It is not that rules are absent; on the contrary, they abound. But they are often sufficiently ambiguous that they lend themselves to various plausible interpretations, or so numerous that they conflict with one another. When this is the case, bureaucrats must exert independent judgment to figure out what to do. If they were to stop doing so and adhere religiously to the scripts provided to them, public-service agencies would come to a halt.
Some uses of discretion are technical. In welfare agencies, for instance, caseworkers must draw on their expertise to determine which work-training program is most likely to be successful for a particular client. Other uses of discretion, however, are normative, or value-laden.
Questions such as these call for moral or political judgment. And the stakes are high: When one is dealing with vulnerable clients, erring on one side or the other can make the difference between someone having food on the table, a safe place to sleep, and a bit of dignity left or not.
The moral dimension of street-level work has two sides, then. Empowering in one respect, it elevates bureaucrats beyond the tedium of applying rules, and imparts gravity to what they do. Yet it also makes them complicit in the shortcomings of the system they embody, for they become implicated in it not just as operators, but as thinking and reasoning agents as well. With this comes a more acute sense of personal responsibility. Generally speaking, public-service agencies combine three core functions: processing clients, providing services, and applying the rules evenly.
Bureaucrats must process incoming cases by sorting people as efficiently as possible into pre-defined administrative categories. They must provide clients with services that are tailored to their needs, taking into account their particular life circumstances. They must, finally, enforce program requirements and eligibility criteria meticulously, treating everyone impartially.
Taken individually, each of these demands is sensible. Combined together, however, they often yield conflicting guidance. When resources are limited, they give rise to endless, morally draining dilemmas. Consider the following two examples, which I witnessed unfolding before me, and imagine that you are the bureaucrat.
It is the end of fuel-assistance season, and your office, which is already understaffed in normal circumstances, is crowded with applicants who need help keeping their houses warm during the winter. Most are in precarious situations, and many have taken time off from work to be here. Providing them with timely service is of the essence. The client you are currently assisting, however, has arrived with incomplete paperwork and seems too confused and agitated to comprehend the instructions you give him.
In leafing through the documents he did bring, you notice that he is eligible for other services, and urgently in need of them. You can devote the next hour to him or to those in the waiting room.
Do you delve into the case? Or do you send the client off and proceed with the others, but risk releasing him into the world without the support he needs? And what about the young mother who has just fled an abusive relationship and is asking you to refer her to a shelter? The only one you could find is on the other side of the city from where her mother, whom she must also care for, lives.
If you were to pick up the phone and make the rounds again, you might, just perhaps, be able to find something closer. Do you grab the receiver or move on to the next person? Tasks are assigned. Managers assess performance. Rules tightly circumscribe discretion. It is the unchallenged tenets of bureaucracy that disable our organizations—that make them inertial, incremental and uninspiring. But in a hyperkinetic environment, it is a profound liability. A formal hierarchy overweights experience and underweights new thinking, and in doing so perpetuates the past.
It misallocates power, since promotions often go to the most politically astute rather than to the most prescient or productive. It discourages dissent and breeds sycophants. It makes it difficult for internal renegades to attract talent and cash, since resource allocation is controlled by executives whose emotional equity is invested in the past.
When the responsibility for setting strategy and direction is concentrated at the top of an organization, a few senior leaders become the gatekeepers of change. If they are unwilling to adapt and learn, the entire organization stalls.
When a company misses the future, the fault invariably lies with a small cadre of seasoned executives who failed to write off their depreciating intellectual capital. As we learned with the Soviet Union, centralization is the enemy of resilience. Business people typically regard themselves as pragmatists, individuals who take pride in their commonsense utilitarianism. This is a conceit. Managers, no less than libertarians, feminists, environmental campaigners, and the devotees of Fox News, are shaped by their ideological biases.
Managers worship at the altar of conformance. Bureaucracy is the technology of control. It is ideologically and practically opposed to disorder and irregularity. In this environment, control is a necessary but far from sufficient prerequisite for success. MEs also rely on the expertise of competence-focused platforms. Two of the most important are smart manufacturing and marketing, each of which employs fewer than individuals.
The largest node within the manufacturing platform provides technical support for mass customization. Another node, smart engineering, deploys advanced production tools for the company.
The primary role of the marketing platform is supplying customer information. The idea is to unearth cross-business insights and build predictive models that help MEs respond to emerging customer needs. One example: alerting MEs in the washing platform that a customer has bought a refrigerator and an oven and may be in the midst of a remodel that will call for new laundry equipment as well.
