Nicolas Overloop

Co-founder & CTO
NoviCap

Breaking Bureaucracy: Cost savings as bonus

Many western governments struggle to keep their bureaucracies in check. Although many don't care as a big bureaucracy serves their party base and there is no negative voting consequences the costs of these organizations are problematic in times of budget cuts.

The problem is that in an organization of 25000, the social inertia and sum of individuals choosing what is best for them over the organization weighs everything down.

In a system where nobody cares about the organizational goals or only pays token service to it, the organization loses agility and becomes progressively more political and bloated.

You can see this clearly in governments, banks and other large corporates where the inherent struggle for survival or profit does not provide enough market-forces to keep the organization lean.

My proposal is to address this with a special bonus system and an internal venture capital model.

1/ Individuals or organized groups of individuals who achieve cost savings for the business through their actions should be rewarded with an annual bonus that equals the cost savings achieved.

2/ In addition these individuals gain the right to use money from next years budget to form venture funds that invest in further cost reductions. This way the organization can maximally use the information of its employees to allocate spend towards further cost reduction.

3/ The fund should be modeled on venture capital with "founders" leading the initiative and "investors" releasing the funds for a share of the profits.

4/ In order to prevent abuse or creating more costs to then "reduce them" the financial controllers of the business need to audit and approve every case to make sure it was a genuine efficiency gain and there was no foul play. Top management should also approve the cases as otherwise cost savings may be undertaken that run counter to the organizations' goals or harm the long-term health of the business.

This way a cynical bureaucrat focussed on individual gain will quickly see that maintaining inefficiencies is against his self-interest and the collective action of their self-interest will push the organization toward greater efficiency and an entrepreneurial culture.

Note that the cost structure for the organization is neutral in this case as the first and second year the actual budget reductions are achieved but not materialized. However the third year it can reap the cost reductions achieved by the second year.

The internal competition and focus on efficiencies will also drive people to work harder and eventually making redundant the people that block reform or are not performing to the new standard.

After several years the biggest waste is eliminated and the organization has gained an entrepreneurial and efficient culture with an auto-immune system against wasteful activity.