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  • Writer's pictureSenthil Kumar

Is your Business poised for knowledge economy? Problem of Bureaucratic Cost!

Measure of Bureaucratic Cost

Your company is a technological power-house. You believe your executives are creative technocrats; you are convinced that you have a team of ambitious go-getters and they cannot be slowed down by cobweb of politics or turf-wars. Wait a second.. There is a saying 'culture eats strategy for breakfast'. Have you ever realized, 'organization structure can strangle strategy at its birth'. Your company will be better-off by routinely examining and bench-marking its organization structure for alignment and fit in accordance with the changing times.

Although it has been an established thumb-rule that a business can achieve economies of scale through 'integration of large assets under hierarchical or vertical structures; on the contrary, it can be juxtaposed that a high degree of asset concentration under one large structure results in increased bureaucratic costs and investment risk. As the asset concentration increases, the number of bureaucratic layers increases, and delays and errors in information processing compound. Further, large organizations suffer from power conflicts – that is, managers engaging in political coalitions to increase their influence – as managers often become more concerned with acquiring resource control than with optimally allocating resources.

Bureaucratic Cost in an organization not only stems from tall hierarchy and huge administrative structure,, but also rises due to inability of the organization to respond to customer expectations and dynamic markets. Organization structure – whether tall or short hierarchy – if it responds better, the bureaucratic cost will be less.

Also, the coordination costs in the scale economy and the knowledge economy exhibit different patterns. As firms experience more turbulence and uncertainty in the knowledge economy, the failure of large integrated structures to provide market responsiveness accelerates the rise of bureaucratic costs.

In scale economy, tall bureaucracy offered increased efficiency with slow rises in coordination cost. Whereas, in knowledge economy, as markets have become more dynamic, tall bureaucracy is less responsive with steep rises in coordination cost. Measure the relative bureaucratic cost of your unit/division/company. (For the full article "Toward A Smarter Enterprise" on this topic: check the link:

Using the pictorial scales 1 to 6 (ranging from 25 to 100) measuring Delegation, Response time, Customer responsiveness, Variability, Efficiency and Alignment, Calculate the score for bureaucratic cost. Higher the number on the scale, larger the inefficiency and coordination cost. Compare your company with bench-marks.

Example: Company A:

Bureaucratic Cost = 75 (delegation)+ 50 (response time) + 50 (customer responsiveness) + 50 (adaptability) + 50 (efficiency) + 100 (alignment) = 375

A company having high efficiency and responsiveness will have the least score of 150 A unit/company with high bureaucratic inefficiency will have the high score of 600

Link for Measures:



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