What is a 'Bureaucracy'?

Bureaucracy refers to a specialized system and processes designed to maintain uniformity and controls within an organization. Bureaucratic processes are most common in large organizations or governments. For example, an oil company may establish a bureaucracy to compel its employees to complete safety checks when operating on a rig.

BREAKING DOWN 'Bureaucracy'

Labels such as "bureaucrat," "bureaucratic" and "bureaucracy" are often invectives or at least have negative connotations. This may be because bureaucrats are not democratically elected or because bureaucracy is typically considered inefficient. However, there is a more neutral understanding of bureaucracy and the bureaucratic process.

Bureaucratic Inefficiency and Structure

The bureaucratic process lends itself to criticism. It is often considered to be synonymous with redundancy, arbitrariness and inefficiency. In fact, one common satirical definition of bureaucracy is "the art of making the possible impossible."

Structurally, a bureaucracy stems from the effort to govern organizations through closed systems. To maintain order, such systems are formal and rigid. Procedural correctness is paramount within a bureaucracy. Perhaps the single most identifiable characteristic of a bureaucracy is the use of hierarchical procedures to simplify or replace autonomous decisions.

A bureaucrat makes implicit assumptions about an organization and the world with which it interacts. One of these assumptions is that the organization cannot rely on an open system of operations, which is either too complex or too uncertain to survive. Instead, a closed and rationally reviewed system should be implemented and followed.

As a consequence, bureaucratic structures tend to be backward-looking, identifying procedures that worked well in the past. This creates a conflict with entrepreneurs and innovators, who prefer forward-looking concepts and attempt to identify ways in which processes could be improved. Over time, a rigid bureaucracy reduces operational efficiency, particularly compared to rival organizations without large bureaucracies. Losses in efficiency are most pronounced in circumstances where bureaucracy is also used to insulate established power structures from competition.

Classic bureaucratic rigidity and protectionism are prevalent in the U.S. federal government, for example, where firing poor performers is extremely difficult because of an arduous termination process. Fewer than 0.5% of federal employees lose their jobs each year.

Bureaucracy vs. Governance or Administration

Bureaucracy is not the same as governance or administration. Some administrative structures are not bureaucratic, and many bureaucracies are not part of administrative structures. The differences lie in the objectives of each system. An administration directs organizational resources towards an objective goal, such as generating profits or administering a service. Bureaucracies ensure that procedural correctness is followed, irrespective of the circumstances or goals.

In modern industrial societies, such as the United States, dual bureaucracies often exist between private companies and government regulatory agencies. Whenever a regulatory bureaucracy exists to impose rules on business activity, the private company might create its own bureaucracy to avoid violating such regulations.

RELATED TERMS
  1. Adhocracy

    Adhocracy is a form of business management which emphasizes individual ...
  2. Organizational Structure

    An organizational structure is a system for how activities are ...
  3. Privatization

    Privatization is when a government transfers a property or business ...
  4. Gridlock

    Gridlock occurs when the government is unable to pass laws because ...
  5. Financial Structure

    Financial structure refers to the specific mixture of long-term ...
  6. Organizational Chart

    An organizational chart is a diagram that outlines the internal ...
Related Articles
  1. Investing

    Will India Replace China As A Destination For Foreign Capital?

    For 2016, emerging market investors may have to look beyond China to its neighbor India.
  2. Insights

    Free Markets: What's The Cost?

    Some argue that when the free market fails to protect consumers, government regulation is required.
  3. Insights

    Is The U.S. Government Too Big To Fail?

    Some think that the U.S. government is too big to fail, but one must only look at historical examples to know that it's not true.
  4. Insights

    United Airlines to Reduce Management Team (UAL)

    A memo sent by United says the airline will continue cutting management staff to reduce expenses and catch up to Delta’s profit margins.
  5. Insights

    Will Small Caps Continue to Rally Under Trump?

    It remains to be seen what effect Trump's proposed economic policies will have on small businesses.
  6. Personal Finance

    A Look at How China Controls Its Population

    Discover the many tactics China utilizes to control its population, and learn how the population control movement is driven by economic concerns.
  7. Insurance

    The Drawbacks Of Single-Payer Healthcare

    Universal healthcare has many benefits, but if there's no such thing as a free lunch, then in what ways are single-pay citizens paying for their "free" healthcare?
  8. Trading

    An Introduction to Structured Products

    Use structured products to bring the benefits of derivatives into your traditional investment portfolio.
  9. Insights

    Puerto Rico Will Soon Become America's Greece

    Explore the similarities that exist between Puerto Rico in relation to the United States and Greece in relation to the European Union.
  10. Insights

    Trump Gets Down to Business

    Which of Trump economic proposal might actually come to fruition? A scorecard.
RELATED FAQS
  1. How is a market failure corrected?

    Find out how to think about market failures, how they tend to be corrected and different proposals about the best way to ... Read Answer >>
  2. What does a merger or acquisition mean for the target company's employees?

    Learn about the likely impact of a merger-and-acquisition deal on the target company's employees, including their benefits ... Read Answer >>
  3. What are the most important aspects of a capitalist system?

    Understand the main aspects of a capitalist system and how they contrast with the tenets of other types of economic systems, ... Read Answer >>
Trading Center