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Bureaucracy and innovation: an old theme revisited.

Bureaucracy and Innovation: An Old Theme Revisited

A decade ago, Ezra Vogel communicated a clear and disturbing message: Japan was outperforming the United States in economic competition because of superior planning, organization, and effort. However, confidence in the superiority of Western civilization and an ardent desire to see the United States as number one have made it difficult for Americans to concede that perhaps something was to be learned from an Asian nation. Vogel saw it as a matter of urgent national interest for Americans to confront Japanese successes more directly and to consider the issues raised by Japan's outstanding performance.

During the 80s, Deming, Juran, Buffa, Schonberger and many others wrote and lectured about Japan's accomplishments, contributing to the extensive literature on the decline of America's competitiveness. The federal government appointed commissions, the commissions carried out studies and issued somber reports about the state of our industrial productivity health as compared to those of other industrialized nations.

In the last decade of the millennium, the question of what has been accomplished in the eighties still produces uncomfortable answers. Probably not much; certainly not enough. For Tom Peters, lip service in several important areas remains the norm. Quality and related programs; design and service improvement; product-development time reduction; innovation of production processes; truly flattening the hierarchical pyramid; training on the job; management engagement; government support to infrastructure rebuilding, education and commercial R&D; unions' desire to cooperate, environmental protection and preservation - the list is extensive - have all been superficial and ineffective, certainly insufficient to help close the competitiveness gap and to put the United States back on track again.

Last year, Dertouzos, Lester, Solow and the MIT Commission on Industrial Productivity warned that technological weakness in development and production, including a failure to pay enough attention at the design stage to the quality of manufactured products and insufficient attention to innovation in manufacturing processes, are among the major factors that led to declining productivity and competitiveness in U.S. industry. These observations by the MIT commission are consistent with the analysis of the weaknesses of U.S. industries - particularly lack of creativity - cited in a recent interview by Akio Morita, CEO of Sony, confirming Tom Peters' view that even lip service about product design has been absent in the 1980s.

These problems were amply and accurately predicted at least a quarter of century ago by organizational theorists from different schools of thought. These predictions, however, were ignored by U.S. management, with its focus on short-term profits and a model of organization that emphasizes hierarchy and control of the labor force. The hierarchical, bureaucratic structure characteristic of U.S. organizations is both inappropriate and ineffective in a dynamic environment where individual creativity and innovation must also be viewed as the consequence of the sociotechnical transformation system in organizations. Bureaucracy has impeded the full flow of creative effort in organizations.

Design has historically been regarded as an important component of industrial productivity. Much recent research has focused on design issues at a production level or as an individual process, without placing this process within the context of the organizational system.

The process of innovation and its relation to the various intellectual processes variously referred to by psychologists as problem-solving, creative thinking, and invention, have also been studied since Plato's time and are the focus of considerable literature. Curiously, it seems that U.S. managers have neglected to act on the conclusions of their own researchers.

In organization theory, the concept of balance as a linking process refers to a mechanism through which the various parts of the system are maintained in a harmoniously structured relationship to each other.

Balance appears in two varieties - quasi-automatic and innovative. Both forms act to ensure system integrity in the face of internal and external changing conditions. To what degree is adapting to change automatic?

The book "Organizations," offers an interesting answer. Systems have performance programs, that is, highly complex and organized sets of responses, which are triggered when a change is sensed. If the change is minor, and if it can be dealt with by the established programs of action, then it might be predicted that the adaptation made by the system will be quasi-automatic.

The need for innovation arises when adaptation to a change is outside the scope of existing programs designed to keep the system in balance. New programs have to be developed in order for the system to maintain internal balance.

The creation of new programs is subject to the limitations and possibilities inherent in the quality and variety of information present in a system at a particular time. It depends on the capacity of the system to supply information; on the operating rules (programs) governing the analysis and flow of information within the system; on the range of available information in the memory of the system, and on the ability of the system to forget previously learned solutions to changed problems. For decades, parochialism has constrained the quality and variety of information available in U.S. organizations.

As pointed out by the MIT study, Americans pay little attention to life in other countries. The educational system in the United States has encouraged and reinforced parochialism. This attitude makes it very difficult for U.S. concerns to compete in a global market. Parochialism has kept the United States from taking advantage of and enjoying the benefits of scientific, technological, and managerial innovations abroad.

