Zappos.com generated quite a lot of buzz recently when it announced that it would be throwing out the good old hierarchical management approach we all know to adopt something called “Holacracy.” If you haven’t heard about this change, here is why it’s so significant.
Zappos.com, the internet shoe and clothing retailer, became a poster child of “values-driven” or “culture-driven” organizations when Tony Hsieh, its CEO, wrote a bestseller that recounted how a struggling, two-person start-up turned into an industry leader that was acquired for $1.2 billion by Amazon. Prior to Zappos, Hsieh had already made a fortune during the dot-com bubble. In his book, Hsieh confesses to cashing in on his first start-up, LinkExchange, because he didn’t enjoy working there anymore. The bustling culture from the early days had somehow evaporated. Hsieh was determined not to make the mistake again, and at Zappos, he pulled out all the stops to create an extraordinarily vibrant corporate culture.
From great to insane?
Everyone can claim to have a great culture. Zappos found an unusual way to test theirs. Every new hire in the company goes through a four-week onboarding program (a good part of it is spent as a call center employee working with Zappos’ customers). While in the program, new hires can quit at any time if they find they don’t like the place that much after all—and Zappos will pay them $3,000 to leave. That’s right: pay a new hire to leave! The idea is that the company only wants people working there that are really eager to work there. Originally, the company offered $100 to leave. Nobody took the check, so they upped the amount. Two hundred. Five hundred. One thousand dollars! Whenever the percentage of people walking out drops below one percent or so, Zappos increases the amount. Mind you, most people at Zappos staff the call centers and the warehouses, so $3,000 is a big deal. This practice is akin to a real life barometer of Zappos’ culture, and the sum of $3,000 shows just how much people love to work there.
By any account, then, Zappos is not just doing good, it’s doing great. So it’s rather extraordinary to see it take the radical step of fundamentally reinventing its management model. People don’t usually change what isn’t broken. But Tony Hsieh had tasted “Holacracy” in one of his other ventures (he is putting a lot of money and effort into revitalizing downtown Las Vegas). He was so impressed that a few months later, he announced to employees in an all-hands meeting that Zappos would adopt holacratic structures and practices.
Busting the monopoly of the pyramid
What is Holacracy? Brian Robertson, who developed Holacracy, calls it an “organizational operating system,” to use a computer analogy. Operating systems rule the fundamental aspects of a computer: how different parts of the hardware interact, how information flows, what piece of information is more important than another, and so forth. The operating system doesn’t decide what programs run on it; it’s just the ground layer. Although one rarely thinks about the operating system, a bad one (Vista, anyone?) makes everything buggy and slow.
Today’s organizations have an operating system built around a hierarchical pyramid, with which most people are increasingly disillusioned. It is buggy and slow, but we don’t really have an alternative. It’s like Windows in the old days: don’t want Windows? Well, too bad, there isn’t really anything else on offer!
Holacracy is one of a number of new “operating systems” that are currently emerging (I’ve researched several of them for an upcoming book, Reinventing Organizations). Holacracy doesn’t work with a pyramid and business units, but with “circles.” There are no more managers and no more job titles. Instead, people fill “roles,” and the tasks formerly done by managers are filled by a number of different people. Power is distributed throughout the organization in such a way that you don’t have a superior who can invalidate your decision. And most importantly, the system constantly self-adjusts. Whenever someone feels that some responsibilities need to be created or shifted, a very efficient process exists to do so. It all relies on collective intelligence mechanisms—no one can overrule others simply because he shouts louder or she plays politics better.
Does this all sound confusing? I’m sure it does! This is new terrain. I had to dive really deeply into this concept to get my head around it. There is no way around it; it takes time to understand Holacracy. The easiest way to grasp its power is to actually experience it. Participating in one meeting run along holacratic rules is enough for most people to come out impressed by how efficiently it gets rid of stuff like politics, endless discussions, analysis paralysis, and so on.
It’s so easy to get it wrong
In the last few days, there have been a number of articles popping up in the popular press about Zappos and Holacracy, including in respectable publications such as Forbes and Inc. magazines. The topic, of course, makes for a great story—the poster-child of the culture-driven, empowering organization throws out hierarchy and job titles! But in my opinion, these articles have been somewhat disappointing. Journalists, like us all, are vulnerable to stories that are framed simplistically.
Say “no more hierarchy” and everyone gets the wrong idea. We’ve grown up believing that there are only two choices. You can have hierarchy. Or, you can have a playground, a free-for-all, where everybody just does what they want.
The articles about Zappos and Holacracy tended to go along these lines: Kudos for trying to get rid of the pyramid. We root for you. But seriously, this experiment has no chance of flying, right?
A third way beyond hierarchy or free-for-all
The problem is that the equation “no hierarchy = flatland” can be, but is not necessarily, true. Holacracy and some other pioneering organizations have developed a third way. They have taken out the hierarchy of people and power (“I’m your boss so I can tell you what to do”) but kept hierarchies of purpose, complexity, and scope (one employee’s scope might be to think about the functioning of a whole factory, while an another’s scope might be focusing on one machine only).
The pyramid as a form of coherence is out, but it is replaced with other systems and practices. In most cases, the role of the boss is replaced by clever peer-based practices that allow a group of colleagues to make decisions on topics like investments, recruitment, appointments, evaluations, and compensation. Practice shows that with the right mechanisms, peers can hold each other to account very well, thank you, probably better than a boss ever could. In a team, when someone is not pulling his or her weight, will colleagues speak up? A few simple practices can help this to happen in a timely and productive manner in a group of peers. Contrast this with a hierarchical system: in most cases, colleagues are resentful of a lazy co-worker but don’t speak up and wait for the boss to figure there is a problem and do something about it.
