What business axiom or management principle have you discovered that helps you live better, work smarter, or understand organizations in a unique, fun way, or that gives you that rare but special “ah ha” moment?
An example of a well-known business axiom is the famous “Peter Principle” (1) which says: “People reach their level of incompetence.” Explaining how incompetent people can reach senior executive and political positions without any managerial or leadership skills provides some insight into why so many companies and governments can fail. There are many corollaries to this intriguing concept that can explain poor government and business performance. Perhaps important decisions also rise to your level of incompetence. That is, the more critical a decision is, the more likely it is to be taken away from people with experience and decided in a steering committee (to avoid any responsibility) or at the C-Suite level or in the government cabinet where actually Sometimes terrible decisions are made out of ignorance. While this principle is meant to encourage discussion about the follies of some bureaucracies, we can all relate to those big business mistakes caused by executives who thought they knew better. Remember the new Coke, the Edsel, and the infamous business flops of Enron, Arthur Anderson, Lehman Bros., and Bear Sterns? Government failures are even more common, as evidenced by the Arab Spring uprisings and most of Europe faces serious budget deficits and even a collapse of the European Union currency.
Speaking with a senior bureaucrat who was going to announce the immediate closure of a major call center, I responded that determining their future call distribution would be critical as this location had nearly 400 employees at work. He replied that he was wrong and that there was no one working there. Amazed at his lack of knowledge, I replied that I had just returned from a visit last week and that we had over 400 active employees conducting business there. A bureaucrat located remotely and especially at headquarters can be very dangerous for sensible decision making!
My favorite business axiom is Parkinson’s Law, written by C. Northcote Parkinson (2) in 1954: “Work expands to available time.” It is the only management principle that I can clearly remember from my four years of undergraduate studies in management because I have experienced that the relationship between work and time is elastic and unpredictable. It is an irreverent but insightful view of how workload is not proportional to staffing within bureaucratic organizations. It reminds us that in our world, one must understand human behavior, embrace humor, and recognize the tendency of people to make foolish decisions, especially when emotions take over from basic common sense.
All students recognize the value of Parkinson’s Law. It’s critical to determine how long a task will take, or naturally expand to two, three, or more times the amount of actual time required. As students, we quickly learned this fact after working several days on an essay while in the last year, we started a project two hours before the deadline with surprisingly positive results. While this working time relationship is well known, fewer people are applying it in their organizations. Most business schools, companies, and certainly almost all governments have forgotten the importance of the relationship between working time. One has only to look at the state of governments around the world to recognize that the trend of growth of bureaucracies is critical, as growth ignores any workload or reason. Greece is currently facing severe financial ruin as its expanding public bureaucracy became unsustainable. Therefore, a competent bureaucrat is not rewarded when he stays quiet and works to downsize, but is expected to continue to operate regardless of workload increases. The incompetent bureaucrat can achieve nothing but a poor record, but his constant complaints inevitably generate additional staff. Keep complaining and you will soon be managing a department twice the size of the head of the competent office down the hall. The bureaucratic nature of the local motor vehicle department demonstrates how work expands into the time available, as these organizations, despite years of practice and computer conversions and upgrades, still demonstrate a total lack of logic and efficiency. Their avoidance of any level of customer service is legendary.
Another more serious and insidious example of Parkinson’s Law is the bureaucrat’s tendency to cause complexity. Consider the process of how American laws are codified and regulated. Whether it is the new healthcare law that is now being revised for constitutionality, the new Dodd-Frank banking law and its thousands of pages of regulations, or the proposed changes to the enormously complex tax code, the means to create a law in America has become the epitome of bureaucracy and unintended consequences. It explains why there are so many lawyers and accountants and how American society creates enough work to keep them all employed in the administration of laws too complex for the public to understand.
The generation of complexity in government is probably due to the number of legislators who must find something to do with their time. Rather than looking for ways to simplify work, they seem to want to pass more laws and make life even more complicated.
