Is Zappos Crazy? A Look at Their Management System "Holacracy"

Business.com / Managing / Last Modified: February 22, 2017

Zappos removed all job titles in favor of self-organizing organization, but is it working? Take a look at the current state of Holacracy.

In 1516, Thomas More wrote of an isolated island somewhere in the Atlantic Ocean where there were no class distinctions and the community worked harmoniously and without acrimony to achieve the goals of the greater good. He called this place “Utopia,” which in Greek literally means “no place land.” Some critics interpret this as a clue that More was not presenting an ideal society but was rather being satirical.

Indeed, the failures of a multitude of experiments in utopian societies would seem to bear that out. But that hasn’t stopped companies like online shoe retailer Zappos from trying.

The Zappos attempt at utopia is called "Holacracy," a system of self-organizing management that takes the idea of flat management to the extreme of no management. Instead of top-down managers assigning tasks and evaluating performance, workers self-select what they want to do and how well they’re doing it.

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Can Governance Be Totally Self-Organizing?

Holacracy is also derived from Greek, “holons” or whole, combined with “ocracy” to connote self-reliant governance by autonomous groups. The philosophy is laid out in Brian J. Robertson’s book, "Holacracy." This is not an academic pondering on how the workplace might function better.

Robertson’s HolacracyOne consulting company actually implements these ideas in businesses for fees ranging from $50,000 to $500,000 and claims the system is in place in over 300 organizations, of which Zappos is perhaps the most visible and enthusiastic. While other companies have joined the Holocracy community of users, none are as large as Zappos nor, do they face the complexity of organizational challenges that come with bigger businesses.

Theory is one thing results are another. Robertson himself notes that Holacracy is in a state of constant evolution and is currently in version 4.0. Moreover, Robertson says:

“I have no doubt we’ll see future versions as we continue to evolve the rules of this game in light of real tensions that surface from the application of Holacracy. In fact, I already have many pages of nuanced notes covering tensions experienced by myself and others around the core rules of Holacracy in their actual application, all of which should provide great evolutionary fuel for Holacracy v5.0 and beyond.”

Worker Tension Over Holocratic Methods

The challenge for businesses working in the real world and trying to make a profit, of course, is that the tensions Robertson alludes to may ultimately result not so much as its continuing evolution as its downfall. Case in point that there may be trouble in paradise is the turmoil at Holocracy’s poster child, Zappos

As "The New York Times" reports, “Two years into Holacracy, Zappos is no workplace utopia—Holacracy has been met with everything from cautious embrace to actual revulsion at Zappos, but little unequivocal enthusiasm.”

The problem is that a system that is a bit hard to fully understand is even harder to put into practice. Moreover, since an underlying principle is that “circles” of peers, rather than management directives, develop objectives and performance measurements, a great deal of time is devoted to meetings. Needless to say, meetings are the greatest killers of productivity.

Related Article: Meeting Mania: How to Curb this Corporate Addiction

Employees were uncomfortable with not knowing exactly who is in charge nor how to collectively take charge, leading Zappos to offer a buy-out package of three months severance pay to disgruntled workers. Zappos has long had a policy of offering disgruntled employees a month’s pay to help them make the decision to go somewhere else that’s better suited to them.

While it makes sense to shed employees who aren’t in sync with company culture, the response to this latest offer says something about Holocracy’s long-term lifespan. Historically, between one and three percent of new hires took the previous deals. The one designed specifically for those frustrated by Holocracy led to 14 percent of employees taking the severance deal.

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Holacracy Is Not For Everyone

Holocracy isn’t exactly a new concept. It is the latest variant of autonomous, self-directed work teams first pioneered by a number of factories in the 1980s. One critic of that undertaking is Dr. Janice Klein, a senior lecturer at MIT’s Sloan School of Management. The problem is that people just don’t self-regulate as well as might be hoped. In most cases, such initiatives floundered in as quickly as six months time; the bigger the company, the faster it ran into problems.

Holocracy advocates are the first to admit that the system is not for everyone. But, as Julian Birkinshaw points out in “The Inevitable Hype Cycle,” appearing in the "Harvard Business Review," “Nine-tenths of the approximately 100 branded management ideas I’ve studied lost their popularity within a decade or so. These include GE’s Work-Out, W.L. Gore’s lattice structure, Xerox’s communities of practice, Thermo Electron’s Spinout model, and Google’s 20 percent innovation time policy.”

Holocracy is currently struggling be part of that one-tenth. Though Birkinshaw thinks Zappos might eventually be successful in implementing some holocratic policies, he thinks it unlikely any such success will easily transpose to other organizations. “Zappos has already shown a proclivity to go its own way—But all too often, the practices used successfully at one company may prove disastrous to another.”

The problem with most utopian ideas is that, as in Thomas More’s depiction, they seem to work best as fiction.

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