Innovating around a bureaucracy

red-tapeWhat do you do if you’re a leader in a large, successful organization with an entrenched bureaucracy, and you see the need for innovation? Can you change the way a large organization — such as the federal government — does its work, when all the forces are arrayed for stability and conservatism?

Consider the story of the Business Transformation Agency of the Department of Defense, which was founded in 2005 under Defense Secretary Rumsfeld, and “disestablished” in 2011 by Defense Secretary Gates. The Business Transformation Agency was populated by people brought in from the commercial sector. They were bold and brash and injected fresh new ideas that challenged existing policy and practice in many quarters of the Department of Defense administration (such as finance, human resources, procurement, and supply chain processes). They ran into many of the familiar challenges of making changes in the federal government: the difficulty of firing; the complexity of hiring at many levels of management; the need for contracts to be put out for competitive bidding; multiple stakeholders including civil servants, appointees, contractors, regulators; and Congress to be considered in almost all decisions. Unlike at commercial companies, there was no senior leader who could mandate changes. The Deputy Secretary of Defense that originally sponsored the agency under Rumsfeld left, and the new leader was less enthusiastic, ultimately leading to the agency’s demise. The entrenched culture of the Department of Defense defeated attempts to change it.

The Internal Revenue Service (IRS), however, was successful in transforming its bureaucracy. The IRS had two advantages: Congress provided a strong mandate for change (the U.S. IRS Reform and Restructuring Act of 1998); and an outstanding, senior executive from the private sector,Charles Rossotti, was appointed for a five-year term to drive the changes. Under Rossotti’s guidance, the IRS reorganized from a geographic structure to four new customer-oriented operating divisions. IT also upgraded old technology and processes, achieving significant improvements in service and compliance. For example, it implemented an Internet service that answers the question “Where’s my refund?” that has had over one billion hits and freed up 800 customer service representatives to handle more complex issues.

So, what makes the difference between success and failure? Based on long experience working with government agencies and with large organizations of all stripes, I have seen that big changes to the way work is done require:

  • a team of insiders and outsiders to come up with new ideas
  • a clear external motivation to do something
  • strong leaders who believe in the ideas and push the bureaucracy to implement them consistently over a number of years

Sometimes (but not often) bureaucracies do make incremental changes to the way they do work, but they are usually not sufficient to meet citizen-customer needs. An innovation team composed of the “best and brightest” (like the “bold and brash” Business Transformation Agency) can identify bigger changes, but those cannot be implemented inside a strong bureaucracy without a strong and clear motivation to change. Now, in a competitive free-market environment, a for-profit company can be motivated by threats to its survival, or by declining market share and profitability. The big challenge for a government agency, however, is that the motivation needs to be a congressional or administration mandate. I’d like to tell you there’s another way to motivate change in case you don’t have such a mandate, but in the extreme environment of an entrenched bureaucracy, I haven’t seen it. Thus, needed process changes within bureaucracies should always be built into such initiatives. Probably most important, though, as in the example of the IRS, a senior leader is absolutely essential to drive the change and sharpen the organization’s focus on citizen-customers — to overcome the natural tendency of bureaucracies to focus internally. And as the IRS and Department of Defense stories illustrate, the bureaucratic ship won’t turn on a dime — leaders need to sustain focus on the changes over the long term, likely for five years or more.

Leaders of big bureaucracies need to get — and keep — everyone enthused, create and communicate a future vision, assure support during the transition, insist on excellence, create demands on managers, and convince everyone of top management’s conviction and commitment to change. These leadership challenges may seem familiar, but in a bureaucracy they are, if anything, magnified. To sustain momentum in this special context, leaders may need to adopt the behaviors of a fanatic — as Winston Churchill said, “A fanatic is one who can’t change his mind and won’t change the subject.”

Of course, the federal government provides an extreme example of entrenched bureaucracy with an established way of doing things. But it offers lessons to any organization that is mature, successful, and set in its ways, yet recognizes the need to transform itself.

This article first appeared on the Harvard Business Review and has been lightly edited.

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Categories: Innovation

Author:Brad Power

Brad is a consultant and researcher in process innovation. His current research is on sustaining attention to process management. He is currently conducting research with the Lean Enterprise Institute.

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2 Comments on “Innovating around a bureaucracy”

  1. March 15, 2013 at 5:46 am #

    Reblogged this on Katby@n, emotional innovation.

  2. March 15, 2013 at 8:22 am #

    I’ve been dealing with this exact problem for 20 years. While the article did mention the need for strong leadership, my experience is that even the strongest leader has difficulty dealing with the magnitude of the problem. Imagine an hour glass that has dropped 50% of its sand into the lower chamber and stops. There’s an obstruction in the middle and when tipped over, the obstruction prevents the sand from returning to the original chamber.
    Keeping that image in mind, the sand in the upper chamber represents a strong leader and aligned executive management, middle management represents the blockage and the sand in the bottom chamber represents the employees, at every level. The sand in both the upper and lower chambers is restrained by a relatively small particle compared to the total volume, yet, size notwithstanding, the blockage wins.

    Keeping the hour glass image in mind, imagine the sand in both chambers has the ability to form new routes between the chambers, circumventing the blockage. After recalibrating, the hour glass operates superbly, though the blockage remains.
    If a CEO wants to support innovation, he has to provide a risk free environment, anonymous routs through which ideas can flow around the obstructions. Once beyond the obstructions, the ideas are evaluated and sent down to middle management with this question, “this looks like a good idea, the consequences seem accurate and we’re willing to live with those consequences, tell us why you shouldn’t take this action tomorrow?”

    Before you scoff at the simplicity of this approach, one CEO followed this approach and in ten weeks employees, from the janitor to the officers, came up with 8000 ideas. Each was delivered down the organization (having gone around the blockage in the hour glass metaphor) to the responsible manager who had to answer the question above. The results: in ten weeks there was a $300 million sustainable reduction in SG&A, a $200 million reduction in already approved capital and a $45 million inventory reduction. Yes, there were a lot of people impacted, some negatively, but the process resulted in 60% fewer layoffs than had been anticipated and the stock price was up 40% in six months.

    Self-interest is a powerful deterrent to change. When obstruction becomes detrimental to self-interest, monumental change can occur in a very short time frame.

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