01 Feb Management Bureaucracy
As companies divide tasks among various people, they need a system to ensure that all members of the company are fulfilling their tasks efficiently. This often requires companies to have administrative control mechanisms and hire managers that coordinate the processes and supervise the work done by their subordinates. We refer to this phenomenon as management bureaucracy (Kleinknecht, Kwee, & Budyanto, 2016). Management bureaucracy is likely to increase when the firm’s primary activities are particularly complex and require extensive coordination. A possible risk of having more bureaucracy is that it may lead to more formalized decision-making at the senior management level (Adler & Borys, 1996).
In highly bureaucratic organizations, senior managers are more likely to interact and communicate with managers who are involved in administrative activities, rather than with managers that are more closely involved with the business operations of the companies (Ocasio & Joseph, 2005). Given managers’ limited attention capabilities (Simon, 1997), this means that attention of senior managers increases towards administrative activities (i.e. mainly control and coordination) at the expense of attention towards the primary business operations of the company. Consequently, these control and coordination mechanisms reduce the knowledge possessed by senior managers about the business operations of the company. They create a sense of unfamiliarity that senior managers experience in relation to specific sets of issues (and answers) that they do not interact with frequently (Nooteboom, van Haverbeke, Duysters, Gilsing, & van den Oord, 2007). Senior managers lack an in-depth understanding of the resources and capabilities those operations depend on, which are typically key to the firm’s long-term competitive advantage and rely heavily on tacit knowledge (Dierickx & Cool, 1989; Lecuona & Reitzig, 2014; Peteraf, 1993). For example, due to these control mechanisms, senior managers at the headquarters of organizations with multiple administrative units have to rely on financial information presented to them by the managers of these units to make their attention decisions, rather than having an understanding of the operational context in which these financial numbers were achieved by the different units (cf. Mudambi, 1999).
On the whole, high levels of management bureaucracy compel senior managers to make their attention decisions based on their existing schemas, as they do not have the slack resources to engage in additional environmental scanning or properly evaluating the bottom-up stimuli from employees (cf. Peeters et al., 2014; Shepherd et al., 2017; Yaniv & Brock, 2008). In this situation, the senior managers would prefer to focus their attention on issues they feel they are better able to control, such as actions that increase short-term performance and whose payoffs are more easily quantified (Slawinski & Bansal, 2015).
- Kleinknecht, A., Kwee, Z., & Budyanto, L. (2016). Rigidities through flexibility: Flexible labour and the rise of management bureaucracies. Cambridge Journal of Economics, 40(4), 1137e1147.
- Adler, P. S., & Borys, B. (1996). Two types of bureaucracy: Enabling and coercive. Administrative Science Quarterly, 41(1), 61e89.
- Nooteboom, B., van Haverbeke, W., Duysters, G., Gilsing, V., & van den Oord, A. (2007). Optimal cognitive distance and absorptive capacity. Research Policy, 36(7), 1016e1034.
- Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504e1511.
- Mudambi, R. (1999). MNE internal capital markets and subsidiary strategic independence. International Business Review, 8, 197e211.
- Peeters, C., Massini, S., & Lewin, A. Y. (2014). Sources of variation in the efficiency of adopting management innovation: The role of absorptive capacity routines, managerial attention and organizational legitimacy. Organization Studies, 35(9), 1343e1371.
- Slawinski, N., & Bansal, P. (2015). Short on time: Intertemporal tensions in business sustainability. Organization Science, 26(2), 531e549.