Can bureaucracies ever be efficient?

Max Weber, the German sociologist, believed that the system of bureaucracy was the most efficient and rational way to build an organisation. Embedded rules ensure that responsibility matches authority, hierarchy maintains order and also provides for checks and balances.

Yet, it does not always work that way.

Bureaucratic mess

Former Coal Secretary P. C. Parakh is the most recent to be caught in a bureaucratic mess. The CBI has instituted an inquiry into his decision to allocate a coal block to the Aditya Birla company, Hindalco. In a recent interview, Parakh explained that the Odisha government had recommended giving the coal block to Hindalco which was putting up a power plant. But Neyveli Lignite was also building a power plant and Parakh admits that he favoured Neyveli since the company was run by his Ministry. However, when Hindalco appealed against his decision, he reversed his recommendation based on the merits of the appeal and recommended that both companies be given a 50:50 share in the coal block. The Prime Minister accepted this recommendation and orders were issued.

Bureaucracies assign decision-making roles to each level in a hierarchy and allow an appeal at the next level. This is, of course, more rigidly laid out in government administration than in a private company where too, one takes an issue to the next level if one is unhappy with a decision at a lower level. In an inefficient or poorly designed organisation, there may be a lack of clear rules about authority/responsibility. The superior may frequently reverse the decision of a subordinate, or the work culture may discourage risk-taking. In the latter case, the executive’s response to most decision-making situations is to “put it up” to the next level. The executive may play safe, but decision-making is slowed down as the superior is overwhelmed.

As the pressure on decision-making gets shifted to the upper levels, there is no one paying attention to the strategic issues; the innovation required in competitive and complex situations then takes a back seat. The organisation atrophies and enters a process of decline.

Reiterating Weber

When the Supreme Court recently ruled that managers in government (I want to avoid calling them bureaucrats) should not be given oral instructions by ministers and that they should be written, it was only reiterating a key element in Weber’s justification for a bureaucracy. There needs to be clarity and transparency in the decision-making process so that we know who made the decision; the arguments in favour of a decision can then be reviewed and the decision appealed. Thus, Hindalco could appeal Parakh’s original decision.

Parakh’s comment that he gave the coal block to Neyveli because of “my little bias in favour of my own ministry’s company” gives us a clue to another important issue in the case, namely conflict of interest. Parakh was exploiting his position to favour a government-owned company to the detriment of a competing company. Fortunately, the system of appeal worked and he was prepared to recommend overturning his earlier decision. (Think about the Ministry of Civil Aviation deciding on issues when it has its home team, Air India, in the game.)

Of course, government managers are in a far more difficult position compared to the private sector, for the issues concerned affect many more stakeholders and the financial implication of the decisions can be extensive. However, we are back to matching decision-making authority and responsibility.

In an impersonal organisation design as envisaged by Weber, it may seem appropriate to put down all the rules, including decision-making for each level in the hierarchy. But in the real world, and especially in turbulent environments, individuals have to make the call. The requirements of a speedy decision come in the way of getting all the information one may want. Parakh made a bold decision, but the cost is greater to the country if its managers don’t make bold decisions — even if some of them are flawed.

Organisational drain

Strategic decisions, by their very nature, are different from operational decisions. Strategic decisions deal with uncertainty and have financial implications since they involve resource allocation. A manager who pushes the responsibility to a higher level, is a drain on the organisation.

Fortunately, in the government, the practice of making notings on the file leaves a trail and enables review and reversal of decisions. By reminding the government that this should be followed, the Supreme Court has done a service. However, what the Supreme Court cannot do is explain that the work culture must accord paramount importance to decision making. Timely decisions, even if imperfect, are better than no decisions being taken at all. As long as there is no evidence of personal gain, mistakes should be seen as a part of management processes.

(The author is a professor and dean of the Jindal Global Business School, Sonepat, Delhi NCR.)

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