Zappos’ Experiment with Holacracy

zapposThis guest blog has been provided by Kevin Sheridan, best-selling author and innovator in the field of Employee Engagement.

I 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.


This guest blog has been provided by Kevin Sheridan, best-selling author and innovator in the field of Employee Engagement.
Kevin Sheridan is an Internationally-recognized Key-Note Speaker and New York Times Best Selling Author.  He spent thirty years as a high-level Human Capital Management consultant, helping some of the world’s largest corporations break down detrimental processes and rebuild a culture that fosters productive engagement, earning him several distinctive awards and honors in the process. Kevin’s premier creation, PEER®, has been consistently recognized as a long- overdue, industry-changing innovation in the field of Employee Engagement.  He is also the author of The Virtual Manager, which explores how to most effectively manage remote workers.  His book, “Building a Magnetic Culture,” made six of the best seller lists including The New York Times, Wall Street Journal, and USA Today.

Kevin can be reached via email at kevin@kevinsheridanllc.com, on LinkedIn at http://www.linkedin.com/in/kevinsheridan1 and on twitter @kevinsheridan12. His webpage is www.kevinsheridanllc.com.

2 thoughts on “Zappos’ Experiment with Holacracy

  1. Great article Kevin. I liked it because it highlighted not just the benefits which are obvious if not also elusive of a holacracy, but also the costs associated abandoning traditional or conventional management structures especially its impact on staff development. All of your points were directionally valid. I’d like to believe that even within a holacracy, these points you raise can be addressed-perhaps not within Zappos but theoretically speaking. I salute Zappos and their CEO Mr. Tony Hsieh for attempting such an experiment. Even if they fail, the lessons learned by future organizations trying to utilize this approach toward their own management from their attempt will be invaluable. Working under a holacracy paradigm is so fundamentally different from anything we’re socially conditioned into dealing with that failures are inevitable. The first settlements at Jamestown and Massachusetts were also failures. The pilgrims that we hear about and the settlers in Virginia were all 3rd and 4th attempts at making a colony. Eventually the colonies figured it out and thrived. I feel the same evolutionary path is in store for today’s Holacratic organizations. Some ups and downs for sure will be had and perhaps some outwright failures even, but eventually this type of thinking will more easily integrate into our accepted set of norms once we as a society get used to them.

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