The story of process innovation in steel-making is well known. In the postwar decades, the domestic integrated producers lost their technological lead. Most U.S. integrated steel producers lagged behind their Japanese and European competitors in the adoption of the basic oxygen furnace, continuous casting, and computerized controls. Similar cases and attitudes can be found in the textile, machine tool, and automobile industries.

While U.S. manufacturers spent two decades wasting time and huge sums of money developing sophisticated computerized inventory systems to handle complexity more efficiently, Japanese manufacturers were trying to simplify complexity by reducing or eliminating inventories. With JIT production systems, material control could be accomplished manually with a few Kanban cards. Were U.S. manufacturers aware of these developments overseas? Were they willing to try approaches not invented here?

In currently available CAD/CAM systems, the designer sits in front of a computer console and can draw on a data bank of existing part designs, as the part being designed may be only a variation of a previous design. The problem is not with CAD/CAM technology, but rather with its data banks of conventional design approaches. As we have seen, the system's memory plays an important role in human problem-solving and innovation. It stores repertoires of solutions to past problems and repertoires of components of problem solutions. But in a rapidly changing environment, the system must be able to forget previously learned solutions. A system with too good a memory might narrow its choices to such an extent that innovation is stifled. Old programs might be used to adapt to change when innovative solutions are necessary. To the extent that parochialism is affecting CAD data banks in the United States, new technology is not going to be of much help for U.S. designers.

Today we have a substantial body of empirical evidence about the processes that people use to think and to solve problems. There is also evidence that these processes can explain creative thinking and problem-solving. Effective problem-solving depends ultimately on knowledge. According to Simon, creative performance results from taking calculated risks where the accuracy of the calculation rests on the foundation of superior knowledge. And, we might add, knowledge does not recognize national boundaries.

We can see clearly how parochialism has hurt the chances of the United States to compete in world markets. A number of companies have begun to recognize the need to scan globally for the best practices and to transfer new ideas and methods across borders. But there is still a long way to go.

Kim Clark and his associates at the Harvard Business School studied new product development in the U.S. and Japanese automobile industry. They found that the Japanese needed only about half as many hours of engineering effort to take a new car from the conceptual stage to the point of market introduction, and they did it in two-thirds the elapsed time. The key to Japanese success is, of course, teamwork and cooperation. The problem here is that individualism is highly valued in the United States. To complicate the equation further, creativity is also highly valued in U.S. culture.

Which is the more effective problem-solving instrument, the group or isolated people whose work can be pooled? The Japanese seem to favor the group. Although there is no definitive answer, there has been much evidence since the early sixties to conclude that if a group is composed of members who trust one another and have learned to work well together, it can work more quickly and efficiently than any member alone because it can work more rapidly to gather and process the information necessary for a decision.

It is also true that a group can be more creative than individual people because of the mutual stimulation members can give to one another, provided there is a non-evaluative climate in the group, a decision-making structure appropriate to the task, enough time to explore unusual ideas, and when the group is working on tasks that involve gathering a wide range of information or that require a complex evaluation of the consequences of various alternatives.

As for group organizational patterns, it has been known since the early 50s that over-centralized communications are effective in implementing a given task but relatively inflexible in developing new solutions if the task changes - that information is lost and distorted very rapidly as it travels through a number of separate communication links.

As for group leadership styles, empirical evidence at least a quarter of a century old shows that a more autocratic (task-oriented) style of leadership is most effective in groups where the nature of the task is fairly structured. A more democratic (member-oriented) style is most effective in groups with a less structured task.

Design for producibility and quality would have been possible in the United States long ago had U.S. managers been more aware of the research in their own field. In "The Management of Innovation," the authors refer to a design engineer trying to accomplish his work under a bureaucratic structure of organization. For that engineer, once the design is handed over to production people, it becomes their responsibility. However, he complains, the responsibility for things that go wrong can act as a tennis ball, being batted back and forth. What happens, he explains, is that you're constantly getting unexpected faults arising from characteristics you didn't think important in the design.

You may hear of these through a sales person, or a production person, or somebody to whom the design was handed over in the dim past. But then it's not a design problem. It's an annoyance caused by a person who can't do his own job. You were finished with that one, and you're on to something else now.

It is discomforting to see that U.S. manufacturers are taking so long to recognize that product development should be carried out by design and manufacturing people working as one team from the conception of the product well into the manufacturing phase. Twenty-eight years after "Innovation," the MIT commission is still raising the same issue. The progress made is far from satisfactory. How can teamwork and cooperation exist in a bureaucratic structure, with its human and organizational walls to separate the various functions?