Parkinson’s Law explains why the two most basic government functions, collecting taxes and providing public health care, continue to become even more complex and expensive. Just try explaining to a European how Americans calculate their taxes or how to select an employee health care plan. After two hours with my Belgian daughter-in-law trying to select a health plan and explain income taxes, it was clear that our systems are truly irrational.
Cutting down a government agency, simplifying our tax code, or making health care more manageable is supposed to cause a calamity of epic proportions. The austerity plans in Europe and now occurring in state and local governments have yet to be adopted by our federal government, which seems to always find a reason to ignore the recommendations of its committee and postpone decisions by eliminating the most difficult problems. and important in the future. This ability to ignore responsibility is probably the reason why there is friction between US companies and the government. In most societies, the sovereign bureaucracy joins and supports companies. In the United States there is a mistrust in government dating back to the Revolutionary War and in our protection of individual liberties. Government work also has different incentives. Civil servants are not supposed to be efficient in the use of resources, but they are expected to either spend all the money in their budgets or face a draconian cut in funding and resources next year. Government growth requires more revenue to operate, so higher taxes are needed. Business enterprises are looking for profit, so they must work diligently to avoid taxes and focus on efficiency and cost reduction so that the objectives of the two institutions are traditionally at opposite poles. The incredible growth of global, federal, state and local governments and their overspending demonstrates Parkinson’s thesis that bureaucracies and agencies will proliferate even if they no longer have a reason to exist.
We find many examples of Peter’s Principle and / or Parkinson’s Law in our business and government experience. Many hope for an easy solution to the growth of inefficient government and the complexity of society. Perhaps if Congress passed a law that all laws and regulations should be limited to one page, we could begin to unravel the complexity of our health care system and tax code. Of course, the lobbyists, departments, and stakeholders that profit from such inefficiencies would prohibit any move toward simplicity.
The hope that technology will solve bureaucratic problems simply makes it easier to “cut and paste” more information in the process so that all laws and compliance take more pages to argue a simple point. The environmental impact report, for example, for a new football stadium in Los Angeles was over 10,000 pages long and cost $ 27 million to produce. It’s interesting that the original Los Angeles Coliseum was built in 1923 for just $ 950,000. Here’s one more example of a regulatory process with no reasonable restrictions or limits. The typical Los Angeles resident probably won’t be able to afford the game when soccer returns to Los Angeles in 2020, 2030 or …
The cost of future football in Los Angeles is negligible, however, compared to the waste and cost of managing the complex American tax code or managing our fragmented and complex healthcare system. Unfortunately, such complexity in healthcare shifts the burden to those most at risk without the knowledge to navigate and find optimal care: the uninsured, the elderly, the sick, the poor, and children. The tragedy of a systematic, fragmented and deeply uncoordinated health system is that the quality of care is seriously degraded and uneven. We are notified by letter that our doctor will no longer accept our PPO health insurance, that he cannot use the local hospital, that the laboratory is not an approved provider, and that our premiums have increased again.
The impact of the complex tax code may not be as severe on a citizen’s health, but it certainly creates unnecessary fiscal stress for a people and a country that can no longer live within its means. Every year we seem to have more uncertainty, more interaction with our tax accountants, state tax authorities, and the IRS as they add more complex rules to the process. Managing our financial life has become more difficult and the end result is more stress and doubts. So stay healthy so you have the time and energy to calculate and pay your taxes! Just remember Parkinson’s Law and don’t start preparing your taxes too early or you’ll lose several weeks of time that is best spent exercising and staying healthy.
References:
1. Peter, Laurence J .; Hill, Raymond (1969). The Peter Principle: Why Things Always Go Wrong. New York: William Morrow and Company.
2. Parkinson, C. Northcote; (1954). Parkinson’s Law and Other Studies in Management, Boston: Houghton Mifflin Company.