The Upside of Bureaucracy

Susie Allen, Writer July 24, 2019

Bureaucracy gets a bad rap. Just the word conjures images of interminable meetings, endless lists of rules and annoying paperwork. But bureaucracy — or at least some aspects of it — may deserve a second look.

Khonika Gope, a graduate student in Stanford University’s Department of Management Science and Engineering who is studying with STVP, is researching how work environments and institutional contexts impact entrepreneurial outcomes. In a recent field experiment, working with advisor and Management Science and Engineering professor Chuck Eesley, she used entrepreneurship bootcamps as a testing ground to explore how bureaucratic work environments — defined by their use of rules and strict hierarchies of authority — impact the quality of the resulting business ideas. The study was designed to explore not only whether bureaucracies help or harm entrepreneurs, but also which specific aspects of bureaucracy are beneficial or troublesome.

As part of her experiment, she offered multiple versions of a daylong bootcamp program, each tweaked to highlight different components of bureaucracy. One was heavily rule-based, another involved lots of hierarchy, and yet another incorporated aspects of both the rule and hierarchy conditions. She also offered a neutral version of the bootcamp as a control. At the end of the program all participants were asked to generate business ideas. An independent group of evaluators then vetted the ideas on the basis of practicality (the ability to implement the idea using existing technology) and novelty (how unique the idea was in relation to existing solutions) to create a combined quality score.

When Gope crunched the numbers, she found that participants in the three bureaucratic conditions (rules, hierarchy, and rules and hierarchy together) generated fewer ideas than participants in the non-bureaucratic control condition. That wasn’t an unexpected outcome given that rules are often portrayed as antithetical to creativity. But according to the evaluators, the hierarchy condition actually generated the business ideas of highest quality. It wasn’t what Gope expected. “I thought that the people in the bureaucratic groups were not at all going to come up with interesting ideas, that the ideas were going to be very boring, but that is not the case,” she says.

In comments edited and condensed below, Gope discusses the possible applications of this surprising finding, and future research directions that may shed more light on the upsides of bureaucracy.

Why did you get interested in studying bureaucracies and how bureaucracies affect entrepreneurship?

KHONIKA GOPE: I come from Bangladesh, a country that is very bureaucratic. Characteristics of a bureaucratic organization include things like a complex multi-level administrative hierarchy, departmental specialization and a standard set of formal rules or operating procedures. In Bangladesh, you see all of these in any government organization. No decision can be made without the approval of higher order actors, and even getting your birth certificate or passport takes forever. Take the example of the passport: You have to apply online and get your application printed. It needs to be attested and notarized by certain government officers. Then you go to the passport office physically, submit the notarized application and get your photo taken. After a few days, a police officer will come to your home and verify all the information you provided. The police will then submit a report. To receive your passport, you again go to the passport office. The applicant only sees a glimpse of the formal rules. Behind the scene, an even more complex combination of hierarchy, departmentalization and standard operating procedures is running.

“Does bureaucracy impact the way we identify entrepreneurial opportunities? Does it impact the way we mobilize resources for entrepreneurial ventures?”

I thought that the lack of entrepreneurial activities in Bangladesh and other developing countries was due to the presence of this bureaucratic mindset. After I came to the United States, and particularly to Silicon Valley, I thought that everything would be very entrepreneurial and smooth, which is not the case. Here, if you want to get something done, you also have to go through bureaucratic processes. I was surprised to see examples of bureaucracies in a lot of places – from the DMV office to banks and insurance companies. I became very interested in how that impacts our entrepreneurial spirit. Does bureaucracy impact the way we identify entrepreneurial opportunities? Does it impact the way we mobilize resources for entrepreneurial ventures? Or does it impact the way I interact with others?

What does the existing research suggest about the relationship between bureaucracy and entrepreneurship?

KG: There’s some work out there showing that if a person has worked in a bureaucratic firm, the person is less likely to be an entrepreneur.

But the problem is: Suppose I’m someone who wants to start my own company. To gather experience, I might avoid working for large companies, and I would be more likely to work for an entrepreneurial firm, right?

The outcome that you’re seeing — that people who work for entrepreneurial firms are more likely to be entrepreneurs, and people who have worked for a bureaucratic firm are less likely to be entrepreneurs — is it because of the environment? Or is it because my personality led me to choose that environment in the first place? I wanted to think about how we can untangle that.

Based on this study, when might bureaucratic contexts help, and when might they hurt?

KG: There are two things to consider when generating business ideas. One is, how many ideas can I come up with and what is the average quality of my ideas? The other is, what is the quality of my best idea?

Suppose you are in a market where you have to come up with one idea every few years. In that case the quality of your best idea has to be really good. I would say that’s when a hierarchical bureaucracy is better — when you have to come up with only one idea, and it has to be really good. Let’s take the example of the mining industry that has been employing old techniques for a long time. The reason is: There’s a lot of risk in designing and building a mine with new technology as opposed to tried and tested technology. So, mining companies tend to be more conservative. There, new ideas are not incorporated frequently. Things might change with a new breakthrough technology only every few years.

“I would say that’s when a hierarchical bureaucracy is better — when you have to come up with only one idea, and it has to be really good.”

On the other hand, if you are in a market where you have to come up with new products on a regular basis — when you have to come up with a lot of ideas — I would say the traditional entrepreneurial environment is better. For example, to be relevant and competitive, most high tech and internet companies need to come up with new ideas all the time.

What are some opportunities and challenges for entrepreneurs in Bangladesh, specifically?

KG: The number one difficulty is the mindset: People want a safe career, like being an engineer or a doctor. Second, there are fewer resources. If you’re not in an entrepreneurial community, it’s very difficult to start your own company, because you don’t have the financial resources and you don’t have people to recruit. The third challenge is political instability: If you want to do anything, you have to bribe the political parties; it’s an open secret. And fourth, the whole process of starting a company is very complicated and convoluted.

But there are some really great opportunities as well. In Bangladesh and in most developing countries, you will get a huge market. In Bangladesh, somebody recently started an Uber for bikes, and it has become a huge success because the need is there and the market is really big. So, the upside is that if you’re the first mover, you can tap into a very large market, which is a very good thing.