Functioning of Bureaucratic Decision Making and its Effect on Business Environment

Bureaucracy in business is a hierarchical organization or a company that operates by a set of pre-determined rules. In a large business, there are typically several diverse functions that need to be performed by specialized sub-institutions that report up the management chain.

A small business can operate under rules that managers create as they go along and do not necessarily need a written set of policies. A small number of employees can manage all of the necessary tasks without much diversification. However, once a small business grows to a certain size, its functioning will rely increasingly on assigning responsibilities on a formal basis to various employees. Additionally, a larger company will need to write rules that apply to every function the business takes on, from internal rules for compensation to external policies for deciding how to manage customer returns.

A bureaucracy allows such a large business to create a set of rules. Bureaucratic organizations have an organizational chart for each department that delineates responsibilities and functions. Bureaucracies also establish a protocol for decision-making.

Business bureaucracies are typically made up of several layers of management. The chief executive officer or president is typically at the top of the organization. Vice presidents report to the CEO or president, and directors report to the vice presidents. Below the directors, employees report to supervisors, who report to managers. Managers, in turn, report to the directors.

Whether you are just starting out in an entry-level role or are moving up to become a manager, understanding business bureaucracy can help you better understand your workplace and advance your career. You can use the benefits of bureaucracy to create a fair working environment, institutionalize your company’s rules, improve processes and facilitate transparency. In this article, we explain the key characteristics of business bureaucracy and the pros and cons of bureaucracy in business.

Business bureaucracy

Bureaucracy in business is a hierarchical organization or a company that operates by a set of pre-determined rules. In a large business, there are typically several diverse functions that need to be performed by specialized sub-institutions that report up the management chain.

A small business can operate under rules that managers create as they go along and do not necessarily need a written set of policies. A small number of employees can manage all of the necessary tasks without much diversification. However, once a small business grows to a certain size, its functioning will rely increasingly on assigning responsibilities on a formal basis to various employees. Additionally, a larger company will need to write rules that apply to every function the business takes on, from internal rules for compensation to external policies for deciding how to manage customer returns.

A bureaucracy allows such a large business to create a set of rules. Bureaucratic organizations have an organizational chart for each department that delineates responsibilities and functions. Bureaucracies also establish a protocol for decision-making.

Business bureaucracies are typically made up of several layers of management. The chief executive officer or president is typically at the top of the organization. Vice presidents report to the CEO or president, and directors report to the vice presidents. Below the directors, employees report to supervisors, who report to managers. Managers, in turn, report to the directors.

Four key characteristics of a bureaucracy

You can recognize a business bureaucracy by four key characteristics:

1. A clear hierarchy

Business bureaucracies have a clearly laid out chain of command that is understood by every employee. Decision-making power flows from the top of the organization. Not unlike a beehive, where each worker bee has its place below the queen bee, each employee has a particular place in a business bureaucracy.

2. Specialization

Each member of a bureaucracy has a specific role, from finance or accounting to sales or marketing. Each employee is aware of their role and develops expertise that is specific to their job.

3. A division of labor

Each task is divided into its component parts in a bureaucracy. The specialization of roles reflects this division of labor. Different departments and individual employees contribute to various parts of the business’s overall task, whether that is producing and selling a product or providing a service.

4. A set of formal rules

Business bureaucracies have standard operating procedures that provide written guidance for each role within the hierarchy. Written instructions provide job descriptions for each employee as well as other rules within the business, such as the conditions of employment. The written regulations should be unambiguous to ensure that each employee understands their role.

Pros and cons of bureaucracy in business

In many forms, business bureaucracy can be a helpful tool that can be refined over time. Some common advantages of bureaucracy include:

1. Bureaucracy centralizes power

This allows each employee to have defined rules for their work. There is a measure of equality among employees at each level, which minimizes confusion about who is in charge of any given decision or outcome. Additionally, this form of organization encourages specialization by clearly defining each employee’s role. This allows employees to develop expertise and knowledge in their area while helping the business to become more efficient as well. Bureaucracies inevitably become more complex as the scale and complexity of an organization get larger to manage this increasing complexity effectively.

2. Bureaucracies promote impartiality and fairness

They provide mechanisms for resolving workplace disputes and apportioning tasks and help avoid the duplication of labor by promoting specialization. The rules established by a bureaucracy discourage favoritism and can protect employees from a supervisor who might otherwise exercise their discretion unfairly.

