The Inside of Zappos: Does Holacracy Work?

Photo Credit www.topmanagementdegrees.com
Photo Credit http://www.topmanagementdegrees.com

by Nathaniel Urban

Introduction

The purpose of this case study is to effectively analyze the holacracy style of organizational management that was adopted by the company, Zappos. This case study will provide the foundation of holacracy, how and why it was implemented at Zappos, and the strengths and weaknesses of it. The employee’s reaction to holacracy will later be critically looked at. Another style of organizational management, which may have been more successful at Zappos, will also be discussed.

Holacracy

Holacracy is a system of organizational management that seeks to eliminate bureaucracy and create a diverse workplace where everyone’s voice is heard. In a more detailed definition it is defined as, “A complete, packaged system for self-management in organizations. Holacracy replaces the traditional management hierarchy with a new peer-to-peer ‘operating system’ that increases transparency, accountability, and organizational agility” (Holacracy, 2016). Holacracy differs from traditional management styles because work, not people, define roles, authority is distributed locally among teams, and all the employees are bound to the same set of rules. Manager’s decisions are also not the ultimate authority.

Zappos was founded as one of the first shoe companies to sell shoes online. As Zappos expanded, more managers were being hired and the work environment seemed to be losing its identity. The work environment of Zappos preserves its reputation as being a weird, casual, youthful, and exciting place to work. Tony Hsieh, the man who has run Zappos for 16 years, insisted on keeping that reputation after he felt layers upon layers of bureaucracy were being created. More managers meant more rules and a decrease in employee innovation. Holacracy was adopted to decrease Zappos bureaucracy and increase employee innovation again.

One of the strengths of holacracy are employees having the opportunity to perform different roles rather than being assigned to one job all the time. In the case of Zappos, “Traditional top-down reporting lines are replaced by work circles that operate next to, and on top of, each other” (Reingold, 2016). Employees were able to work with different teams in various departments and had the freedom to express their creative talents where they saw they had the most use. Another strength is the elimination of the traditional hierarchal system of management. A manager’s decision does not have the authority to trump a regular employee’s decision. Derek Noel, an employee of Zappos, said, “My worst day at Zappos is still better than my best day anywhere else. I can’t imagine going back to traditional hierarchy anymore” (Reingold, 2016). Employees are entrusted to make decisions without a higher level manager’s approval.

Critical Analysis

There are weaknesses in holacracy that I believed caused Zappos employees to become resistant in this style of management. The distribution of authority can also be a weakness in holacracy. It can prevent certain employees from reaching their full potential. One Zappos employee, Hollie Delaney, said that her longtime career goal, to become the VP of human resources, was no longer achievable at Zappos (Reingold, 2016). Delaney did not have the opportunity to rise in her experienced field. She was an experienced HR executive who had to spend most of her time working in other holacratic circles.

Holacratic circles leads into another weakness, the continuously expanding number of circles that employees can work in. A circle is what roles are doing and the work and decisions they are owning (Holacracy, 2016). Ms. Kelly, a Zappos employee, said that, “The ever-expanding number of circles and the endless meetings were a drain on productivity. It’s taking time away from getting the actual work done” (Gelles, 2015). A decrease in productivity can affect the future of an organization and its employees. It can also make the employees feel like work is just being discussed but never actually put into practice.

Another style of organizational management that may have been more successful at Zappos could have been the laissez faire style of management. “Laissez faire organizational management structure stems from the French expression meaning ‘to not interfere with the affairs of others”’ (Papa, 2016). The style is made up of separate teams that are created and are made responsible for different tasks. Each team also has the power to make their own decisions. A manager will not participate in the process but the team’s work will have to eventually be approved by the manager. This would have still allowed Zappos employees to have the freedom to utilize their own talents as well as create opportunities for employees to excel in management positions. The management positions could remain limited and the majority of work be completed by regular employees.

References

Holacracy. (2016). Holacracy: How it Works. Retrieved from http://www.holacracy.org/how-it-works/

Gelles, D. (2015, July 17). At Zappos, Pushing Shoes and a Vision. Retrieved from http://www.nytimes.com/2015/07/19/business/at-zappos-selling-shoes-and-a-vision.html?_r=0

Papa, N. (2016). Types of Organizational Structure in Management. Retrieved from http://www.ehow.com/list_6686840_types-organizational-structure-management.html

Reingold, J. (2016, March 4). How a Radical Shift Left Zappos Reeling. Retrieved from         http://fortune.com/zappos-tony-hsieh-holacracy/

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