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Monday, January 31, 2011

Bureaucracy and Risk

@jasongorman Bureaucracy doesn't reduce the risk of making mistakes, it reduces the risk of making decisions.

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As a general rule of thumb, I hold that when one makes statements about risk one should specify whose risk you are talking about.

Bureaucracies typically evolve procedures for making decisions, which may help to eliminate certain types of error, but may make other types of error more likely. Bureaucracies also evolve responsibility structures that reinforce certain modes of decision-making and action, and inhibit others.  At least in the short term, employees take less personal risk when they conform to these procedures and structures, even when the decisions have bad consequences for other stakeholders, and may create longer term problems for the organization itself. 

@richardveryard When a person makes a decision within the rules of a bureaucratic system, the system protects the person from risk.

@ashalynd True, but then the success of the whole organization depends on how good are its rules.

There are various ways of viewing the short-term or long-term success of an organization. Again, we need to ask - success for whom, from which perspective. Inflexible organizations may appear to be successful in the short term, but if they lack requisite variety, they will fail to respond adequately to changes in their environment, and may ultimately become non-viable. 

For a rule-driven organization, the flexibility (requisite variety) depends on the degree of agility and intelligence that is embedded in the rules and their interpretation. I guess this is what @ashalynd means by the quality of the rules. It is not impossible for a bureaucracy to have some degree of agility, but rules usually leave a lot to be desired.

@richardveryard The success of the whole organization depends on the fit between the structure of rules and the structure of demand.

@jasongorman What does that mean - "the structure of rules" and "the structure of demand"?

The ability of the organization to behave in an agile and intelligent way depends on whether the flexibility (degrees of freedom) built into the rules and other working practices is aligned with the kinds of direct and indirect value (demand) which the organization needs to deliver. The question of alignment is ultimately a structural question.

1 comment:

  1. Can you say a bit more on what you see are the important differences between direct and indirect demand from the perspective of the supplying organization?