Understanding Holacracy and the Impact it had on Zappos

by Tony Snider

When thinking about the organizational aspect of company management, typically the same original system pops into most everybody’s heads.  There are managers that oversee the work of those below them and the managers evaluate the work done.  The overseeing managers ultimately make most, if not all, decisions when it comes to the work done and how exactly it should be done.  Now there is a new type of organizational management, one that takes a new look at how work should be done.  Digging a little deeper into this new management should be able to point out some of the strengths and weaknesses of it in use in large corporations, as well as its effect that it has had on a major business already.

Well known online realtor “Zappos” has taken on the interesting organizational method known as “Holacracy”.  Holacracy’s goal is to create a dynamic workplace where everyone has a voice and bureaucracy does not stifle innovation (Gelles, 2015).  Basically what CEO Tony Hsieh wanted was a workplace of no managers or need for a typical hierarchical system, hoping that he could boost innovation and creative thinking within the company.  This type of self-management has been considered by most as radical, to say least; but Hsieh saw the possible benefits for his company and dove in head first.

Obviously there are many major differences between a traditional organizational structure and the structure of a Holocratic company.  In a traditional company each person would have their one job and stick to it, but with Holacracy roles can be defined around the work, not the people, and they are updated frequently so that multiple people can fill different roles in the company.  Another large difference between traditional organizational structure and Holacracy is how decisions are made in regards to authority.  In a traditional setting managers delegate authority and ultimately their decision trumps all others, but with Holacracy authority is distributed through teams and roles so that decisions are made locally (Bernstein, 2016).  As was explained in the “Holacracy – How it Works” article, one of the principles in Holacracy is to make the implicit explicit.  It is about creating clarity – who’s in charge of what, who’s making what kinds of decisions (Bernstein, 2016).

zappos-holacracy

Example of the desks featured at Zappos. Photo Credit: http://fm.cnbc.com/applications/cnbc.com/resources/img/editorial/2015/06/05/

The main strength associated with this type of organization are that workers have the innate feeling that they are not necessarily any less important than those sitting next to them.   This was intended to allow each person the ability to be a sensor for change (Bunch, 2016). The main weakness associated with Holacracy is that work production may halt if it is not taken seriously and the employees are not maintaining normal production.  This can happen because the employees do not have someone that always oversees their work and they might get comfortable with completing a lighter work load (Denning, 2015).

The reason Zappos and Tony Hsieh turned to Holacracy was because that from the time it was founded in 1999 it was a Fortune top 100 place to work, up until recently.  Hsieh turned to this “horizontal” organizational style because he believed that it would boost employee morale not having managers of any kind (Reingold, 2016).  In one year’s time of Zappos introducing their Holocratic management style they have lost 29% of their workers.  Having 29% turnover in one year it showed him two things, who did not want to be a part of his new system while simultaneously showing him who was buying into the idea and wanted to be a part of it.  Now it seems Hsieh is ultimately moving onto another management system called “teal”, basically admitting the downfalls of Holacracy in the workplace.

I for one feel that Holacracy has no chance of working in corporate America.  While it may work in group projects in grade school, I have the understanding that people need motivators and elders to get the best work out of them.  Although many people are self-motivated and could thrive in this Holocratic workplace, the whole scheme can be compromised by those that take advantage of the situation and are no longer helpful.  In my opinion the best thing for Hsieh would be to move back to a traditional organizational structure and think purely about productivity and improving company numbers and not try and take too much into consideration the pampering of his workers.

 

References

Bernstein, E. How It Works. (n.d.). Retrieved September 22, 2016, from http://www.holacracy.org/how-it-works/

Gelles, D. (2015). At Zappos, Pushing Shoes and a Vision. Retrieved September 22, 2016, from http://www.nytimes.com/2015/07/19/business/at-zappos-selling-shoes-and-a-vision.html?_r=1

Reingold, J. (n.d.). How a Radical Shift Left Zappos Reeling. Retrieved September 22, 2016, from http://fortune.com/zappos-tony-hsieh-holacracy/

Bunch, J. (n.d.). Exclusive: Getting to grips with “Holacracy” at Zappos | hrmasia. Retrieved September 22, 2016, from http://www.hrmasia.com/content/exclusive-getting-grips-“holacracy”-zappos

 

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