3. Bureaucracy protects employees

Its rules can help protect employees from workplace health and safety hazards and poor employment practices. When each employee is covered by the same, clearly defined employment practices and rules, the system feels fairer to all employees. By doing so, bureaucracies encourage a positive company culture, which can in turn increase employee satisfaction, productivity and retention rates. Put simply, bureaucracies help make a business a better place to work.

4. Bureaucracies help to create best practices

By promoting such best practices in written rules and creating a corporate structure, bureaucracies create predictable outcomes and can save time and resources when they are appropriately followed. In addition to these benefits, the bureaucratization of business can also present significant cons that can hinder employee output and create other problems:

5. Bureaucratic rules and structures can be backward-looking

Bureaucracies identify SOPs that worked well in the past, but not necessarily ones that will work well in the future or identify areas where processes might be improved. They can therefore inadvertently hinder innovation by making businesses less agile and reducing operational efficiency. For example, an overly-rigid bureaucracy can make it difficult to fire a poor performer due to an arduous termination process.

6. Bureaucracies can hinder transparency

Unless you are at the top of the organizational structure, in a large business, you likely will not have access to senior decision-making processes—even if you are in a supervisory role. This could mean that you are unaware of major decisions, such as an upcoming merger or restructuring.

7. Bureaucracies tend to have extensive rules or policies

These can sometimes seem useless, overly onerous or misguided. If you work at a large company, your company handbook likely includes any useful policies, from office dress code to expected behavior and responsibilities. However, there are also likely a few policies that appear unnecessary or unfair, such as a seemingly challenging process for requesting paid time off.

8. Bureaucracies can minimize freedom

Bureaucratic processes can restrict the ability that any individual employee has to act independently or make decisions without approval from above. Even if it seems like the right thing to do, an employee may not be able to decide because they could face bureaucratic consequences, such as a reprimand or even termination, or because the process of getting approval is too time-consuming.

9. Bureaucracies can be sources of inefficiency

For example, employees at a certain level might receive fixed salaries and benefits and work to complete the same tasks. While this makes the compensation scale more fair for everyone, it can make positions without a near-term prospect for promotion feel like a dead end. Additionally, these inefficiencies can be difficult to alter. Even as the market evolves and business conditions change, a bureaucracy may struggle to stay updated. This can mean that inefficiencies are further institutionalized over time.

How to minimize unnecessary bureaucracy in business?

Some forms of bureaucracy are helpful, if not vital, to organizing a business, while others can impede the work of an organization. Once you have identified which elements of bureaucracy are useful and which are not, you can implement the following steps to minimize unnecessary bureaucracy in your team or organization:

1. Keep your goals in mind

Business bureaucracy can be inefficient when employees become overly-focused on processes rather than results. Instead of focusing on completing procedures at the expense of being productive, try to find the shortest or most efficient route to achieving your goals.

2. Make your priorities clear

This can help you navigate bureaucracy at work. While having meetings and completing paperwork may be part of your everyday tasks in the office, your actual job priority is probably something else, whether that is writing code, making sales or crunching numbers. Prioritize these tasks so you can avoid doing bureaucratic functions at the expense of your actual job.

3. Eliminate unnecessary paperwork

Creative solutions can help you avoid tedious bureaucratic work. For example, instead of filling out the same information on different forms, you might create an automated way to store this information and insert it automatically into a document. Thinking creatively can help you cut down on time doing tasks that are not particularly productive. Additionally, look for other routine processes that could be streamlined or eliminated.

4. Empower your employees

Management roles can help cut out unnecessary bureaucracy by empowering their employees. Teams can slow down their productivity if they have to wait for permission from their supervisor for every task. Instead, give your employees clear instructions, room to work and the authority to make less critical decisions independently. You can further facilitate your team’s independence by looking for action-oriented people to hire.

5. Reward your team

Praising team members for taking action is another way to keep them working productively and avoid becoming mired in bureaucracy. Rewards from simple praise to promotions and bonuses can be distributed to employees who take the initiative and proactively work to streamline processes. These rewards are a signal to your team and the company that you value action more than bureaucratic processes at the expense of productivity.