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The Secret to Creating an Entrepreneurial Culture in a Bureaucratic Business World

from “If You’re Not Making History, You Are History” by Bob MacDonald

 

Without a doubt, we live in a bureaucratic business world. For those chasing success, it’s a constraining and frustrating world defined by ever expanding rules and regulations. In a bureaucracy, progress is subservient to process and performance is trumped by procedure. And while many seem to snuggle up in the lap of the certainty and security of bureaucracy, there are others — maybe just like you — who chafe under its constrictions and yearn for a more enterprising way of corporate life.

The generally accepted antidote for bureaucracy is an “entrepreneurial culture” and many of those frustrated with bureaucracy wistfully talk about the value of building this type of environment. But behind the talk lies a very real challenge: When you’re mired in the bureaucratic trenches, it’s difficult to believe you have the power to fight bureaucracy by building an entrepreneurial culture. Why? Because many are handcuffed by the mistaken belief that being an entrepreneur is a prerequisite for creating an entrepreneurial culture. But it is a myth to believe that being an entrepreneur and crafting an entrepreneurial culture are conjoined as steadfastly as Siamese twins; that you can’t have one without the other.

Such a restrictive mindset prevents many from even attempting to build an entrepreneurial culture. Believing that they are not and can never be an entrepreneur, they give-up and give-in to bureaucracy. But that’s not the way it needs to be. Not only is it possible, but also fairly easy to build an entrepreneurial culture in a bureaucratic world, even by those who are not actual entrepreneurs.

The first step on the road to bureaucratic freedom is to rid yourself of the belief that the traits essential to being a successful entrepreneur are the same as those that form the basis of an entrepreneurial culture. That’s not the case and they can be very different.

For example, while intuitively it seems likely that an organization led by an entrepreneur will have an entrepreneurial culture, the reality is that more times than not, this is not the case. The seldom acknowledged truth is that while the culture of an organization led by a strong entrepreneur may not be bureaucratic, it is apt to be more autocratic than entrepreneurial.

What really constrains the creation of an entrepreneurial culture – especially in large organizations – is a matter of semantics. For lack of a better term, we have fallen into the trap of identifying an entrepreneurial culture as one led by an entrepreneur, and this creates more confusion than understanding. Instead, we should focus on the attributes of an entrepreneurial culture which are: transparency, openness, accountability, a sense of urgency and shared reward.

If we can just clear our minds of the accepted idea of what an “entrepreneurial culture” is supposed to be and instead, think in terms of an “open culture,” it will enable us to look at culture building from a completely different perspective. And while we are at it, let’s also cheat on the traditional rule that says only those at the top of an organization can determine its culture.

Over and over people will chant, “I am just a small cog in a large bureaucratic organization. How can I bring about cultural change?” The answer is to ignore the larger bureaucratic culture and think of creating a distinct culture within your span of control, such as a team leader, department head or division leader. Remember that culture for the group is defined by the style of the leader at any level.

So if you are willing to open our mind and suspend the rules that inhibit the creation of an entrepreneurial culture in a bureaucratic world you can built an “open culture.” What would such a culture look like and how would it function?

  • It would be a culture with a strict adherence to a core set of values.
  • The culture would constantly focus on clearly defined objectives along with continuous support for members of the group and free flowing transparent communication.
  • It would be imbued with a sense of urgency as an operating lifestyle.
  • Stress accountability where risk is clearly encouraged and accomplishment rewarded.
  • When the group is successful, all of those within the group share a sense of ownership, participation and rewards for the success achieved.

There is nothing in this concept of an “open culture” that can’t be adopted by any leader, at any level in any size organization – even the most bureaucratic. Don’t believe it? Are you going to suggest that within your span of control you can’t have a core set of values? That you can’t clearly define the objectives of the group you lead? That you are not allowed to have constant communication with members of your group? That just because you are not an entrepreneur, you can’t create a sense of urgency among those you supervise? The truth is that you don’t have to be an entrepreneur or CEO of a company in order to build an “open culture” in your area of leadership and control.

It comes down to this attitude: Just because you work in a bureaucracy, it doesn’t mean you have to be a bureaucrat.