While the marketing and manufacturing platforms do set standards—for brand visuals and factory automation software, for example—they issue few commands. And like other units at Haier, they have a financial stake in the success of their internal clients. The shared ecosystem, XCook, now encompasses million end users and partners.
In most companies, coordination means sacrificing speed and responsiveness for greater efficiency. Zhang believes that such trade-offs are best made by those closest to the customer, by MEs that are free to choose when to collaborate and when to go it alone.
The coupling of MEs is decidedly loose but still strong enough to ensure that Haier exploits its size and scope. Turns out it really is possible to achieve coordination without centralization.
Bureaucracies are insular. Typically, they make sharp distinctions between insiders and outsiders and are characterized by secrecy and a reluctance to tap external partners for mission-critical tasks. Recognizing this, Haier sees itself not as a company but as a hub in a much larger network. The implications of this view are profound. First, every new product or service at Haier is developed in the open. More than 30 million responses flooded in. Lei Yongfeng, the project leader, then invited more than , users to go deeper and share their thoughts about pain points and detailed product features.
Minimizing that risk became a key priority and led to a radical rethink of the fan blade. Within a week the challenge had attracted several proposals.
The winning design, mimicking a jet turbofan, came from researchers at the China Aerodynamics Research and Development Center. In all, 33 institutions contributed to the development of the air conditioner.
When it launched, at the end of , the Tianzun Wind Tunnel was an instant hit. Suppliers that contribute to the early design process also get preferred consideration when it comes to vendor selection. Manufacturing and design nodes, user MEs, potential customers, and business partners work in parallel throughout, starting with the earliest discussions about customer needs.
That maximizes creative problem solving and minimizes the risk of clumsy handoffs as the product moves toward launch. Take the Air Cube, a groundbreaking combination of humidifier and air purifier. Once a prototype was ready, it was made available on a popular crowdfunding site, where more than 7, individuals opted to buy a preproduction model.
Their feedback helped Haier further refine the Air Cube before its formal launch. Many MEs are led by people who joined the company after making standout contributions online. As Laurence J. Haier, by contrast, has turned its entire organization into a start-up factory. They run the gamut from Hairyongi, a fintech start-up that securitizes loans to small businesses—notably, Haier suppliers and distributors—to Express Cabinets, a network of storage lockers that allows local farmers to deliver directly to consumers in some 10, communities.
In May , Lu Kailin, along with three colleagues at Haier, set out to build a laptop computer for video gaming. The upside seemed enormous. Rising incomes and ever-cheaper technology were stoking demand for online games, while the business-oriented laptops on the market were ill-suited to hard-core gaming. Having distilled out 13 customer pain points, Lu and his colleagues wrote a note to Zhou Zhaolin, head of the Haier platform that included the laptop business, begging for a meeting.
Zhou was initially skeptical. By December , only seven months after it began, the venture was ready to introduce a product. Offered on JD. A few weeks later a second batch—of 3, units—was snapped up within 20 minutes. Jazzed by that success, the team members crafted a detailed business plan and in April received an additional 1.
VC firms joined in subsequent funding rounds. With a staff of 80, the venture now leads e-gaming laptops in China and is making significant inroads into other Asian markets.
Taking a lesson from its corporate parent, Thunderobot has spawned its own start-ups, which include a business that streams video games, a platform for organizing e-sports teams and tournaments, and a foray into virtual reality technology. There are three ways to launch a new business at Haier. In the first and most common case, an internal entrepreneur posts an idea online and invites others to help flesh out the nascent business plan.
This is how Zhang Yi, who at the time was an after-sales service manager working in the field, started Express Cabinets. Second, a platform leader can invite insiders and outsiders to submit proposals for exploiting a white space opportunity.
Every incubating ME is a separate legal entity, funded in part by the founding team. In a recent period, nine out of 14 newly hatched MEs received external investment before getting money from Haier.
Despite this, Haier often ends up with a majority stake in the start-ups, because it typically has the option of buying out its venture partners using a preset valuation formula. Like other units within Haier, incubating MEs contract with nodes for development, distribution, and administrative support. The only way to find that next billion-dollar opportunity is to launch a slew of start-ups and give each one the freedom to chase its dream.
In a start-up, people tend to think and act like owners. Often they have equity in the venture, and some will have even risked their own capital in hopes of scoring a big win. Start-up teams also have a large degree of autonomy—and no one to blame if things go wrong. It is this combination of upside, freedom, and accountability that gives start-ups their edge.
A study of U. Turns out, neither gain sharing nor autonomy on its own had a significant impact on turnover. But in companies that offered employees both, voluntary turnover was less than half the rate observed when one or none of those two conditions were present. This makes sense.
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