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The Zappos Transition: Shifting from Hierarchy to Holacracy

Hierarchy and Holacracy team structures | Source: ridiculouslyefficient.com

Hierarchy and Holacracy team structures | Source: ridiculouslyefficient.com

Recently, Zappos announced that the entire company is transitioning to a new management / governance system called “Holacracy.” In case you’re new to it, Holacracy is a system of governance that promotes distributed leadership, individual autonomy in decision-making and uses lean & agile processes such as Kaizen and Kata. Developed in 2007 by Ternary founder Brian Robertson, the essential principles of Holocracy are: Energizing Roles, Circle Structure, Governance Process and Operational Process. If you want to know more about building strong, effective teams and organizations, I strongly recommend checking out the Holacracy Resource Library.

According to various articles this week, 14% of Zappos employees have taken the 3-month severance package offered to those who decided not to participate in the transition.

So why did over 200 employees decide to leave?

In the Forbes article “Zappos and Holacracy: Is it worth it?” Jacob Morgan, contributor & author of The Future of Work, writes:

For smaller companies like Zappos, holacracy might make sense and might be a little bit easier to implement, but if you look at a company that has 10,000, 20,000 or 100,000 employees, you start to see why something like holacracy becomes very, very difficult to implement.” 

Kudos to Zappos for being willing to try something so innovative and unique. Jason is right: large-scale change can be challenging. It takes time to implement massive organizational change. Not everybody will be on board or interested in making a shift, which may seem disappointing at first until one realizes it means that the people who chose to remain have a high level of commitment to the company.  It also provides a positive way to trim down on passive employees who might have already been considering leaving .

What’s the big deal about leaving the old paradigm of corporate hierarchy behind?

In his vlog “What’s Going on With Zappos and Holacracy?”, Jason goes on to explain his understanding of holacracy as:

“a new form of structure that allows for more distributed decision-making. It’s essentially a hierarchy of circles, or groups, and these circles…work with other circles, each circle has what’s called a “lead link” and they connect with other circles.”

He also mentions a number of organizations that are trying to become “flat” and make communication and collaboration more effective and efficient. Regarding the transition from traditional corporate power hierarchy into new ones, he says:

“I think holocracy is an interesting model. However, it assumes that the organization is having trouble because of the structure. In other words, it assumes that hierarchy is the problem, it assumes that structure is the problem.

If we try redesigning traditional corporate power structures, we’ll have a lot more information on whether the assumption “hierarchy is the problem” is valid. If the United States had never given democracy a try, it would still be trying to operate within the parameters of monarchy. Yes, perhaps there are other smaller changes that can be made to the system, but as Systems Thinking theory tells us, behavior is generated by structure. If we examine the behaviors produced by our corporate structures and find them seriously lacking, then there’s room for larger structural change. The creators of Holocracy have taken a similar systems-thinking approach to leadership and traditional corporate organizations.

How does your company or organization add up?

Is there room for improvement in your corporate structure that can be helped by innovative new governance systems like Holocracy and Sociocracy? If you read the following statements from Gene Bellinger’s The Way of Systems and many of them feel relevant and true, then a systems-thinking approach and structural change in your company, team or organization may be necessary:

  • There are multiple perspectives on just what the situation is, and how to deal with it.
  • Things seem to oscillate endlessly.
  • A previously applied fix seems to overshoot the goal
  • A previously applied fix has created problems elsewhere
  • Over time there is a tendency to settle for less
  • After a fix is applied the problem returns in time
  • The same fix is used repeatedly
  • There is a tendency to allow an established standard to slip
  • Growth slows over time
  • Partners for growth become adversaries
  • Limitations experienced are believed to result from insufficient capacity
  • There is more than one limit to growth
  • Limited resources are shared by others
  • Growth leads to decline elsewhere

Corporations that are slow to adapt and stagnant need to implement structural change in order to continue to thrive. Holacracy and Sociocracy are decision-making and governance systems that learned from and built upon the best practices and systems of the past. They offer new, fresh perspective and innovative ways of collaborating that go beyond the “I gotta answer to da boss” days of the Industrial Era.  Old corporate structures often yield sub-par results, and the companies that refuse to adapt and change are lagging behind–we don’t have to assume antiquated structures and traditional hierarchy are the cause: modern leaders in Systems Thinking and Learning Organizations using new governance models like Holacracy and Sociocracy are proving it’s true.

 

 

You can check out Jason’s blog about Zappos & Holacracy and Holocracy One’s video here:

 

What is Holocracy? by Holocracy One

 #TheFuturein5 Episode 36: What’s going on with Zappos and Holacracy?”