DEFINITION of 'Bureaucracy'

An administrative or social system that relies on a set of rules and procedures, separation of functions and a hierarchical structure in implementing controls over an organization, government or social system. Large administrative staffs are most common in large organizations that need standardized rules and procedures or consistency across a wide range of business activities.

BREAKING DOWN 'Bureaucracy'

Although some form of bureaucracy is necessary for large, efficiently run organizations, there is much debate over whether the theory is ever manifested in practice. The term is often used in a pejorative way, since many bureaucracies become too large to be efficient, and become dysfunctional as a result. Some form of bureaucracy is necessary, however, in firms that are subject to heavy regulatory scrutiny, since a loss of policy or oversight control could have dire consequences.

It is a widely held belief that small companies can be more efficient because they do not need large bureaucracies and therefore can adapt and innovate very quickly. Large bureaucracies are also associated with more mature companies in mature industries nearing the end of their life cycles.

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