Is the COVID crisis busting business bureaucracy?

August 7, 2020, 10:00 AM UTC

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Good morning.

Is the COVID crisis busting business bureaucracy? That’s the question I asked business guru Gary Hamel, who has a new book coming out next week entitled Humanocracywhich is his alternative to bureaucracy. I’ve been hearing stories from executives about how work from home has flattened hierarchies, democratized information, impaired micromanagement, focused on outcomes over inputs, and encouraged digitization and innovation.  In the process, has it also weakened corporate inertia andto use Hamel’s subtitle–moved us closer to Creating Organizations as Amazing as the People Inside Them?

Not so fast, says Hamel. “In any crisis, power moves to the periphery,” he says. “By definition, a crisis pushes power out. No hierarchical organization can handle the information processing demands and the decision-making requirements that a crisis presents.” But will the changes last? “We’ve gone through other crises, and typically bureaucracy reasserts itself rather quickly.”

Bureaucracy has been the bane of business leaders for decades. The conversation with Hamel reminded me of this piece I wrote for The Wall Street Journal in 2010, entitled “The End of Management”adapted from my book, The Wall Street Journal Essential Guide to Management. Twentieth century management was all about creating systems that made people part of a bigger machine. Twenty-first century leadership needs to set them free from the machine and empower them to innovate. The challenge, to use ex-IBM CEO Lou Gerstner’s metaphor, is to make the elephant dance.

Yet Hamel contends progress has been, well, nonexistent. Despite talk of a gig economy, the percentage of the U.S. labor force working for companies with more than 5,000 employees has swollen to a record 34%, from 29% in 1987. And “the number of administrators, managers and supervisors…has more than doubled” over that period, while all other jobs increased by less than 50%. “Bureaucracy has been growing, not shrinking.”

I asked Hamel whether the acceleration of digitization across industries that has occurred during the pandemic would help beat back bureaucracy. His response was, in essence, that while digitization may provide new tools for combatting bureaucracy, it doesn’t do the job by itself. Most such efforts simply graft “new practices and new processes on the old bureaucratic root stock.”

So what’s the antidote? In the book, Hamel and coauthor Michele Zanini call for a return to first principles—new ones that focus on empowering people. It’s worth the read.

More news below.

Alan Murray


Trump vs China

President Trump has moved against Chinese tech firms, hard. Yesterday he signed executive orders banning U.S. firms or persons from transacting with TikTok parent ByteDance or Tencent's WeChat. The orders take effect in 45 days. TikTok is threatening legal action. Tencent's share price plummeted by over 6%, though it should be noted that only WeChat is affected here—Tencent's other investments are not, which is good, as they also include the likes of Fortnite-maker Epic Games and Spotify. The White House also proposed forcing Chinese companies with U.S. listings to give those up, unless they comply with new audit requirements. Fortune

Twitter labeling

Twitter is to start telling users which accounts are run by state-affiliated media, such as China Daily, Russia Today, Sputnik and others. However, the labels won't be put on the accounts of outlets such as NPR and the BBC, on the basis that these are just "state-financed media organizations with editorial independence." Politico

NRA suit

New York Attorney General Letitia James wants to dissolve the National Rifle Association on the basis of alleged corruption and illegal conduct. Her suit alleges that the NRA diverted $64 million away from its charitable mission for personal use by leaders including Wayne LaPierre, over just three years. James: "The NRA’s influence is so powerful that the organization went unchecked for decades while top executives funneled millions into their own pockets." Fortune

Trump warnings

President Trump's advisers avoided giving him military options in his dealings with Iran and North Korea, because they feared him accidentally taking the U.S. to war. Senior Pentagon officials even warned Iran that they could not predict what the president would do. That's according to (attributed) accounts contained in a new book by CNN's chief national security correspondent, Jim Sciutto. CNN


BA cuts

British Airways says it is making progress on its planned job cuts, which are to total 12,000 lost employees. Half that tally have already agreed to take voluntary redundancy. BA's remaining employees will get letters today, telling them whether they're staying or going, and–if they're staying–whether they would need to accept a new contract. Reuters

Contact tracing

The EU is setting up a "gateway" system to allow interoperability between various countries' contact-tracing apps, so they work across borders. However, the system will likely only use apps based on the decentralized approach that is backed by Google and Apple. So no luck for people using the French or Hungarian apps, which went for the centralized model that raises privacy fears, but produces a bit more useful data for health care workers. And also no luck for people visiting France, which is a problem because a lot of people in Europe do just that. Financial Times

Stock valuations

Fortune's Shawn Tully looks at stock valuations, which have only been this high three times in history, and tries to figure out what happens next, based on what happened after those three previous occasions. "Conclusion: A 31.1 CAPE is a dangerously high starting point for buying stocks. The price investors are willing to pay for each dollar of earnings will probably shrink from here. And EPS is already getting pounded by the COVID-19 lockdown, and the idea profits will soar in the recovery to compensate for the fall in multiples, and then some, is far-fetched." Fortune

VP pick

Journalist Constance Hale and management professor Ella Bell Smith write for Fortune that the need for vice presidents to offer "leadership muscle" is being overlooked as people debate who Joe Biden should pick as his running mate. All the women on his shortlist have the necessary grit, they write, but the ideal candidate will also need influence and grace. Fortune

This edition of CEO Daily was edited by David Meyer.

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