How Your Business Can Benefit From Zappos’ ‘Holacracy’

shoe high heel public domainCan you picture your business without any bosses or formal management hierarchy? Can you picture buying your next pair of shoes from an online company with no bosses or formal management hierarchy?

While the first question I posed may be entirely rhetorical, it seems many will be answering “yes” to the second question: Zappos has announced a transition to a new management-less structure.

Although it’s not a totally new idea, there has been a lot of recent interest in “holacracy” as an organizational system within companies. For a large organization such as Zappos it means that there would be “whole units” that are self-organizing and self-managing but at the same time part of a greater “whole.”

These units are responsible for functions or tasks. To some degree, individual Whole Foods stores are organized like this. The various departments – meat, produce, and the rest – make up the units. In the Zappos plan, the units are being called “circles.”

The 30-minute memo

Zappos CEO Tony Hsieh issued a lengthy memo to employees outlining the plan and urged them to take 30 minutes reading it. He mentioned some specific moves the company is making that I think help to understand what are the important points of adopting holacracy. Hsieh specifically says that there will no longer be “people managers.” This reflects the elimination of hierarchy.

As the company transitions, there will be a program to help managers find “new roles that might be a good match for their passions, skills, and experience,” according to Hsieh. Pay will be determined through democratic means within each unit, or circle as Zappos is calling them.

Managers, or others who prefer not to work within the new system, can leave the company with various severance packages that start with some three months of pay and COBRA costs covered for up to three months.

If my description sometimes seems a little vague, it is. Putting into words a system that is designed to be rather amorphous and unstructured is a challenge, but I hope you’re getting enough of the flavor. The go-to book on the subject is Frederic Laloux’s “Reinventing Organizations,” if you want to plunge more deeply into the topic.

However, whether or not you decide to jump into holacracy with both feet, I think some of the principles that underlay this system are worth considering, especially in how they relate to employee engagement and buy-in.

Unarguably good goals

It is easy for top-down systems that strongly rely on management command and control to cause a lot of employee dissatisfaction. I know a talented graphic designer who once interviewed for a job. The position was frankly a bit below her experience. During her interview she was told explicitly that should could not offer design suggestions to anyone; that was someone else’s job. Rather than take advantage of a person’s talents and knowledge, this company’s management philosophy forced everyone into, boxes which stifled creativity and teamwork.

It also seems that the mission within any circle or unit must be clearly understood by all its members. This will encourage and promote communication and clarity. Many of us who have worked in large organizations know that often people seem to be “pulling in different directions.” This prevents many companies from making progress. If implemented properly, this should not happen in a holacracy system.

In arguing for this system, Zappos points out that when large traditionally organized companies get bigger, per-employee innovation and productivity go down. All too often, they become large bureaucracies. Zappos hopes to avoid this failure.

There are a lot of hurdles for Zappos to overcome as it makes this move and I don’t think success is guaranteed. One statistic I saw said that only 3 percent of all organizations use this model. Let’s watch for updates from Zappos and I hope if the company abandons its experiment, that news gets as much press as has its adoption of holacracy.

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