And the Moral of the Story …

While virtually everyone sings the praises of an entrepreneurial culture, there is also a universal belief that only an entrepreneur can create an entrepreneurial culture. It is this misunderstanding that leads to the conclusion that it is not possible to create an entrepreneurial culture in a bureaucratic world. If we continue to cling to the traditional beliefs of culture building, the bureaucratic world will always win. But if we are willing to open our minds to what the culture is really all about, instead of what it is called, then it is possible to build an “open culture” in a bureaucratic world. And those who are willing to adopt this approach by implementing the concepts of an open culture will ultimately achieve success and recognition that will be the envy of any entrepreneur.

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Bureaucracy Can’t Be Eliminated—But It Can Be Beaten

The very intransigence that gives bureaucracy its power is also the weakness that allows it to be circumvented.

Bureaucracy is presented as a benign way to bring order out of chaos, but often that is just a subterfuge for a variety of darker objectives. A key goal of Bob MacDonaldbureaucracy is to enable those who have done things a certain way to make sure others do it the same way. In other words, bureaucracy often becomes a tool used by those in power to keep others from coming to power. For the lazy or incompetent, bureaucracy offers security against urgency and a shelter from accountability. As a result, those entangled in an entrenched bureaucracy find that any effort to bring about creativity or innovation can feel like trying to roller-blade through a swam. But there is hope when it comes to confronting bureaucracy. While it is not possible to eradicate bureaucracy, it is possible to outwit it. Here’s how.

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Fireman’s Fund Insurance Ravaged by Allianz Bureaucracy

Once again bureaucracy is shown to be the most efficient way to snatch defeat from the jaws of victory.

A German newspaper recently reported that insurance giant Allianz, owner of California based Fireman’s Fund Insurance Company (FFIC), is planning to dismantle the company and sweep it into the dustbin of bureaucratic failures. Allianz has tacitly confirmed the report but only complaining that the planned action became public before intended by the company. As with any bureaucratic failure, the hope of those responsible is that no one will notice.

The newspaper (Sueddeutsche Zeitung) article revealed that Fireman’s Fund commercial business is to be folded into another German industrial insurance company owned by Allianz, while the “personal lines business” of FFIC will be allowed to “runoff” until it is gone or FF2offered to another company interested in scavenging the the tattered remnants of the deceased company.

This is a sad and totally unnecessary ending for Fireman’s Fund; a valued, 150-year-old company that had survived the 1906 San Francisco earthquake, but could not withstand the upheaval heaped on it by the bureaucratic management minions of Allianz who virtually squandered the $3.3 billion in cash Allianz paid to acquire Fireman’s Fund in 1991.

Good Idea Soiled by Bureaucracy

When Allianz purchased Fireman’s Fund the transaction seemed (and was) a sound strategic move that would provide Allianz – the largest casualty insurer in Europe – with an entrance into the American market that it had heretofore desired but lacked. For Fireman’s Fund the affiliation with Allianz promised to offer the resources, credibility, expertise and capital of one of the world’s largest insurance companies; providing it with the capability to become a substantial player in the American market. But the relationship was star-crossed from the beginning.

The timeline of activity and actions following the Allianz acquisition of FFIC offers the mother of all examples of how a bureaucracy-riddled company can ravage the value of any investment and kill the opportunity to leverage it to success. In the interests of transparency, I both worked for Allianz as the CEO of a company (LifeUSA) it acquired in 1999 and served on the board of directors of Fireman’s Fund; so I had a front row seat to observe (and experience) how a bureaucratic company functions. In fairness, the vast majority of those I dealt with at Allianz in Germany were extremely intelligent, highly ethical and well-intended; it’s just that they were raised to be bureaucrats and excelled at practicing that art. Even more revealing to me was that the most senior executives of Allianz – especially the CEO – recognized and were frustrated by the inadequacies of a bureaucratic culture, but felt powerless to change it.

The conundrum is that when bureaucracy ridden companies – such as Allianz – are able to scrunch up the courage to make a strategic decision such as an acquisition, they immediately retreat into a bunker mentality, trying to protect their investment, rather than leverage it. Bureaucrats are dedicated to analysis, but terrified by action.

