Zappos was established in the year 1999, after founder Nick Swinmurn had a difficult shopping experience in San Francisco. Nick’s search for a pair of shoes lasted for several hours and ended in disappointment as he could not find one store that offered what he wanted. After an unsuccessful shopping experience, Nick tried looking for the shoes he wanted online and was once again unsuccessful. Nick realized after his venture that there was no major online retailer who specialized in shoes. With this in mind, Nick decided to leave his job in pursuit of starting his own online shoe retailer. This idea came into reality as he established, Zappos.com. The original vision of the company was: “One day, [have] 30% of all retail transactions in the United States be online. People will buy from the company with the best service and the best selection. Zappos.com will be that online store.” (Zappos)
Starting November 2014, Zappos announced they are going to switch from a traditional organizational structure to part Holacracy structure in April 2015. “The term holacracy, which originated in 2007, comes from the Greek word “holon”, and writes Quartz’s Aimee Groth, “means a whole that’s part of a greater whole.” In other words, each part of the group is autonomous, but also reliant on the larger group” (Inc.). Holacracy is designed to incorporate a more team oriented culture and to be more like a city instead of a top down culture. “A holacracy eschews titles and instead builds a chain of command based on the work that needs to be done” (Mashable). The transition to holacracy at Zappos is primarily to focus on building a company that comprises “leaderless” people that will take accountability for their work. Holacracy is supposed to instill people with the culture of adopting leadership into each role.
At the beginning, Zappos plans on having different sub committees to self-manage their team to get projects done. Since the leaders at Zappos understand the limits to a traditional structure, they are attracted to new ideas as they increase their potential of switching to a holacracy structure. “CEOs who sign on to Holacracy agree to cede some level of power. The advantage is that they get to view their company through an entirely different lens. But it’s an adjustment for both leaders and employees. Zappos, which has 1,500 employees, will be the largest company to date to implement holacracy. We want Zappos to function more like a city and less like a top-down bureaucratic organization.” (Quartz)
Another company that uses the holacracy system is called Medium. Medium was created by founder Jason Stirman. For two years, Stirman managed a team at Twitter and he was always very uneasy about it. He constantly felt tension as a leader because he didn’t know how to be the team’s boss as well as their peer. After much frustration, he resigned from his position at Twitter and formed Medium using the holacracy system. He called this system “hands down, by far the best way I know or have ever seen to structure and run a company,” Stirman says.
Here are some of the key principles that Medium embraces: no people managers, maximum autonomy, organic expansion, tension resolution, making everything explicit, distributing decision-making power, discouraging consensus seeking, and eliminating all extraneous factors. Employees may need the ability to work from home, or simply slip on their headphones to tune everyone else out. Medium’s goal is to identify issues people are facing, write them down, and resolve them. Employees are energized by opportunities to socialize with their coworkers — happy hours, softball games, etc. By making everything explicit, Medium will have workers that are happier to be there which will promote a healthy work environment. By distributing decision-making power, employees can be motivated by a possible title change, or having their name attached to more important projects.
Many times when conducting a project, the purpose changes from building the most innovative product to making a product the most popular and/or sustainable. This ended up frustrating Stirman, the founder of Medium. “I ended up feeling like my job was very disconnected from the higher-level purpose, and I know others on my team felt the same way — it was hard to connect the dots,” Stirman says. What Medium did to ensure this didn’t happen was instead of focusing on employees, they focused on roles. Each circle has what they call a ‘Lead Link’ who determines what roles the group needs and how they get assigned. In fact, one person can hold various roles if they are capable to do so. By doing this, employees can build multipurpose roles for themselves that express to their entire set of skills— not just a single ability.
One might be skeptical of what is missing from the system of holacracy that Medium is using. The Medium team has already discovered what this missing item is: praise and feedback. In a standard top-down management structure, there is always a manager who has someone below them to give helpful feedback to and guide the employee in the right direction. It is extremely important in order to maintain a healthy work environment for employees to be told that they are doing a good job or are on the right track. Employees need to be rewarded for hard work. Medium needed to address the issue if the company wanted to continue to be efficient.
The Medium team came up with a solution to this issue by forming roles called ‘Domain Leads,’ which are filled by experienced members of various circles like design and engineering. Their duty is to be more of a mentor than to hold a true managerial position. In addition to maintaining a mentor role, however, they also have a large role in the hiring and firing. They work closely with the ‘Lead Links’ who fill the roles in those circles to evaluate performance. Stirman validates when he states, ““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.”
When someone creates a new system it is often met with criticism. There are several people who embrace the new innovated system, but there are also those who think it will fail. A holacracy is the latest system that has experts weighing in on the matter. A holacracy is met with doubt because it aims to organize a company around the work that needs to be done, instead of around the people who do it. This has many experts listing the pros and cons of this system and whether it will last. So just what are the advantages and disadvantages to this holacracy?
The disadvantages consist of lack of self-regulation, keeping top talent, and equal pay. Holacracy strips job titles and puts everyone in “teams.” In these “teams” everyone is held accountable and everyone is equal. So if one “team” is underachieving or having discrepancies within the “team”, then the “team” is in charge of governing themselves. This is where a “team” can be biased. A “team” will not self-regulate themselves as they would another. They would either be too harsh on themselves or would not impose any discipline at all. Once a “team is formed then job titles are abounded and everyone is on an equal playing field. Now if you’re a manager who has worked hard to climb the corporate ladder, it is difficult to buy in on this idea. A lot of top talent who want compensation for their hard work will go someplace else to get recognition. When everyone is equal then there is no room for individual growth; only room for team work. A “team” is equal, once all titles have been stripped. In every “team” it’s about no one person who is in charge. So it begs to ask “Does everyone get paid the same?” If that said, are “teams” in charge of choosing their own benefits and pay? Does the entire company just get paid the same? This causes confusion when choosing a holacracy, because not everyone can be equals. A company still needs someone to be in charge of who gets paid what. A company stills needs a CEO who is in charge of the entire company. Companies still need a HR representative that chooses what everyone’s benefits will be. So a company can’t deviate too far from a traditional bureaucracy. There always needs to be some kind of hierocracy with any company.
An advantage of holacracy is being able to give everyone a voice, which often creates more ideas and more opportunities for everyone to speak up. Also, holacracy brings clarity to the purpose of work, the responsibilities for getting stuff done, and allows for quicker corrections for imbalanced workloads.
Having a holacracy organizational structure would be ideal in a smaller company rather than a large corporation. The problem with the concept of holacracy is that to have a self-directed work team, there must be some kind of team leader. “The concept of self-directed work teams (alternatively known as “self-management” and “autonomous work teams”) was popular in the 1980s, according to Jan Klein, a senior lecturer at the MIT Sloan School of Management who spent years researching the topic. Back then; it was mainly applied to factory work” (Business Insider). Having autonomy in a normal environment is beneficial because it allows the cooperation of different ideas from different people, but in order to have a functioning company one needs to have some kind of leader that has the final say. There can’t be too many Indians and no chief. The larger the company is, the harder it can fail. Jan Klein discusses the difficulty of self-directed teams, “People just didn’t self-regulate as well as the companies had hoped. Teams weren’t good at disciplining themselves either. We’re human beings; we just don’t do that. We’re social beings, and social issues get in the way of logic sometimes” (Business Insider). Companies like Zappos will always try to stray away from a traditional bureaucracy, but in the end a top down organizational structure will find its way back in.