Zappos’ Experiment with Holacracy

July 1, 2015 by - Leave a comment

gb_0517I have long admired Tony Hsieh, CEO of Zappos for his out-of-the-box thinking and workplace innovation. Hsieh pioneered the practice of paying people to quit, which is one very effective way of transitioning unengaged employees to other pastures. He and his team also adjusted Zappos’ interview process to increase the focus on a candidate’s attitude, rather than just aptitude. Assessing these two metrics became tasks for two separate interview teams; a spot-on best practice.

Then he introduced Holacracy to Zappos, and I started questioning whether his success streak will come to an end. The idea behind Holacracy is that there are no bosses. While the idea of a “no bosses” work environment may sound appealing to many employees, the reality is that a zero-management workplace structure flies in the face of leveraging the most impactful drivers of employee engagement. Many trust Hsieh’s ideas based on past results, but this particular idea seems especially risky.

The jury is still out on whether Holacracy will work in the long run at Zappos, but here are four reasons why I forecast it will fail:

1) While employees may love the idea of not having someone tell them what to do or offer criticism of their work, most people crave and value getting both direction and recognition “from above.” This desire is especially poignant for Millennials who, as of this year, represent the largest single generation in the American workplace. Millennials yearn to be taught how to do something as opposed to being told just what to do.

Without managers, work groups cannot fully leverage the power of recognition, one of the most important drivers of engagement. All of the best-in-class employers (top 10%) with whom I have worked over the years, nurtured the “thank yous,” “atta-boys/girls,” and “I noticed what you did,” from its most effective source, the manager. With Holacracy, a company can no longer do that.

2) Knowing that career development is also one of the top three drivers of employee engagement, who will coach, teach, and develop employees when there aren’t any managers? Who will have regular career-pathing conversations with employees about their goals within the company? Senior leaders or HR could take on these tasks, but it’s unlikely they would know employees well enough to help as much as a manager in a more typical corporate structure.

Furthermore, a major part of career development is the opportunity to become a manager, and flat management structures make this opportunity hard to come by. If tenured employees want to leave a flat company but they lack management experience, it’s often more difficult for them to get hired at a level that reflects their years of experience. Choosing not to have managers could make top talent leave the company for better career development opportunities elsewhere.

3) A key unanswered question about Holacracy is, with the absence of managers, who will hold people accountable for outcomes and results? Again, literally all of the best-in-class employers with whom I have worked and coached were masters of holding themselves and others accountable, nearly all of the time through a well-defined management structure.

4) There is no more powerful way to build employee engagement than through the behaviors and actions of authentic and caring managers. Such reality is evidenced by Gallup’s most recent American workplace study (2014), which details how important it is to have engaged managers. The enthusiasm and dedication of engaged managers inspires direct reports to become engaged as well. Without managers, employees will miss out on having the good influence from an engaged leader.

Perhaps in implementing Holacracy, Zappos is trying to eliminate all of the potentially negative effects managers can cause in the workplace. It’s an interesting strategy, but to get rid of the bad, they are also getting rid of the good. Will Zappos ultimately end up in a better place? The jury is still out.

 

Kevin Sheridan is an internationally-recognized Keynote Speaker, a New York Times Best Selling Author, and one of the most sought-after voices in the world on the topic of Employee Engagement. For six years running, he has been honored on Inc. Magazine’s top 100 Leadership Speakers in the world, as well as Inc.’s top 100 experts on Employee Engagement. He was also honored to be named to The Employee Engagement Award’s Top 101 Global Influencers on Employee Engagement of 2017.

Having spent thirty years as a high-level Human Capital Management consultant, Kevin has helped some of the world’s largest corporations rebuild a culture that fosters productive engagement, earning him several distinctive awards and honors. Kevin’s premier creation, PEER®, has been consistently recognized as a long-overdue, industry-changing innovation in the field of Employee Engagement. His first book, Building a Magnetic Culture, made six of the best seller lists including The New York Times, Wall Street Journal, and USA Today. He is also the author of The Virtual Manager, which explores how to most effectively manage remote workers.

Kevin received a Master of Business Administration from the Harvard Business School in 1988, concentrating his degree in Strategy, Human Resources Management, and Organizational Behavior. He is also a serial entrepreneur, having founded and sold three different companies.

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Email: kevin@kevinsheridanllc.com

  • Michael Gaines

    I’ve been reading “Reinventing Organizations” by Frederic Laloux, which is the book that inspired Tony Hsieh to make this change. I believe that Laloux would argue that empowering employees with decision making authority and creating a structure in which they are accountable to each other and to the business itself generates very high levels of engagement. Even higher than can be achieved with a benevolent management team. I’ve never experienced such an organizational structure, but I do find the concept compelling! I’ll be curious to see how this bold and dramatic strategy plays out at Zappos.

