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By Steve Kelman

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Think the government is bureaucratic? Read on.

As regular readers of this blog know, one topic that I frequently teach about is the proliferation of rules in government organizations. It was my view while working on contracting issues while in government – and it is my view as a scholar and teacher about management – that, while rules often serve valuable functions in organizations, government organizations are frequently too rule-bound, creating problems both for customer satisfaction and for performance.
 
In class, I often discuss what features of a government environment – in particular media and political scrutiny that put more emphasis on avoiding scandal than on achieving great success – tend to make government more rule-bound than private companies. In executive education, managers frequently discuss ways to reduce the negative effect of rules, such as being aggressive about using exception authorities when the rule doesn’t fit.
 
But I also always teach that many of the problems we see in managing government organizations often exist in the private sector as well, so we in government should not flagellate ourselves too much.
 
I have recently experienced a dramatic example of the truth of this observation as a customer of Sovereign Bank. It would give the worst of government bureaucracy and inflexibility a run for its money.
 
I have kept most of my money-market cash and certificates of deposit in the Harvard Square branch of Sovereign Bank for a while. Last year, the bank manager suggested I start using Sovereign for my checking, and for a number of reasons, I was tempted by his suggestion. However, I did have a worry, which was that I wanted funds to be transferred directly from my money market account to any new checking account whenever money was needed to cover a check, and I was concerned that regulations limited the number of withdrawals I could make each month. However, the manager assured me this would not create a problem, so I proceeded to spend a fair amount of time transferring a large number of automatic payments (e.g. credit card and utility bills) to the new checking account.
 
Soon the previous Harvard Square manager left, and soon I began receiving notices that I had made too many withdrawals a month from my money market fund, and that this wasn’t allowed. I explained to the new manager what I had been told and the amount of time I had spent transferring automatic payments out of the account (he already knew I was quite a good customer). I suggested the following solution: I would transfer a sum from money market into checking at the beginning of each month that would pay most or all of my checks, and they would give my checking account the same rate of interest as the money market, so I could just leave funds lying there for a while.
 
Some time later the manager got back to me and said my request had been turned down by a regional manager – Sovereign’s rule was not to offer interest on checking accounts.
 
I said to the branch manager to ask the regional manager to go up further in the bank to the level of somebody authorized to make an exception to the rule. The rule is not a law of nature or a government regulation. Somewhere within Sovereign Bank there was somebody authorized to make an exception. If it had to go to the CEO, take it there, I added -- somewhat rhetorically.
 
Well, I’ve now heard back from the regional manager. Sovereign has no interest-paying checking account “product,” he told me, so my request couldn’t be granted, no matter how good a customer I was. Yes, I understood they had no such “product,” that was why I was asking them to make an exception to their rule; if they had an interest-bearing “product,” there would be no need to make an exception. We went back and forth with him repeating “no product” in a way reminding one of the worst stereotype of an unresponsive bureaucrat.
 
I finally said that if he could not authorize an exception to their rule about no interest, I was asking him to take the decision up to a higher level of Sovereign Bank, where somebody was authorized to make an exception. He was authorized to make an exception, he said, but he chose not to do so. Why did he choose not to do so, I asked? Because Sovereign Bank had no interest-bearing “product.”

Ugh, he can’t make an exception to the rule because doing so would violate the rule! I blurted out, “I understand!  That’s why I am asking for an exception to your rule.”
 
Quickly I realized we were in a do-loop; the regional manager started repeating something about wanting to send me a communication that put our conversation in writing, so he could “memorialize” that we had had a conversation, again a behavior more bureaucratic than most government bureaucrats.
 
This actually reminded me of an experience I once had while in government. I was chairing a meeting of the FAR (Federal Acquisition Regulation) Council that was discussing rewriting Part 15 of the regulation. As I led a discussion of a certain possible change, I could watch a particularly conservative Defense Department staffer becoming more and more agitated, redder and redder in the face, until finally he blurted out, “You can’t make that change! It’s contrary to the FAR!” As calmly as I could, I responded: “What we are doing now is rewriting the FAR.”
 
Our goal in government should be to be better than my Sovereign Bank regional manager. But then again, I fear this is far, far too low a standard.

Posted on Aug 14, 2012 at 9:03 AM


Reader comments

Fri, Aug 17, 2012 Kaiping

Hi,Steven,while I was working for the government in China, I had the same feeling. It's very common to see that current policies are not live up to the current socioeconomic situation, however, the government does not put forward policy improvement(new policy). I once asked my colleagues why it's so hard for officials to make new rules in the "old" policy. They told me two main reasons: 1.a new rule will not be put on the agenda unless it causes *serious* social reaction(riot).The officials actually know that current policy has problem, but they have other things which they regard more important than rewriting the past rule. 2.Putting forward a new rule involves many sectos of government(both paralell and vertical).As long as it stagnates at a certain level(that means, a certain leader does not approve it, or a certain government agent does not collaborate), the new rule will die. I'm interesting to find that both U.S and Chinese government have this kind of problem. And I'm very eager to find out whether the reasons behind two government is same or different~~

Thu, Aug 16, 2012 Alan

1.) Sovereign Bank can go out of business (unless it is too big to qualify for failure in our modern era). With the Government, the suffering continues until the Republic falls. I sincerely hope the Government does not go out of business. 2.) When discretion and judgement are punished you will get less of those things. The closest available substitute is rulemaking.

Thu, Aug 16, 2012 Steve Kelman

Thanks for these posts, and Scott Burns, thanks for sharing the link to your blog.

Wed, Aug 15, 2012

It comes down to incentive pay. They have incentives to bring in new customers and no incentive to keep customers. The manager that convinced you to move your account over got paid for you doing so. The new manager gets zero incentive whether he keeps or loses you as a customer. That is the way most larger banks operate. All about new customer acquisition. Sad practice. Had there been an incentive to keep customers you would have gotten your way.

Wed, Aug 15, 2012

Banks and government (and insurance companies, and government contractors and the phone companies, and ect., etc., etc...) are simply too big and lean in the wrong places to perform customer service effectively and rely too much on centralized rules and policies to drive uniform, predictable results but fail to allow deviations, flexibility or common sense to meet the needs of customers. They treat customers (and taxpayers) as sources of fixed revenue. These organizations are simply massive diseconomies of scale and its clear these private and public bureaucracies need to shrink, while focusing on service and mission-related processes to execute new paradigms of customer service. The new mantra should be "rightsizing to execute" rather than blind growth through acquisition that has proven that, at a given point, customer service becomes irrepairably damaged and incresingly irrelevant to management -- they seek growth in predictable revenue or program growth and compliance. What was it Sandy Weill, the former CEO of Citi said wbout the size of banks today?

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