Parkinson’s Law and the Peter Principle: Understanding Business and Politics Using Business Axioms

What business axiom or management principle have you discovered to help you live better, work smarter, or to understand organizations in a way that is unique, funny or provides that rare but special “ah ha” moment?

An example of a well known business axiom is the famous “Peter Principle” (1) that states: “People rise to their level of incompetence.” Explaining how incompetent people can achieve executive and high level political positions without any management or leadership skills provides some understanding to why so many businesses and governments may fail. There are many corollaries to this intriguing concept that may explain government and business poor performance. Perhaps major decisions also rise to their level of incompetence. That is, the more critical a decision, the more probable is that it will be taken away from the people with expertise and be decided either in a steering committee (to avoid any accountability) or at the C-Suite or government cabinet level where truly awful decisions are sometimes rendered out of ignorance. While this principle is meant to foster discussion about the follies of some bureaucracies, all of us can relate to those major business blunders caused by executives who thought they knew better. Remember new Coke, the Edsel and the infamous business failures at 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 serious budget deficits and even a European Union currency collapse.

Talking 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 as this location had nearly 400 staff at work. He responded that I was incorrect and that no one was working there. Stunned by his lack of knowledge, I replied that I had just returned from a visit last week, and that we had over 400 active staff conducting business there. A bureaucrat located remotely and especially at headquarters can be very dangerous to sound decision-making!

My personal 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 I can remember with clarity from my four collegiate years of study in administration because I have experienced the relationship between work and time is both elastic and unpredictable. It is an irreverent but insightful view on how workload is not proportional to staffing within bureaucratic organizations. It reminds us that in our world, one must understand human behavior, embrace humor and recognize a tendency by people to make foolish decisions especially when emotions take control from basic common sense.

All students recognize the value of Parkinson’s Law. It is critical to determine how much time a task will take or it will naturally expand to two, three or more times the actual amount of time needed. As students we quickly learned this fact after laboring several days on an essay while as seniors, we would start a project two hours before the deadline with surprisingly positive results. While this work-time relationship is well known, fewer people are applying it to their organizations. Most business schools, businesses and certainly nearly all governments have forgotten the importance of the work time relationship. One only has to look at the state of governments across the globe to recognize that the tendency to grow bureaucracies is fundamental as growth ignores any workload or reason. Greece currently faces serious financial ruin because its expanding public bureaucracy became unsustainable. Thus a competent bureaucrat is not rewarded when he keeps quiet and works to cut staff, but is expected to continue to operate regardless of workload increases. The incompetent bureaucrat cannot accomplish anything but a poor record, but his constant complaints inevitably bring forth additional staff. He continues to complain and soon he is managing a department double the size of the competent bureau chief down the hall. The bureaucratic nature of the local department of motor vehicles demonstrates how work expands to the time available as these organizations despite years of practice and computer conversions and upgrades still demonstrate a total 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’s is the bureaucrat’s tendency to cause complexity. Take the process of how America’s laws are codified and regulated. Whether it is the new health care law now under review for its constitutionality, the new Dodd-Frank banking law and its thousands of pages of regulations, or the proposed changes to the enormously complex tax code, the means to create law in America has become the epitome of bureaucracy and unintended consequences. It does explain why there are so many lawyers and accountants and how American society creates sufficient work to keep them all employed on administering laws much too complex for the public to comprehend.

Generating complexity in government is probably due to the number of lawmakers who must find something to do with their time. Instead of seeking ways to simplify work, it seems they want to pass more laws and make life even more complicated.

Parkinson’s Law explains why the two of the most basic of government functions, the collection of taxes and the provision of public health care continues to become even more complex and expensive. Just try to explain to a European how American’s calculate their taxes or how to select an employee health care plan. After two hours with my Belgium daughter-in-law trying to select a health plan and explain income taxes, it was clear that our systems are indeed irrational.

To reduce a government agency, simplify our tax code or make health care more manageable will supposedly cause a calamity of epic proportions. The austerity plans in Europe and now occurring at local and state governments is yet to be embraced by our federal government that seems to always find a reason to ignore its committee recommendations and defer decisions by kicking the most difficult and important issues down the road. This ability to ignore responsibility is probably why there is friction between American business and government. In most societies the sovereign bureaucracy joins and supports business. In America there is a distrust of government going back to the Revolutionary War and our protection of individual liberties. Government work also has different incentives. Civil servants are not supposed to be resource efficient, but expected to spend all the money in their budgets or face a draconian cut in next year’s funding and resources. Government growth demands more revenue to operate so higher taxes are needed. Business firms seek profits so work diligently to avoid taxes and focus on efficiencies and cost cutting so the two institutions’ goals are traditionally at opposite poles. The incredible growth in global, federal, state and local governments and their excessive spending demonstrates 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 Law in our business and governmental experience. Many hope for some easy solution to the growth of inefficient government and society’s complexity. Perhaps if Congress would pass a law that stated all laws and regulations should be limited to one page, we could start untangling the complexity in our health care system and tax code. Of course the lobbyists, departments and the stakeholders who benefit from such inefficiencies would prohibit any movement toward simplicity.

The hope that technology would resolve the bureaucratic problems just makes it easier to “cut and paste” more information into the process so that all laws and compliance take more pages to argue a simple point. The environmental impact report, for example, of a new football stadium in Los Angeles was over 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 without restraint or reasonable limits. The typical LA resident will probably not be able to afford to attend the game when football returns to LA in 2020, 2030 or…

The cost of future football in Los Angeles is insignificant, however, compared to the waste and cost of administering American complex tax code or managing our fragmented and complex health care system. Unfortunately such complexity in health care shifts the burden to the people most at risk without the knowledge to navigate and find optimal care: The uninsured, the elderly, the sick, the poor and the children. The tragedy of a systematic, fragmented and profoundly uncoordinated health care system is that the quality of care is seriously degraded and uneven. We are notified by letter that our doctor will no longer accept our PPO health insurance, cannot use the local hospital, that the lab is not an approved provider and that our premiums have increased again.

The impact of the complex tax code may not be as severe to a citizen’s health, but it certainly creates unnecessary fiscal stress to a people and a country already unable to live within its means. Each year it seems we have more uncertainty, more interaction with our tax accountants, the state tax authorities and IRS as they add more complex rules to the process. Managing our financial life has become more difficult, and the ultimate result is more stress and doubt. So stay healthy so you will have the time and energy to calculate and pay your taxes! Just remember Parkinson Law and don’t start preparing your taxes too soon or you will waste several weeks of time better spent exercising and staying healthy.

References:

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 Administration, Boston: Houghton Mifflin Company.

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