    • kevinsheridan5

      Thanks for your opinion Mike. The jury is still out – it certainly will be interesting to see how it all plays out. All the best, Kevin

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  • ryaneyip

    According to my understanding, It is true that Holacracy doesn’t have any rules for firing or compensation.

    On individual recognition: It is untrue that in a Holacratic organization there can be no recognition for individual achievement. “Zappos, for example, is still figuring out how compensation will work for the company. It is currently experimenting with HolacracyOne’s Badge-based Comp App, which assigns skills, talents, and capacities to badges, which have monetary value.”

    According to Jason Stirman in his interview with Fast Company about adopting Holacracy at his company Medium, “In fact, the Medium team has already discovered something missing from the [Holacracy] system: praise and feedback. ‘Managers are usually responsible for giving people feedback, directing them, telling them good jobs, and all of these things are super important to a healthy environment. You need someone to call you out or validate you when you’ve worked hard,’ Stirman says.

    “Even so, the founding team at Medium decided to take a Holacratic approach to the problem. ‘We created a few roles responsible for giving people regular feedback,’ he explained. ‘This is where we’re starting to skirt the lines of having people managers, because it certainly sounds managerial, but these roles aren’t responsible for people’s work. It’s more of a mentor relationship than a managerial relationship.’

    “These roles are called ‘Domain Leads’ and are filled by experienced members of various circles like design and engineering. In addition to mentoring, they’re also largely responsible for hiring and firing. They work closely with the ‘Lead Links’ who define and fill roles in their circles to assess performance. ‘Domain leads are responsible for the people, not the work,’ Stirman says. ‘It’s something we’re trying out.’

    “To supplement this tactic on the positive end, the company also introduced a “High Five Machine”—a dashboard where anyone can write in and praise a co-worker, streaming throughout the office. It’s an invention borne out of Holacracy, spun out of the unique needs this kind of system creates.”

    On caring managers: “Frustrated with poor results [at Twitter], he [Stirman] decided to go off script. He started spending one-on-one meetings talking to his reports about their lives, instead of their tasks, and productivity shot through the roof. ‘When you sit across a table from someone, ask them ‘What’s going on in your life?’ That will always remove more hurdles than asking them ‘What’s blocking you at work?’ he said.

    “He started taking his reports out to lunch, to drinks, to coffee to see what was up. How was their wife settling into her new job? Did escrow close on their new house? This is the stuff that people bring into work with them but never talk about, Stirman says. As soon as you ask, the pressure starts to dissipate.

    “In his pursuit of new experiments to run, he stumbled on the book ‘Your Brain at Work’, which espouses what’s come to be known as the SCARF approach.

    “SCARF stands for status, certainty, autonomy, relatedness, and fairness. ‘Basically, when a person is honest with themselves, they’re most motivated by one of those qualities,’ Stirman explains. ‘As a manager, you can figure out which one motivates which employee, and reward them accordingly. A lot of managers will look at their team and think, ‘We should do a round of compensation increases because everyone’s been working so hard,’ but this isn’t the best incentive for everyone.’ …’It turns out that some people really care about one and don’t really care about the others,’ says Stirman. ‘Once I had my team stack rank their priorities, I knew exactly how to reach them. All the little problems and personality clashes started to fade.’

    “This willingness to break ranks with corporate wisdom set the stage for Stirman’s arrival at Medium, where clear communication, incentives, and accountability are the invisible wires keeping the organization sailing along.”

    On accountability: “There’s a lot to like about Holacracy when you compare it to classic management frameworks, Stirman argues. He has firsthand experience. ‘When I think about my role at Twitter as a manager, I had tensions all the time. And my team didn’t even have that many problems,’ he says. ‘Still, between all the teams he oversaw, my manager was constantly putting out fires. No one had the time or interest to resolve my tensions. Now, the way we use Holacracy, people are genuinely happier, they feel listened to, and connected with the organization.’

    “For companies looking to reap these benefits by injecting the spirit of Holacracy into their existing format, Stirman has a few key suggestions:

    “His focus on hearing people out about their personal lives and problems at Twitter is a prime example. It closely resembles a safe space to air tensions. In fact, he wishes he would have formalized his more personal, human approach so that people would have known they could share freely instead of carrying their issues around.

    “Holacracy encourages people to work out their tensions and issues one-on-one or outside of meetings if possible. Given the rampant explosion of meetings in corporate environments (so much so that there are meetings about having too many meetings), this is an increasingly important tip. Tension meetings are defined as opportunities to air issues that couldn’t be resolved elsewhere. People should only address the group with topics that actually need others to weigh in or help find a path forward.

    “Establishing mutual accountability can make a highly tiered workplace feel flatter, and more engaging.”

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