Bureaucratic companies seem incapable of understanding that an investment to acquire a company is the start of the process, not the ending. The clear message given to those leading the acquired company is, “Okay, we took the risk of putting up the money to buy the company, now it is your job to grow the company, but we are not going to risk any more capital to help make that happen.”


This mentality triggers a chain of events that invariably emasculates the culture of the acquired company, leading to the diminution of the initial investment, if not the outright destruction of the company. This inevitable process starts when the bureaucrats of the parent company, begin to impose their stifling bureaucratic rules and controls on the acquired company; limiting the actions and strategies that made it an attractive acquisition. The suffocation of the entrepreneurial culture of the acquired company soon begins to trigger the departure of those individuals capable of creating the desired growth. This leads to a string of increasingly less capable executives charged with running the acquired company. These executives are hired, not for their creativity and independence, but rather for their acquiescence of and compliance with the bureaucratic culture.

It is noteworthy that in the past nine years alone, Fireman’s Fund has had seven different CEOs; all hired and fired by the Allianz bureaucracy. (Believe it or not, one of these CEOs, in the midst of downsizing the company and laying-off hundreds of employees, purchased a Rolls-Royce and parked it at the company for all employees to see.) In the end, the acquired company is populated by managers with the same attitude, aptitude and recalcitrance to action as the bureaucrats who hired them. And then the executives of the parent company wonder why the company fails!

Fireman’s Fund also serves as a classic casebook example of how a bureaucratic culture will send good money chasing after bad money. To comprehend this process it is critical to understand that a bureaucrat will do almost anything to avoid acknowledging and accepting responsibility for failure. As failure looms the bureaucrat will become more and more frantic and irrational in their actions to hide the failure.

Despite investing $3.2 billion to acquire Fireman’s Fund as an entrance into the American casualty insurance market, Allianz was unwilling to allocate the additional capital necessary to bring FFIC up to the competitive levels of the other players in the market. AllianzPressed for growth, but lacking the necessary capital and falling deeper and deeper into the catacombs of the Allianz bureaucracy, Fireman’s Fund was forced to take risks that became gambles, that turned into losses. As the losses at FFIC mounted the bureaucrats at Allianz had the choice of acknowledging the failure of its initial investment or to hide the fact by pouring in additional funds to keep the company afloat. Soon good money was chasing bad money in a bureaucratic effort to avoid the inevitable. But this money was only intended to cover past mistakes, not invest in the future. As such it only accelerated the downward spiral that ultimately destroyed both Allianz’s investment and Fireman’s Fund.

Over a decade ago Allianz executives internally acknowledged that the investment in Fireman’s Fund was a failure and sought to sell the company. Unfortunately, the bureaucrat culture at Allianz had already triggered a decline at FFIC that made the company unmarketable—at least at a price anywhere near what Allianz initially paid. Not wanting to publicly admit failure, the Allianz bureaucrats hung on, but in so doing they took actions that made the situation even worse. Allianz not only refused to invest the capital necessary to build up the capabilities and competitiveness of FFIC, they began to suck as much money as possible out of the company. (One year Allianz required FFIC to pay a dividend of $1 billion dollars to the parent company.) Having reached the conclusion that it would not be possible to sell Fireman’s Fund without exposing the failure of Allianz management and the loss of the company’s investment, it was decided to let the company “bleed-out” and die. What we are witnessing now are the attempts of Allianz bureaucrats to dispose of the decaying body.

And The Moral of the Story …

Don’t let your kids grow up to be bureaucrats! If success is what you seek, then you must do anything and everything to keep bureaucracy at bay in your company. Recognize bureaucracy as the Ebola virus of management that ultimately destroys all it infects.

The comments expressed here are not an attack on Allianz, but on bureaucracy. Allianz is one of the largest companies in the world, but it is also the epitome of a bureaucratic culture. Just imagine how much more successful Allianz could be and how effective Fireman’s Fund could have been as an entrance into the American market, had it not been for the ravages of bureaucracy. Instead, the investment has been wasted, Allianz is still not in the American casualty insurance market and Fireman’s Fund is dead. It is a lesson anyone in any company needs to learn and remember.

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