Business Psychology - Latest Findings

Article No. 215
Business Practice Findings, by James Larsen, Ph.D.

The Second Law of Bureaucracy

Researcher explores rule-making in business.

"What is the most important invention of all?" I was present once when this question was asked, and many people offered their best guesses, but the best answer was "language." It put to shame all the other offerings. Language can't be touched or patented, yet it most certainly was invented at some time, and it certainly is our most important invention.

But this article isn't about language. It's about one of those second-place guesses, rule-making. Rules can't be patented, either, yet they touch all of our lives every day. Business organizations are assemblies of people who follow rules. It's the law, so to speak, and without them, ordered society would not exist.

Max Weber, is generally credited with being the first to seriously study rule-making in modern organizations, and frankly, he didn't think too much of it. He believed that the natural result of rational administration was a process of rule-making that relentlessly produced rules "until the last ton of fossilized coal is burned." And he believed these growing networks of rules would eventually form an "iron cage" which would "enslave us all." Modern bureaucracies are "a rule-generation process turned loose," he said.

Max Weber is not the only person to try to understand rule-making. Many others have advanced their own ideas, and Martin Schulz, from the University of Washington, is familiar with them. The most promising competing view, he says, is one based on organizational learning.

Organizations learn by encountering and solving problems, and these solutions often end up as rules. When these problems are encountered again they need not be solved again. One need only invoke the rule, and the correct procedure will be followed. The more common the problem and the more important the response, the more likely a new rule will be born.

This view of rule-making depends upon the appearance of problems, that is, new problems that have not already been solved. Schulz realized that over time, new, unique problems would become less frequent, and this implies a slowing of new rules. This slowing is not predicted by Max Weber, so Schulz had a clear difference to test.

Schulz found a cooperative organization, and he studied 120 years of rule making. Sure enough, although rules did relentlessly multiply, they did so at a gradually slowing rate, thereby confirming Schulz's views of rule-making. He was so delighted that he named his finding the "Second law of bureaucracy," and he stated it this way: "The number of bureaucratic rules increases with shrinking increments over time."

So what does Schulz think about rule-making? Unfortunately, he sees no reason for optimism. He pointed out that problems posing the greatest challenge for a business will be dealt with first, and the resulting rules will be imprinted with the best knowledge available at the time. Unfortunately, in future years these rules will be burdened with obsolete knowledge.

For example, problems concerning weights and measures in commerce generated rules dictating English measures many years ago. Today we are stuck with this inefficient system because of the multitude of intricate rules that dictate the use of this obsolete system of measures.

Another process retards the creation of new rules by stretching old rules to apply to new problems. Unfortunately, these old rules were created in response to other problems and Schulz believes it is unlikely these old rules offer the best response to new problems. In his study he found rule stretching to be very common.

What to do?

Schulz recommends wholesale abandonment of rules. To be sure, problems will immediately arise when we do this, and new rules will quickly fill the need, but he believes this is a healthy process. He cites deregulation in airlines, health care, and telecommunications as recent, positive examples. He also suggests putting an automatic expiration date on rules, one that requires action to renew the rule. A look behind you at the binders containing the rules for your business may warm you to Schulz's suggestions.

Reference: Schulz, Martin (1998) Limits to Bureaucratic Growth: The Density Dependence of Organizational Rule Births. Administrative Science Quarterly, 43 (1998), 845-876.

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