Parkinson’s Law and the Peter Principle: Understanding Business and Politics Using Business Axioms
What business axiom or management principle have you discovered that helps you live better, work smarter, or understand organizations in a way that is unique, fun, or provides that rare but special “ah ha” moment?
An example of a well-known business axiom is the famous “Peter Principle” (1) which states: “People rise to their level of incompetence.” Explaining how incompetent people can reach high-level executive and political positions without any management or leadership skills provides some insight into why so many businesses and governments can fail. There are many corollaries to this intriguing concept that can explain the underperformance of government and business. Perhaps important decisions are also raised to your level of incompetence. That is, the more critical a decision is, the more likely it is to be taken away from the people with experience and decided in a steering committee (to avoid any accountability) or at the C-Suite or cabinet level of government where truly Terrible decisions are sometimes made out of ignorance. While this principle is meant to encourage discussion about the follies of some bureaucracies, all of us can relate to those big business mistakes caused by executives who thought they knew better. Remember the new Coca-Cola, Edsel, and the infamous business failures of Enron, Arthur Anderson, Lehman Bros., and Bear Sterns? Government failures are even more common, as evidenced by the Arab Spring uprisings and most of Europe facing severe budget deficits and even the collapse of the European Union currency.
Speaking to a high-level bureaucrat who was going to announce the immediate closure of a major call center, I replied that determining its future call distribution would be critical since this location had nearly 400 employees working. He replied that he was wrong and that no one was working there. Shocked at his lack of knowledge, I replied that he had just returned from a visit last week and that we had over 400 active employees doing business there. A bureaucrat located remotely and especially at headquarters can be very dangerous for decision making!
My favorite business axiom is Parkinson’s Law, written by C. Northcote Parkinson (2) in 1954: “Work expands to the time available.” It is the only management principle that I can clearly remember from my four years of university management studies because I have experienced that the relationship between work and time is both elastic and unpredictable. It’s an irreverent but insightful look at how workload is out of proportion to staffing within bureaucratic organizations. It reminds us that in our world, one must understand human behavior, embrace humor, and recognize people’s tendency to make foolish decisions, especially when emotions take over from basic common sense.
All students recognize the value of Parkinson’s Law. It’s critical to determine how long a task will take or naturally expand to two, three, or more times the actual amount of time it takes. As students, we quickly learned this fact after working several days on an essay, whereas in the last year we started a project two hours before the deadline with surprisingly positive results. While this work-time relationship is well known, fewer people apply it to their organizations. Most business schools, companies and certainly almost all governments have forgotten the importance of the time-work relationship. One only has to look at the state of governments around the world to recognize that the trend to grow bureaucracies is critical as growth ignores any workload or reason. Greece is currently facing serious financial ruin because its sprawling public bureaucracy has become unsustainable. Thus, a competent bureaucrat is not rewarded for keeping quiet and working to reduce staff, but rather is expected to continue operating despite increases in workload. The incompetent bureaucrat can achieve nothing more than a bad track record, but his constant complaining inevitably leads to additional staff. He continues to complain and soon he’s managing a department twice the size of the competent office manager down the hall. The bureaucratic nature of the local department of motor vehicles demonstrates how the work expands into the time available as these organizations, despite years of practice and computer conversions and upgrades, still demonstrate a complete lack of logic and efficiency. Their avoidance of any level of customer service is legendary.
Another, more serious and insidious example of Parkinson’s Law is the bureaucrat’s tendency to cause complexity. Consider the process of how American law is codified and regulated. Whether it’s the new health care law now being reviewed for constitutionality, the new Dodd-Frank banking law and its thousands of pages of regulations, or proposed changes to the enormously complex tax code, the The means of creating laws in America have become the epitome of bureaucracy and unintended consequences. It explains why there are so many lawyers and accountants and how American society creates enough work to keep them all employed administering laws too complex for the public to understand.
