyone if highly-motivated and talented people zealously apply particular rules.

Given the tumultuous economic and social changes such ‘rule-following’ has bought about, perhaps this is a good time to re-think whether or not tighter control is the only, or indeed the right, solution to achieving the sustainable and efficient socio-economic organisation of work.

Find out more

Do we need rules in the work place? Evan Davis ponders over a workplace without rules

Managing in the Workplace

Managing Performance and Change

Fundamentals of Senior Management

Strategic Human Resource Management

‘The Ideal Bureaucracy’ by Max Weber
in Organizations and human behaviour: A Book of Readings edited by Gerald Bell
Published by Prentice-Hall

Patterns of Industrial Bureaucracy by Alvin Gouldner
Published by Free Press

Control and Ideology in Organizations edited by Graeme Salaman and Kenneth Thompson
Published by The Open University Press

About the author

Caroline Emberson is a lecturer in retail management at The Open University Business School, having previously worked in the fashion and textiles industry. Caroline's research interests include managing in supply networks and the development of customer-responsive supply chains, in particular the use of business-to-business information systems.

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The Chinese symbol for creativity and destruction are linked with good reason, destroying one thing provides space for something new. A recession can provide a time when a large organisation becomes more open to change and willing to remove unnecessary procedures. It is also a time when many entrepreneurs set in place the means by which they make their fortune. For high wage economies such as the UK who find difficult to compete with the likes of China on high-volume low-end products, creativity can be critical in providing added-value. Dyson, for example, moved volume production of his floor cleaners to Malaysia but kept an expanded research and development group in the UK.

Creativity is often associated with 'thinking out of the box' but research shows creative people often spend longer than average deciding which question to devote their time to and which angle is the best to pursue. So allowing staff some time to pursue their hunches is one way to foster creativity.

Managers can make a difference by fostering a culture where staff feel able to challenge existing practice and voice new ideas, as opposed to an organisation where people feel obliged to look busy, watch their back and avoid steeping out of line for fear of being blamed.

An excess of internal procedure can induce a conservatism that makes it hard for creative ideas to be developed or sustained. Creative organisations often provide opportunities for creative endeavour by all their staff.

A suggestion scheme provides a simple way of tapping into the ideas of the workforce, locating substantive savings and possible process and product advances. Most organisations find the creative ideas provided pay for themselves in a very short-timescale - provided management publicise those they have taken up so employees know it is worth their while to participate.

Creativity is often associated with radical ideas provided by a select few, but the majority of products evolve from earlier models (the computers and cell phones of today are unrecognizable from their predecessors of thirty years ago).

Though we often associate a creative idea with an individual, it generally takes a team with different skills to realise its potential and bring it to market. People with different personalities may be better suited to different stages of the creative process.

People with wide interests can be better at coming up with fundamentally new approaches, whereas people who are better at detail and completion are often more drawn to improving existing products and practices. Entrepreneurs tend to be risk-takers willing to take chances most people would not. In organisations people with creative ideas often need influential sponsors to help get funding to realise their ideas.

For maximum impact managers may need differential reward strategies for different types of creative employee, scientists often place a higher value on freedom and job satisfaction than pay, whereas many entrepreneurs are interested in making serious money.

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The Open University course Creativity, Innovation and Change offers you the chance to explore ways of developing and fostering creative management. It includes a weekend residential school to help you develop your creative thinking and draw out the creativity in colleagues.

About the author

Jane Henry is an applied psychologist. She chairs the Open University Business School Creativity, Innovation and Change programme.

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A business situation.
[image © copyright Photos.com]

One effect of the global recession is that employees are being asked to work short-time or take unpaid leave, rather than being made redundant. Recent examples from the UK include Honda and British Airways, among others.

The management of companies who undertake this response justify their actions on the basis that they cut their workforce too deeply in the last recession, thereby constraining their ability to exploit the following upturn, when it occurred. This strategy is expressed in terms of being a win-win situation: management cuts costs and employees get to keep their jobs.

It is being reported in fairly uncritical terms, like much of the media coverage of the corporate sector which had tended to lionise the masters and mistresses of its universe before the financial and economic crisis. It could be claimed that this helped create an environment in which "business as usual" (despite a broken model) can be resumed in the upturn. Interviewing a few "business leaders"  appears to conform to the philosopher Betrand Russell’s epigram “personal experience is a bad basis for science” and does not greatly contribute to a public understanding of and education in complex business and management issues.

The key question is, whether this short-term response is the basis of a sustainable strategy and whether this is sector-specific or a general solution to the challenge of controlling employment costs.

At the aggregate level of the economy, this is not sustainable as lower incomes lead to lower demand, lower output and slower growth. At the level of the individual company, there are some more fundamental issues at play, particularly for managers in British-owned companies. Underlying this key question is a number of subsidiary ones:

• How does senior management stay in touch with its workforce, particularly in the threatening environment of a recession?

• Faced with the prospect of short-time working and unpaid leave, have the workers been asked what they think?

• Is consultation with the workforce a didactic (“we’ve told you what we are going to do, so you have been consulted”) or an interactive process?

People in the workplace.
[image © copyright Photos.com]

Talking to the staff appears to be an obvious thing to do but, in the absence of formal procedures and channels in which real dialogue takes place, one has to take management’s word for it that their talking is effective. Organisations that are smart at working are far more likely to be productive and sustainable, as the recent Chartered Institute of Personnel and Development (CIPD) report, Smart working: The impact of work organisation and job design, demonstrates. Among its conclusions is that process and management innovation are key components of productivity improvements. Yet, as numerous studies over many years have shown, there is a UK productivity problem. British-owned firms are less productive than foreign-owned ones operating in the UK.

One conclusion is that non-UK owned firms work smarter and view their workforces as a key asset and not a cost liability. Another is that the relationship that Masters and Mistresses of the Corporate Universe have with mere mortals may need to be changed or even reversed. If there is such a thing as the knowledge economy, this appears to be the bottom line for a restructured business world that is less volatile and sustainable in the longer term.

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Get under the skin of management issues with these Open University Business School courses:

Managing in the Workplace

Strategy

Creativity, Innovation and Change

About the author

Leslie Budd is Reader in social enterprise at The Open University Business School. He is an economist and has written extensively on the relationship between regional and urban economics, and international financial markets.

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