Scaling Smart: How to Grow Without Succumbing to Bureaucracy

As companies expand, it is almost inevitable that bureaucracy grows alongside them. The term "bureaucracy" typically carries a negative connotation, often associated with demotivated personnel, complex and excessive procedures, slow decision-making, silo-thinking, a disconnect between management and employees, and a lack of digitalization and innovation. One might assume that avoiding or at least reducing bureaucracy is a fundamental objective for any organization. However, achieving this is easier said than done and is often not even desired, as bureaucracy also serves to maintain order and consistency, reduce operational risk, and enhance predictability.

When a start-up embarks on the journey to becoming a corporate giant, a transformation in organizational structure and processes is inevitable. While this evolution is necessary for growth and stability, it tends to introduce bureaucracy - often seen as a necessary evil.

In a start-up with a small team (let us say up to 20 people), collaboration is seamless due to the limited number of employees, enabling almost all information to be easily shared in an informal manner. Consequently, there is no immediate need for clear role definitions, as everyone possesses a comprehensive understanding of tasks and goals. Roles are organically defined and adapted daily, reflecting a pragmatic approach to getting the work done.

However, as the company grows, the following becomes necessary:

• Define Roles and Specializations: This leads to the creation of departments with their respective department leads (managers).

• Document Procedures: Especially for cross-department tasks, documented procedures are essential.

Typically, these initial growth pains manifest as a company evolves from 20 to 100 employees. Between 20 and 50 employees, the first pain points are identified but can still be swiftly addressed due to hands-on management. However, this approach can inadvertently result in the senior management becoming single points of failure and bottlenecks in the decision-making process. Senior management becomes increasingly involved in minor company decisions, acting as fire-fighters rather than strategic leaders.

As a company progresses from 50 to 100 employees, a critical turning point occurs. Informal procedures become more difficult to maintain, internal politics between newly created departments begin to emerge, and delegation becomes essential. Consequently, formal procedures and checks are introduced to maintain strategic control, marking the initial steps of bureaucracy.

As the company surpasses 100 employees, structures become increasingly complex and formal. This inevitably impacts the dynamic nature of the company:

• More departments and complex organizational charts lead to rigid structures and greater separation between senior management and day-to-day employees.

• The increase in employees makes managing everything via informal channels nearly impossible.

• Formalized procedures (rules and processes) become a necessity, as complexity of operations increases.

This means bureaucracy will automatically kick-in:

• Due to the increasing number of employees, there is an exponential growth in the number of communication lines (i.e. a team of 4 has 6 lines of communication, a team of 12 has 66, while a team of 50 has 1225 lines of communication).

• As no one can be responsible anymore for end-to-end processes and the work of other people/departments becomes more and more vague, it creates a lack of ownership.

• Managers are more and more forced to generate fast results(identify quick wins) in the optimization of the work. This means managers will typically react to every day-to-day incident, by adding a layer of control as a remedy to avoid the incident in the future, rather than taking strategic long-term actions to take away the root cause of the incident. These small, well-intended extra controls will in the long-term create a bureaucratic nightmare.

• Larger companies often become risk-averse (which is logical as there are more assets at stake, e.g. in the form of brand value), resulting in a plethora of checks and approvals before any action is taken.

To mitigate bureaucracy during organizational growth, consider the following tips:

• Hire and Train Effectively: Invest in skilled and motivated employees by offering training and development opportunities to enhance their capabilities. Well-trained and motivated employees require less oversight, allowing to reduce bureaucracy.

• Empower Decision-making: Encourage employees to make decisions within their roles and trust their judgment. Allow them to take responsibility and learn from their mistakes, fostering a culture of initiative and ownership.

• Decentralize Decision-making: Clearly define decision rights and ensure decisions are made at the appropriate level, avoiding unnecessary layers of approval.

• Streamline Processes: Regularly review and streamline processes to eliminate redundant steps, focusing on efficiency without compromising creativity and flexibility.

• Define Clear Company Goals: Establish clear company goals and Key Objectives and Results (OKRs), with ideally 1 North Star goal. From these, derive departmental goals to ensure alignment with the overall company objectives. This prevents individual department goals from overshadowing the broader company mission.
  A short anecdote to demonstrate this risk. A few years ago, I worked for a bank, where the IT department had as its main goal to have maximum availability of the systems (furthermore this goal had been aligned and agreed with all business stakeholders). The result was that changes to the IT systems were pushed back and controlled, as obviously they negatively impacted on the overall IT department goal. The result, however, was that the business department were no longer able to reach their goals, as they were no longer able to innovate and change their existing way of working. It shows that although each department had very noble and good goals, they did not enforce each other, on the contrary.

• Foster Open Communication: Create open communication channels for employees to voice their concerns, ideas, and feedback. Leadership should actively listen and engage with employees at all levels.

Bureaucracy is an inevitable outcome of growth, but with conscious effort and the right strategies, companies can strike a balance between structure and efficiency.