The bureaucratic organization is characterized by a high production efficiency but by a low capacity to innovate. In 1965, Victor Thompson analyzed the obstacles to innovation and creativity in the modern bureaucratic organization. Innovation is defined as the creation, acceptance and subsequent implementation of new ideas, concepts, processes, products, or services. It implies ability to change and to adapt. Central to the explanation is the concept of ideology.

The ideology explains the actions of the group, what they intend to accomplish and legitimizes the coercion that the group exerts over its members. The modern bureaucratic organization has one ideology which might be called the ideology of production. According to this ideology, the organization has an owner. The owner has an objective that must be attained by the organization. The individual members of the organization are remunerated for the time expended and work performed in pursuing the organizational objective. Therefore, the administration consists of functions and processes utilized to improve the "tool" (organization) that will make possible the attainment of the organizational objective. A structure is needed to discipline those functions and processes and to facilitate the achievement of the organizational goal. Bureaucracy provides such structure.

The large and modern bureaucratic organizations dominated by the ideology of production fit the model of what Weber termed monocratic organization. In large organizations, there is a tendency to be concerned with legitimizing the superior-subordinate relationship. By emphasizing hierarchy, this organization says organizational conflict is not all right. Since conflict implies pluralism, competitiveness, and the search for solutions, this inability to legitimate conflict hinders creativity and innovation.

The bureaucratic model relies on the use of extrinsic rewards such as money, power, and status. Extrinsic rewards administered by the hierarchy stimulate conformism instead of innovation. Creativity is fostered by individual compromise, and by intrinsic rewards.

Bureaucrats depend on the organizational programs and procedures for any function that they would exercise. This elicits a conservative attitude towards those programs and procedures. The first reaction to new ideas and changes is, "How are we going to be affected?" The organization becomes a political system preoccupied with the distribution of money, power, and status.

The introduction of new technical activities is accomplished through the so-called units of research and development. The organization encounters serious problems in fostering creativity in these units. Two systems of rewards must be established, one toward innovation, the other toward the production activities. This duplicity is divisive and harmful to the current distribution of rewards.

Due to the division of labor principle, the monocratic organization generates subunits identified with sub-objectives. When the work is completed by a unit, the preoccupation is to keep records and protocols so that in case of work not well done, somebody else outside the unit can be blamed.

A person might be afraid to suggest that a company take some innovative action. New ideas are speculative, and thus dangerous to personal objectives, especially to those of money, power and status. A bureaucratic organization that is based on extrinsic rewards and committed explicitly to this strict theory of responsibility, might not be highly innovative.

Some organizational theorists were not convinced at all that bureaucracies could be less than effective. The question was: is there any kind of situation or environment where a bureaucratic structure could be the optimal form of organization? In "The Management of Innovation," the authors provided important insights into alternative forms of organization by introducing the environment as the important variable to be considered. Essentially, their research led them to conclude that in a stable situation, a bureaucratic structure may be more effective than one that approaches a democratic ideal. In a highly variable or volatile environment, however, more flexible forms, which they called "organic," would be more appropriate. The organic form of organization is appropriate to changing conditions that constantly give rise to fresh problems and unforeseen requirements.

For nearly a decade (1955-65), Joan Woodward and her associates studied British industry located in South Essex, an area in which newer and developing industries predominated. They found that organic systems outnumbered mechanistic (bureaucratic) systems by approximately two to one, thus confirming earlier findings that bureaucratic systems are appropriate to stable conditions and organic systems are appropriate to conditions of change.

Others (in "Organization and Environment," for example) continued this line of research and developed a model that made it possible to identify the factors that make for effectiveness in different kinds of organizational environments. Their key idea is that each functional part of an organization deals with a different part of the environment and develops a cognitive point of view that reflects its adaptation to that part of the environment. This process is called differentiation. For an organization to function effectively, the various orientations of the different units must be coordinated, a process called integration. In studying effective organizations, it was found that the more turbulent the environment, the lower the degree of formal structuring of the organization, and the longer the time horizon of the company. The degree of successful integration of key functional units was found to be a function of the quality of conflict resolution between them. Communications tended to be open and involved confrontation. Areas of conflict were not avoided or suppressed. Decisions tended to be pushed down to a lower level and conflict tended to be resolved more at those levels.

