Innovating Around a Bureaucracy

Harvard Business Review

What do you do if you're a leader in a large, successful organization with an entrenched bureaucracy, and you see the need for innovation? Can you change the way a large organization — such as the federal government — does its work, when all the forces are arrayed for stability and conservatism?

Consider the story of the Business Transformation Agency of the Department of Defense, which was founded in 2005 under Defense Secretary Rumsfeld, and "disestablished" in 2011 by Defense Secretary Gates. The Business Transformation Agency was populated by people brought in from the commercial sector. They were bold and brash and injected fresh new ideas that challenged existing policy and practice in many quarters of the Department of Defense administration (such as finance, human resources, procurement, and supply chain processes). They ran into many of the familiar challenges of making changes in the federal government: the difficulty of firing; the complexity of hiring at many levels of management; the need for contracts to be put out for competitive bidding; multiple stakeholders including civil servants, appointees, contractors, regulators; and Congress to be considered in almost all decisions. Unlike at commercial companies, there was no senior leader who could mandate changes. The Deputy Secretary of Defense that originally sponsored the agency under Rumsfeld left, and the new leader was less enthusiastic, ultimately leading to the agency's demise. The entrenched culture of the Department of Defense defeated attempts to change it.

The Internal Revenue Service (IRS), however, was successful in transforming its bureaucracy. The IRS had two advantages: Congress provided a strong mandate for change (the U.S. IRS Reform and Restructuring Act of 1998); and an outstanding, senior executive from the private sector, Charles Rossotti, was appointed for a five-year term to drive the changes. Under Rossotti's guidance, the IRS reorganized from a geographic structure to four new customer-oriented operating divisions. IT also upgraded old technology and processes, achieving significant improvements in service and compliance. For example, it implemented an Internet service that answers the question "Where's my refund?" that has had over one billion hits and freed up 800 customer service representatives to handle more complex issues.

So, what makes the difference between success and failure? Based on long experience working with government agencies and with large organizations of all stripes, I have seen that big changes to the way work is done require:

  • a team of insiders and outsiders to come up with new ideas
  • a clear external motivation to do something
  • strong leaders who believe in the ideas and push the bureaucracy to implement them consistently over a number of years

Sometimes (but not often) bureaucracies do make incremental changes to the way they do work, but they are usually not sufficient to meet citizen-customer needs. An innovation team composed of the "best and brightest" (like the "bold and brash" Business Transformation Agency) can identify bigger changes, but those cannot be implemented inside a strong bureaucracy without a strong and clear motivation to change. Now, in a competitive free-market environment, a for-profit company can be motivated by threats to its survival, or by declining market share and profitability. The big challenge for a government agency, however, is that the motivation needs to be a congressional or administration mandate. I'd like to tell you there's another way to motivate change in case you don't have such a mandate, but in the extreme environment of an entrenched bureaucracy, I haven't seen it. Thus, needed process changes within bureaucracies should always be built into such initiatives. Probably most important, though, as in the example of the IRS, a senior leader is absolutely essential to drive the change and sharpen the organization's focus on citizen-customers — to overcome the natural tendency of bureaucracies to focus internally. And as the IRS and Department of Defense stories illustrate, the bureaucratic ship won't turn on a dime — leaders need to sustain focus on the changes over the long term, likely for five years or more.

Leaders of big bureaucracies need to get — and keep — everyone enthused, create and communicate a future vision, assure support during the transition, insist on excellence, create demands on managers, and convince everyone of top management's conviction and commitment to change. These leadership challenges may seem familiar, but in a bureaucracy they are, if anything, magnified. To sustain momentum in this special context, leaders may need to adopt the behaviors of a fanatic — as Winston Churchill said, "A fanatic is one who can't change his mind and won't change the subject."

Of course, the federal government provides an extreme example of entrenched bureaucracy with an established way of doing things. But it offers lessons to any organization that is mature, successful, and set in its ways, yet recognizes the need to transform itself.

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