Decision-making beyond top-down or consensus
Here is another common misperception. For some reason, many people naturally assume that “no hierarchy = consensus decision-making.” In principle, consensus sounds appealing: give everyone an equal voice. In practice, it often degenerates into a collective tyranny of the ego. Anybody has the power to block the group if his whims and wishes are not incorporated. Now it’s not only the boss, but everybody, who has power over others (albeit only the power to paralyze). Attempting to accommodate everyone’s wishes, however trivial, often turns into an agonizing pursuit. In the end, it’s not rare that most people stop caring and start pleading for someone to please make a decision, whatever it turns out to be.
Consensus comes with another flaw: It dilutes responsibility. In many cases, nobody feels responsible for the final decision. The original proposer is often frustrated that the group watered down her idea beyond recognition; she might well be the last one to champion the decision made by the group. For that reason, many decisions never get implemented or are done so only half-heartedly. If things don’t work out as planned, it’s unclear who is responsible for stepping in.
There are good reasons, then, to be suspicious of consensus. The thing is, Holacracy and a number of other organizations that have gotten rid of power hierarchies don’t work with consensus. They have found a powerful alternative—a decision-making mechanism that transcends both hierarchy and consensus. These decision-making mechanisms give everyone affected by a decision a voice (the appropriate voice, not an equal voice), but not the power to block progress.
Holacracy calls this mechanism “integrated decision-making” and uses it during “governance meetings,” which are meetings where people don’t talk about business issues, but only about roles and responsibilities. Anybody who feels that a role needs to be created, amended, or discarded (called the proposer) can add it to the agenda. Each such governance item is discussed in turn and brought to resolution. Governance meetings follow a strict process to ensure that everybody’s voice is heard and that no one can dominate decision-making. A facilitator guides the proceedings. Here are the main steps of the process:
1. Present proposal: The proposer states his proposal and the issue this proposal is attempting to resolve.
2. Clarifying questions: Anybody can ask clarifying questions to seek information or understanding. This point is not yet the moment for reactions, and the facilitator will interrupt any question that is cloaking a reaction to the proposal.
3. Reaction round: Each person is given space to react to the proposal. Discussions and responses are not allowed at this stage.
4. Amend and clarify: The proposer can clarify the intent of his proposal further or amend it based on the prior discussion.
5. Objection round: The facilitator asks, “Do you see any reasons why adopting this proposal would cause harm or move us backwards?” There are strict criteria for an objection to be valid, to avoid the problem that plagues consensus: that one person can block the group for no good reason.
6. Integration: If an objection is raised, the facilitator leads an open discussion to craft an amended proposal that would avoid the objection while still addressing the proposer’s concern. If several objections are raised, they are addressed in this way one at a time, until all are removed.
This process helps teams to react and adapt on an ongoing basis to the problems and opportunities that people sense. Every month a team will typically adapt, clarify, create, or discard one or several roles. The process might sound formal, but people love it because it is so ruthlessly efficient. It cuts through the sometimes endless, uncomfortable discussions we have when we deal with the sensitive topic of roles and responsibilities. There is no more need for water-cooler talk, for politics, or for coalition-building to obtain a change in roles. If I sense some roles and responsibilities need changing, I have a place where I know I can bring up this topic and have it reliably processed without drama and politics.
Scaling organizations without power hierarchy
I’m sure this example raises as many questions as it answers. We are not used to thinking beyond the polarities of hierarchy/playground and top-down decision-making/consensus. This is new terrain for our minds.
What I find extraordinary, though, is that the times seem ripe for many of us who want to explore this new terrain. You see, it’s not just Holacracy. A number of organizations have cracked a way to transcend these polarities, and they have proven in practice that it works, even at very large scales. With 1,500 employees, Zappos is by far the biggest organization implementing Holacracy. But in my research for Reinventing Organizations, I stumbled upon other organizations who have been operating for years without power hierarchy with several thousand people and been spectacularly successful with it.
The young get it instinctively
We have grown up with hierarchies everywhere and find this hard to believe. On the other hand, I’ve noticed that many young people, who have grown up with the Web (the Millennials or Generation Y), “get” self-management instinctively. Gary Hamel, in his book What Matters Now, notes that on the web:
· No one can kill a good idea
· Everyone can pitch in
· Anyone can lead
· No one can dictate
· You get to choose your cause
· You can easily build on top of what others have done
· You don’t have to put up with bullies and tyrants
· Agitators don’t get marginalized
· Excellence usually wins (and mediocrity doesn’t)
· Passion-killing policies get reversed
· Great contributions get recognized and celebrated
Many organizational leaders and human resource managers complain that Millennials are hard to manage. Indeed, this generation has grown up in the disruptive world of the Internet, where people’s influence is based on contribution and reputation, not position. Why would they want to put up with anything other than self-management in the workplace?
Why would anyone else, for that matter? It seems that an ever growing number of us have come to see the limits of our current way to run organizations and are ready for something more. Holacracy and other organizations show how we can do it.
But first, we have to be willing to spend the time it takes to really get how they operate, which isn’t simply to strip hierarchy and management out of organizations or to run everything by consensus. These systems have their own coherent set of structures, practices, and processes. There is no shortcut. We have to spend time with their methods to really understand the magic.