This is a guest post by Paul Mueller, a Program Assistant with the MBM Team. Check out his bio here.

Following my previous post, I want to consider some tradeoffs between flexibility and rules (procedures, protocol, etc.) in organizations.

I want to start by considering the question: “Which rules do we need to keep no matter what and which rules can we bend?” Another way of looking at that question is considering the difference between categorical and incremental decision making. Economist Thomas Sowell writes about these two forms of decision making in his book Knowledge and Decisions.

Incremental decisions take into account scarcity and tradeoffs. It is the way markets operate through prices. We buy bananas or computers or iPhones incrementally. If we were to make a categorical decision instead regarding, say, bananas, then we would buy hundreds or thousands of bananas because we categorically value bananas more than anything else. That may seem outlandish but we hear that kind of thinking from politicians every day: “No child left behind; No one harmed by tainted food; Every American goes to college, etc.” These claims show complete disregard for other priorities or the costs of accomplishing these ends.

But in organizations, which policies need to be categorical and which ones should be incremental? Policies related to integrity and compliance are obviously categorical. So rules about accounting, manufacturing, hiring, etc. cannot be bent or ignored. But then we have everything else to consider. When might we be justified in bending or ignoring any of the following policies?

Dress Policy

• You cannot wear blue jeans or tennis shoes
• You must wear a jacket and tie to work

IT Policy

• No downloads, period, without prior IT approval
• Only use Microsoft operating systems
• Only use Internet Explorer

Protocol for ordering supplies

• Submit your requests to whoever takes care of office supplies; don’t get them yourself

Employment policy (vacation, sick, holiday weather)

• You can only work 40 hours a week because it is overtime after that
• You have to give advanced notice, fill out a form, and get approval for being out of the office more than 4 hours at a time

We can debate the merits of having these particular policies and can agree that in many cases it would be better to revise the policies to be more flexible. But let’s say you can’t revise the policy, at least not immediately. Do you make exceptions? Does that undermine the value of that policy (or other policies) down the road? Do you risk setting up a two class system where some people follow the rules while others do not?

Sowell