Zappos has initiated its well-publicized transition to a controversial – some might even say radical – ‘self-governing’ organizational model: holacracy. In an earlier CustomerThink post (http://www.customerthink.com/the-new-zomm-zappos-organizational-management-model) the open, and core, question was raised about what impact this might have on customers. As deftly reported in Forbes by Steve Denning, this is a legitimate, and even potentially troubling, point: http://www.forbes.com/sites/stevedenning/2014/01/15/making-sense-of-zappos-and-holacracy/2/
Specifically, Mr. Denning asks: “Where is the customer in holacracy?” And, he goes on to detail his concern. “In holacracy, the only explicit feedback mechanisms…are vertical. There are no explicit feedback mechanisms from the customer, i.e. the people for whom the work is being done….In a world in which the balance of power in the marketplace has shifted from the seller to the customer, this issue is critical. When so much time and effort is spent on the micro-details of the internal decision-making mechanisms and absolutely no attention given to any external feedback mechanisms, one could easily get the idea that the internal mechanisms are supremely important while the customer is irrelevant. Unless and until this ‘gap’ is rectified, holacracy risks being a distraction from the central organizational challenge of our times, namely, how to make organizations more able to add value to customers through continuous transformational innovation.”
He concludes that holacracy may make sense for Zappos, potentially offering fresh value for customers in a company already obsessively focused on optimizing the customer experience. The model may, or may not, be effective for customers. Holacracy could even put Zappos’ extraordinary record of customer loyalty at risk. Will it? Time, as always, can be expected to reveal all.
Mr. Denning had some post-article back-and-forth with several readers, and in one he reasserted his position on holacracy and customers: “…adding steadily more value to customers through innovation becomes the very purpose of the enterprise. It becomes the key to survival. Firms need to focus all of their attention on adding value to customers and systematically eliminating anything that doesn’t contribute to that goal.”
I’ve seen lots of commentary on whether, and how well, the model (which originators have identified as a ‘tool’) will work in an organization of this size. One such article described the analytical work of Jan Klein, from the MIT Sloan School of Management (http://www.businessinsider.com/zappos-holacracy-unlikely-to-work-2014-1). Klein has noted that most companies trying holacracy have given up after six months or so, Why? Employees don’t self-regulate very well, and they leave rather than trying to continue working within the system. There is, as well, something of an ‘Animal Farm’ feel to this tool, where HR and certain company executives hold sway over employee compensation.
From my perspective, the biggest stakeholder issue, apart from employee functional effectiveness, alignment with enterprise goals, and day-to-day personal role clarity and performance comfort, is the potential impact on customer behavior.