What is a Bureaucracy?

Bureaucracy is like traffic signs…

When you have to pause at stop signs, speedbumps, and red lights, it may take longer to get to your final destination than you think it should. But at the end of the day, those hurdles prevent accidents and increase the likelihood that everyone makes it home safely. Likewise, bureaucracies move slower than many people would prefer, but often the rules have a purpose. Of course, too many roadblocks — and too much bureaucracy — can be inefficient.

Bureaucracies come in different shapes and sizes, and can include governments, corporations, and nonprofit organizations. Some characteristics of a bureaucracy are:

Bureaucracies have a clear hierarchy of authority, or chain of command. Everyone knows who they report to and who’s in charge.

Rather than everyone having equal say, the higher up on the organizational chart you go, the more authority you have. Whoever is at the top — whether an individual or a board of directors — has the final word. Those at the bottom of the chain have very little authority. A decision might require approval by several layers of hierarchy before it can happen.

This type of structure eliminates any confusion about who is in charge. But it also means your position is often more important than what you bring to the table. You might have better ideas or more experience than the person above you, but that doesn’t mean you have a voice in making decisions. And some people can avoid responsibility for mistakes since they were “just following orders.”

Every bureaucracy is governed by a set of written, official rules or standard operating procedures. Each employee receives a specific set of instructions as to what his or her job entails. These rules help workers understand what they’re expected to do, and they help the organization maintain continuity as people come and go. On the other hand, strict regulations can rein in creativity and drive.

In most bureaucracies, there are no “jacks of all trades.” Instead, each employee has a specialized skill set and list of responsibilities. For the organization to meet its overall goals, everyone has to narrow in on their specific jobs. Each individual relies on everyone else to move the needle forward.

Bureaucracies are run by full-time professional managers that retain expertise and maintain institutional memory. Even when there’s a shift in top leadership, the professional core of the organization keeps things humming smoothly. While professional managers can develop mastery, they can also make organizations resistant to change.

While bureaucracies often get a bad rap, they can have their advantages.

A division of labor helps employees have a clear sense of their responsibilities and helps an organization efficiently move toward a common goal. Workers can develop expertise in their jobs and avoid switching tasks throughout the day. A clear hierarchy means everyone always knows who’s in command.

Bureaucracy can also promote stability. Even as employees come and go, a clear set of rules and responsibilities provides some continuity to their roles. In the case of the US government, many bureaucrats keep their jobs throughout changing administrations, which protects institutional memory. For industries that have safety concerns and are heavily regulated, bureaucracies can help ensure that proper procedures are followed.

A bureaucracy also promotes checks and balances. When one person has all the power and isn’t subject to extensive rules and procedures, he or she can make impulsive decisions. A bureaucracy can provide layers of accountability that prevent one party from gaining too much authority.

Bureaucracies can also have advantages for an employee’s career. They may offer relatively more job security, since they’re likely to be well-established organizations with set procedures for hiring and termination. Outside of layoffs, employees who do their jobs well can often stay for a long time. Since there are many rungs on the ladder, bureaucracies typically provide a room for advancement. Ideally, promotion is based on merit and hitting clear performance benchmarks.

In an ideal bureaucracy, operating based on set rules means employees are treated in an unbiased manner. Decisions are made based on reason and written guidelines, rather than personal relationships or charismatic leadership.

Bureaucracies often have a bad reputation, not without reason. Thanks to the rules and hierarchies involved, things tend to move slowly. Making decisions or changes often requires going through many layers of red tape, which can lead to inefficiencies.

As a result, bureaucratic organizations can be slow to respond to changing circumstances. For example, a government bureaucracy can lag behind in adopting new technologies, or a corporate bureaucracy can fail to react quickly to an agile new competitor.

Rigid compartmentalization of staff can also pigeon-hole employees. Those who want to change career paths might have a hard time moving from one department to another. Strict requirements for positions may cause companies to overlook promising candidates that don’t quite fit the guidelines. Division of labor can also hamper collaboration among different employees and departments.

Bureaucracies can also limit creativity and freedom for employees. With strict job descriptions and processes in place, there’s not a lot of room to get tasks done in whatever way works best for an individual. Creative ideas that step outside the status quo might be punished instead of rewarded, and there may be little incentive for workers to take initiative or go beyond the requirements of their roles. Boredom, low morale, and decreased productivity can set in as a result.

In real-life bureaucracies, advancement isn’t always tied to merit. Instead, promotions may be based on tenure, nepotism, or office politics.

A rigid chain of command means various players in a bureaucracy can pass the buck when it comes to making mistakes. They may try to avoid blame for unethical actions by pointing out that they were following orders from above.

Governance refers to the rules and systems through which leaders in an organization exercise authority, set objectives and policies, monitor performance, and are held accountable.

All governance requires administration, which refers to the day-to-day process of running a business or organization.

Governance and administration are two components of any organization, even a small and nonhierarchical one. A bureaucracy refers to a particular type of organization — a large and complex one with a set hierarchy and formal rules. Bureaucracy can be seen as one form of administration.

Despite the inefficiencies that bureaucracy can create, most Americans still work for one. A generation ago, Americans were more likely to work for a small business than a large company. Now, more than a quarter of employees work for companies that employ at least 10,000 people. That doesn’t take into account the number of people working for the government — over 10 percent of the population in every state (and more than 20 percent in states like Alaska and New Mexico.)

While it’s not necessarily the case that a company with many employees operates as a bureaucracy, that seems to be the direction US businesses are going. The number of managers, supervisors, and support staff in the US has increased dramatically in recent decades, much faster than growth in other occupations. Additionally, companies that make up the S&P 500 have reduced their average cost of goods sold substantially since 2004, but corporate salaries and overhead have not shrunk.

Some industries are more likely than others to function as a bureaucracy. Health care and higher education have seen a particularly substantial increase in bureaucracy, based on the share of costs going toward managerial and administrative roles. In 2020, more than one-third of healthcare spending went toward administrative costs, like provider billing and insurance company overhead.