For other researchers, there was nothing intrinsically good or bad about bureaucracies. A link exists between organization structure and technology, and some researchers believed that the relationship between technology and structure depends on two dimensions of technologies: the degree of variability of stimuli (problems) and the degree to which the search procedure (search for a solution) is analyzable (routine). One researcher, C. Perrow, sees organizations constantly trying to move to the routine (bureaucratic) model by reducing the number of exceptions, by decreasing the variability of raw materials (human, symbolic, or material), and by finding routine ways of solving their problems. However, he warns, this victory may be short-lived. If the market suddenly changes, or the technology changes, such an organization may find itself back in the other three categories. The company should be prepared to change the organizational structure when such events occur.

Another book, "Organizational Psychology," argues for an approach to organizational effectiveness that hinges upon good communication, flexibility, creativity, and genuine psychological commitment. The argument is not based on the assumption that this would be nice for people or make them feel better (although this would happen too). Rather, the author's argument is that systems work better if their parts are in good communication with each other, are committed, and are creative and flexible. Isn't this exactly the strength of Japanese manufacturing systems today?

For more than a quarter of a century, the literature on organizational theory and behavior has been sending a clear signal about the inability of bureaucracies and their mass production systems to innovate. The wealth of research should have been more illuminating to U.S. managers than it actually was.

The best example is given by the automobile industry. The goal of the automakers was to satisfy the demands of a huge domestic market within a stable environment. This could be achieved more profitably by the mass production model under the ideology of production, competing for price at the expense of quality and design excellence.

Crucial to the model was the control in the workplace through extreme simplification and specialization of jobs, and by superimposing tall organizational structures. According to the ideology of production, workers had to be treated like replaceable parts. This was accomplished by defining jobs narrowly and by making each job easy to learn - the division of labor principle.

Consistent with these assumptions about the market and the work place, innovation was barely needed except to design tools and machinery adequate for long runs of standard designs. Relations with suppliers, customers, and workers were often antagonistic.

Since the mass production system worked well for owners during three decades of stable environment, other types of production systems practically disappeared from the U.S. industrial scene. However, non-routine productive systems, with less hierarchical work organizations and the direct participation of workers in decision-making, survived overseas and were the embryo of the new flexible manufacturing systems of today. These models offer genuine alternatives.

Changes in the structure of U.S. organizations must occur - changes that enhance creativity, not inhibit it. Japanese "models" of organization design have been notoriously difficult to implement in U.S. organizations where the control structure characteristic of bureaucratic hierarchies has made organizations resistant to such restructuring.

There is a temptation to look to other "free market systems" for comparison with the U.S. bureaucratic model. But a more appropriate comparison is with state capitalist systems such as that of the USSR and the People's Republic of China. Both these systems are heavily reliant on hierarchical (and often political) control. As Galbraith has suggested, while the ideological commitments of capitalism and socialism differ enormously, the great industrial corporations and their bureaucracies have stamped their culture no less on Kharkov than on Pittsburgh and are a ruling influence on both systems.

Both the USSR and the People's Republic of China are facing similar economic and industrial problems to the United States. All three systems are bureaucratized, with the consequence that innovation and design have been inhibited so much that all these systems are currently in a state of crisis. If the comparison of the United States with the USSR seems far-fetched, remember that one of the greatest admirers of "scientific management" was Vladimir Ilyich Lenin.

The search for alternative models leads toward the more novel participatory structures that have characterized successful organization structures. The system of co-determination in West Germany has been a major contributing factor in the high relative productivity of West German industry. One of the most successful industrial structures in post-Franco Spain has been the system of industrial cooperatives in the Mondragon region. The cooperatives are the leading exporter of electrical goods in Spain and have productivity rates far higher than comparable bureaucratic organizations. The system has no management level and a cooperative system of work that produces innovative design and efficient production.

The dilemma facing U.S. industry is that earlier industrial structures that followed from the ideology of scientific management have resulted in bureaucratic, hierarchical organizations with a dominant philosophy of control. The consequences of this philosophy, as in the USSR, are a stagnating economy, a lack of competitiveness and a lack of creativity in the design process. The search for change in U.S. industry must recognize the necessity of restructuring and the implementation of participatory structures in the design and production process. The United States must undertake enormous new investments in science and technology, in applied research and development efforts, in education, training and retraining, and in new forms of labor management relations that foster teamwork and economic democracy.
COPYRIGHT 1990 Institute of Industrial Engineers, Inc. (IIE)
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Author:Reis, Dayr A.; Betton, John H.
Publication:Industrial Management
Date:Nov 1, 1990
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