In an article in The Wall Street Journal, 14 percent of Zappos’ employees have resigned after the company implemented a new management structure called Holacracy. This is an interesting statistic.
Everyone knows Zappos pays new hires to leave. They only want people to stay and provide service to their customers if they really believe in their culture. Zappos has an outstanding service reputation so it must be working.
What is Holacracy? According to Holacracy.org, the concept is a distributed authority system – a set of “rules of the game” that bake empowerment into the core of the organization. Unlike conventional top-down or progressive bottom-up approaches, it integrates the benefits of both without relying on parental heroic leaders. Everyone becomes a leader of their roles and a follower of others’, processing tensions with real authority and real responsibility, through dynamic governance and transparent operations.
When the change to Holacracy was announced, Tony Hsieh promised employees at least three-month severance if they decided that the newly implemented structure was not right for them. The offer was open to all employees including senior management. Zappos did not disclose the percentages of staff leaving by position or title in the article.
The Wall Street article reported that the “transition to self-management has been difficult.” Mr. Hsieh is impatient with his staff and wrote a memo to that effect, stating that, “it’s taking too long to implement the new management structure.”
I think Holacracy is an interesting and workable business model, not only an unusual one. The idea of “no bosses” creates opportunities for employees as well as responsibilities. Obviously it is an environment where everyone has to work well with each other.
When there is a change in a business structure, especially a major shift like the one at Zappos, perhaps the problem is that there wasn’t enough lead time for the employees to embrace the new paradigm or concrete information about Holacracy rules. Whatever the reason, bottom line is that change can be difficult and it’s important in any organization that employees and staff are successfully brought into the loop to encourage each other.
Zappos is projecting a big increase in profits for 2015 of $97 million this year, a 77.9 percent jump from $54.5 million in profits in 2014. Their customers love them. So, as I said before, they must be doing something or everything right. And as we all know, Zappos’ employees make it work.
Holacracy is a new concept to me. Of course, I always like to learn. I welcome feedback and want to further the conversation.
What’s your opinion?
Many management scientists are skeptical about holocracy. Often, holacratic corporate systems have failed, and they have also been proven difficult to scale. In moving his company to a more utopian style of operations, CEO Tony Hsieh has put his highly successful enterprise at some risk, maybe more than he’d like to believe. This feels, well, Napoleonic. Hopefully, Zappos doesn’t experience Waterloo-like results with holacracy.
Hi Richard – a really interesting piece about a subject that I have not come across as yet. What is comforting to read is that even a young, innovative and completely customer focused organisation like Zappos finds it difficult to execute change. It is comforting because there is no perfect world. As human beings, the way we respond to and deal with change is not an exact science. It takes a lot of time and nurturing to allow people the room to accept and adapt to change.
What makes Zappos different to many organisations is their willingness to give their people a choice – if change does not feel right, they are given the room to take matters in to their own hands. However, that being said, even Zappos need to understand that whilst they may WANT every employee to lead as well as follow, not everyone WANTS to lead. Last week I wrote a blog that described how the majority of people in any organisation are ‘survivors’ – only a small number are ‘thrivers’ – it is the thrivers who are the ones who are most likely to embrace change quickly. You may enjoy reading it http://www.ijgolding.com/2015/05/07/thrivers-survivors-and-nose-divers-how-to-help-people-believe-in-transforming-your-customer-experience/
Thanks again for sharing such a thought provoking piece.
Hi Richard
Stanford’s Bob Sutton has an interesting take on the Zappos Holocracy experiment. The research for his recent book ‘Scaling up Excellence’ suggests that not only is hierarchy inevitable in almost any group of people, but also that organisations and people actually need hierarchy to perform well over time.
Interestingly Zappos isn’t getting rid of its its hierarchy entirely; it will still have one in place, albeit less of it and with different names. Indeed, Sutton suggests that it shouldn’t be about getting rid of hierarchy entirely at all, but about making it work better for both organisations and people. It is trendy amongst untrained organisational designers to suggest that hierarchies are dead. Sutton shows that although less hierarch may result in more performance, none results in much less!
Equally interestingly, perhaps the most advanced user of networked organisations is the US military in its long-standing experiments with ‘Swarm Warfare’. Arquilla & Ronfeldt in their book ‘Networks and Netwars: the Future of Terror, Crime & Militancy’ provide many examples of networked organisations that combine a minimum of efficient and effective hierarchy with a maximum of adaptive and flexible networks. What are known as ‘hybrid organisations’.
How many other organisations of size, let’s say at least 1,000 staff, can you name that are experimenting with networked organisational structures such as Holocracy?
Bob
Further Reading
Bob Sutton
‘Hierarchy is Good. Hierarchy is Essential. And Less Isn’t Always Better’
https://www.linkedin.com/pulse/20140112221140-15893932-hierarchy-is-good-hierarchy-is-essential-and-less-isn-t-always-better
Arquilla & Ronfeldt
‘Networks and Netwars: the Future of Terror, Crime & Militancy’
http://www.rand.org/pubs/monograph_reports/MR1382.html
Michael, Ian, Graham, thanks for your comments and recommended articles. They always say “the devil is in the details.” I’m sure at some point we will learn even more about Zappos’ experience from the people that remain and those that elect to leave. The story continues….. Have a wonderful day. Richard