Bring back the boss class, say employees fed up with self-ruling ‘holacracy’

Sick of the boss? Weary of instruction? As many as 300 US companies are embracing holacracy, a self-managing philosophy some say can make businesses more resilient, innovative and better attuned to customer needs.

But this month Amazon-owned online shoe retailer Zappos.com, a leading proponent of no-boss, non-hierarchical governance, was rocked by a mass employee defection. Almost 210 of its 1,500 employees took redundancy rather than relinquish familiar titles or positions and adapt to a holacratic system of “circles” in which employees decide for themselves how to do their job, aka “energising a role”.

The defections have not discouraged Zappos chief executive Tony Hsieh from adopting a system designed to replace human-imposed, top-down hierarchies with flattened-out holarchies. In a 4,700-word letter to employees, Hsieh said he believed that the holacratic system empowered employees “to act more like entrepreneurs”.

But America’s business community remains unconvinced: is Zappos – a billion-dollar company – being reorganised into a kind of progressive kindergarten that will ultimately implode, or is it taking a bold step into the future of self-management under an extensive code of governance and practices? The company is known for its quirks. Obsessed with customer satisfaction – motto “Deliver WOW Through Service” – it calls its executives “monkeys”, and greets visitors to its Las Vegas headquarters with cowbells.

Self-organising or self-managing organisations are not new. Examples include WL Gore, maker of GoreTex, which employs 10,000 people, and Morning Star, a tomato processor. But in 2007 a 28-year-old company CEO Brian Robertson, came up with and trademarked the concept of holacracy and wrote its 15,000-word “constitution”. His book, Holacracy: The Revolutionary Management System that Abolishes Hierarchy, is published this week.

According to Harvard Business School professor Ethan Bernstein, who has led several studies of self-organising organisations, the philosophy is not to erase hierarchies entirely but to allow companies to form hierarchies organically and to make domains over which people have more fluid authority.

“We want Zappos to function more like a city and less like a top-down bureaucratic organisation,” Hsieh told the journal Quartz. He says that cities become more productive as they grow; companies less. “Look at companies that existed 50 years ago in the Fortune 500 – most don’t exist today. Companies tend to die, cities don’t.”

But business commentators are divided over Hsieh’s experiment. Forbes calls it “gurus gone wild”; the Wall Street Journal, “confusion”. But surveys suggest the relationship between manager and employee is already changing, with companies giving workers more autonomy in an effort to limit unproductive management hierarchies.

The modern company, offers Forbes magazine, is more of a conversation than a mandate.

“We all want organisations to make us more capable of being productive, but many of us feel our organisations make us less capable and we could potentially do things better individually than we could as a team,” Bernstein explains.

“That requires a restructuring process, not structure, so the problem we’re trying to solve is to create organisations that are supportive of restructuring processes.”

A key tenet of holacracy is explicitness. If employees have a problem, they can announce a “tension”. In a manager-less, environment such as Zappos, all roles, responsibilities and policies are stored in a software system called GlassFrog.

The idea is to adapt companies from an era in which many employees performed repetitive tasks to the modern era of companies run by relatively few people that can quickly acquire stratospheric valuations.

Three decades ago, a billion-dollar organisation would have had hundreds of thousands of employees, says Bernstein; when WhatsApp was bought by Facebook for $19bn last year, it had around 60 employees.

“This is part of a greater change in the way we conceive of organisations, and in the different way we organise for scale and move toward more knowledge or technology work with less need for larger numbers of human beings doing coordinated and repetitive tasks over time.”

But does the organisation without structure simply cease to be an organisation? Bernstein says holacracy is good at conflict resolution but doesn’t solve issues of career progression, compensation, hiring and firing – traditional components of a bureaucracy. “If you reduce structure, you have to raise another part. Holacracy raises the process aspect of it.”

And that means as many as five hours extra a week, according to Zappos employees. Hsieh says it will take three to five years to fully implement holacratic values. It is, he says, “a process of trial and error”.

HOLACRATIC OATH

■ The philosophy of holacracy is enshrined in a 15,000-word “constitution”. Employees are assigned a circle and roles within it are assigned, elected, or formed into further sub-circles. A job is not a job but an “energiser of roles”.

■ Stripping bosses of their titles is the first step. Then comes the more difficult task of distributing leadership into each role. As the Wall Street Journal noted: when everyone’s in charge, there probably will be lots of meetings.

■ The end goal is radical transparency – there’s no hiding behind titles or bureaucracy. As Tony Hsieh says: “It’s not the fastest or the strongest that survive. It’s the ones most adaptive to change.”