The generation of complexity in government is probably due to the number of legislators who must find something to do with their time. Instead of looking for ways to simplify work, they seem to want to pass more laws and make life even more complicated.
Parkinson’s Law explains why two of the most basic government functions, collecting taxes and providing public health services, continue to become even more complex and expensive. Just try explaining to a European how Americans calculate their taxes or how to select an employee health care plan. After two hours with my Belgian daughter-in-law trying to select a health plan and explain income taxes, it became clear that our systems are truly irrational.
Shrinking a government agency, simplifying our tax code, or making healthcare more manageable will supposedly cause a calamity of epic proportions. The austerity plans in Europe and those that are happening now in the local and state governments have not yet been adopted by our federal government, which seems to always find a reason to ignore the recommendations of its committee and defer decisions by putting aside the more difficult and important issues. This ability to ignore responsibility is probably why there is friction between corporate America and the American government. In most societies, the sovereign bureaucracy joins in and supports the companies. There is a distrust of government in the United States that dates back to the Revolutionary War and our protection of individual liberties. Government work also has different incentives. Public servants are not supposed to be resource efficient, but are expected to spend all the money in their budgets or face a draconian cut in funding and resources next year. Government growth requires more revenue to operate, so higher taxes are needed. Business enterprises seek profit, so work diligently to avoid tax and focus on efficiency and cost reduction so that the goals of the two institutions are traditionally at opposite poles. The incredible growth of global, federal, state, and local governments and their excessive spending demonstrate Parkinson’s thesis that bureaucracies and agencies will proliferate even if they no longer have a reason to exist.
We find many examples of the Peter Principle and/or Parkinson’s Law in our business and government experience. Many expect an easy solution to the growth of inefficient government and the complexity of society. Perhaps if Congress passed a law that all laws and regulations must be limited to one page, we could begin to unravel the complexity of our health care system and our tax code. Of course, the lobbyists, departments, and stakeholders who profit from such inefficiencies would prohibit any move toward simplicity.
Hoping that technology will solve bureaucratic problems only makes it easier to “cut and paste” more information in the process so that all law and compliance take more pages to argue a simple point. The environmental impact report, for example, for a new soccer stadium in Los Angeles ran to more than 10,000 pages and cost $27 million to produce. It is interesting that the original Los Angeles Coliseum was built in 1923 for only $950,000. Here is one more example of a regulatory process with no reasonable restrictions or limits. The typical Los Angeles resident probably won’t be able to afford to attend the game when football returns to Los Angeles in 2020, 2030, or…
Yet the cost of future soccer in Los Angeles pales in comparison to the waste and cost of running America’s complex tax code or managing our fragmented and complex health care system. Unfortunately, such complexity in health care shifts the burden to those most at risk without the knowledge to navigate and find optimal care: the uninsured, the elderly, the sick, the poor, and children. The tragedy of a systemic, fragmented, and profoundly uncoordinated health care system is that the quality of care is severely degraded and uneven. We are notified by letter that our doctor will no longer accept our PPO health insurance, he cannot use the local hospital, the lab is not an approved provider, and our premiums have increased again.
The impact of the complex tax code may not be that serious for the health of a citizen, but it certainly creates unnecessary fiscal stress for a people and a country that can no longer live within their means. Every year it seems like we have more uncertainty, more interaction with our tax accountants, state tax authorities, and the IRS as they add more complex rules to the process. Managing our financial lives has become more difficult, and the end result is more stress and doubt. So stay healthy so you have the time and energy to calculate and pay your taxes! Just remember Parkinson’s Law and don’t start doing your taxes too soon or you’ll lose several weeks of time that’s better spent exercising and staying healthy.
1.Peter, Laurence J.; Hill, Raymond (1969). The Peter Principle: Why things always go wrong. New York: William Morrow and Company.
2. Parkinson, C. Northcote; (1954). Parkinson’s Law and Other Studies in Management, Boston: Houghton Mifflin Company.