Are Managers On the Endangered List?

Share By Alexandra Kirkman

Zappos’ headline-making decision to deep-six its traditional management structure is causing a stir among management pundits everywhere. But can it really work?

Already widely credited for creating an unconventional corporate culture at his headquarters in Las Vegas, Zappos’ CEO Tony Hsieh announced in December that by this time next year, the company would be “going holacratic.” That’s how news website Quartz, which first reported the story, described the new flat-management structure.

What does this mean in practice? In short, no more managers, job titles, or hierarchical decisions. Instead, the company’s 1,500 employees will be organized into a holacracy, a term derived from the word holarchy, coined by Arthur Koestler in his 1967 book The Ghost in the Machine. Holons (from the Greek word holos, or whole),  are autonomous and self-reliant units, but are also dependent on the greater whole of which they are part. The structure is based on tasks the company needs to accomplish, rather than a standard reporting structure —as depicted in movies like Office Space.

According to Quartz, the company will have up to 400 of these units—circles, to be precise, within which employees can have different roles—by December 2014, when it expects to complete the rollout. Though perhaps the most buzz-worthy example, Zappos isn’t the only company adopting this model; in fact, you could argue it’s emerging as a management trend in 2014.

Medium, a publishing platform founded by Twitter co-founder Evan Williams, is a holacracy with 50 employees. So are Sumall, a data-analytics company, and technology-education start-up Treehouse.

But what are the real motivations behind, and benefits of, this kind of radical management redo? And more importantly, can it really work?

“I think that this movement has been born from a combination of innovation and frustration,” says Doug Brown, academic program manager of the Online MBA program at the Malcolm Baldrige School of Business at Post University.

“I often hear stories from frustrated students about how their managers are not very good leaders. This new corporate structure may be an attempt to rid the company of these issues and try to encourage more teamwork and engagement from its employees.”

Brown believes its viability is largely dependent on employees’ ability to adapt to radical change.

“This model can provide employees with a stronger opportunity to get noticed and advance within the company,” he says. “It can be empowering for people who are up to the challenge. Rewards may not come in the form of traditional promotions, but the opportunity to get noticed will certainly be there.”

Other experts contend that the exact management structure that employees bemoan is, ironically, what ultimately motivates them to perform.

“We tend to take more responsibility when we believe there is an audience who has an expectation for our actions – the role a manager traditionally takes,” says Rick Lepsinger, president of Onpoint Consulting, whose client list includes pharmaceutical companies, financial firms and other major brand names.

He notes that Zappos isn’t the first big company to attempt a holacracy; in fact, Shell Oil and Cummins tried to implement a similar model of self-directed work teams, as Jan Klein, a senior lecturer at the MIT Sloan School of Management, recently told Business Insider. The experiment failed within six months, largely for the reasons that Lepsinger points to: Employees weren’t very good at self-regulating.

Have any companies made holacracy work in the long-term? So far, arguably just one: Morning Star Co., the world’s leading tomato ingredient processor, has managed to succeed with this self-management model, prompting the Harvard Business Review to call it “the world’s most creatively managed company.” But it seems to be the minority.

Most concur that holacracy is unlikely to replace the traditional management structure anytime soon.

“It’s a fad and will die like so many others that we’ve seen over the years,” says Chuck Gumbert, CEO of the Tomcat Group, an aerospace consultancy.

“No matter what type of organization you’re running, someone needs set the direction, develop the business strategy, and then follow-through on the actions needed to attain that strategy. Without someone in charge you’ll end up with chaos.”

And perhaps the most ironic thing about holacracy? That in practice, it may actually be more hierarchical than the most entrenched traditional management structure.

As Steve Denning, an author and Forbes contributor on innovation in leadership, noted in a recent column on the Zappos news, “If you read the introductory article or the Holacracy Constitution 4.0 (2013), you will see that holacracy is hierarchy on steroids: The hierarchy is spelled out in more detail than in any conventional organization you have ever seen.”

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comments (4)

  1. Olivier Compagne

    Dear Alexandra, a quick note to clarify that the examples about Shell Oil, Morning Star, and what those distinguished academics are discussing, have nothing to do with Holacracy®. Holacracy is a very specific system of management with very specific rules. A company can be said to be using Holacracy only when they’ve formally adopted the “Holacracy Constitution” ( http://holacracy.org/constitution ).

    In other words, Holacracy is not a “category” for all atypical management systems. More in this blog post: “Five Misconception About Holacracy” https://medium.com/about-holacracy/da84d8ba15e1

    As a result, it’s not accurate to say that Holacracy failed at Shell Oil but that it works at Morning Star Co. None of these companies have used or use Holacracy, so their failure or successes have nothing to do with Holacracy.

    Hope that helps clarify!

    Reply
  2. PMsh

    Valve is the most extreme example of a “holacratic” approach, and arguably the most effective. The reason why their extreme version works well is because it starts with the hiring process. It’s hard to imagine applying this change to an existing population of employees, especially when those employees have been forced to fit into the managerial structure. Autonomy muscles can atrophy.

    For those unfamiliar with Valve, here is a link to their employee handbook. Definitely worth the read:
    http://assets.sbnation.com/assets/1074301/Valve_Handbook_LowRes.pdf

    Reply
    • Olivier Compagne

      Valve is a great example of company running differently, and there’s surely a lot to learn from their approach. But their approach is not Holacracy at all — Holacracy is a very specific and different system, as I clarify in my comment above.

      Reply

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