Holacracy at Zappos

Several years ago, Tony Hsieh (founder and CEO of Zappos) made a dramatic change in the company's organizational structure and culture.   The online retailer had achieved a sterling reputation for customer satisfaction and employee engagement since its founding, and that success led to an acquisition by Amazon.  However, Hsieh has always been an innovator, and he wanted to try a different form of organization.  He implemented "holacracy" or a self-management approach.  The results have been mixed, to say the least.  Here's an excerpt from a Fortune article about Zappos:

The emphasis on employees—to the near exclusion of the usual metrics used to evaluate business—has made Zappos, owned by Amazon since 2009, a stalwart on Fortune’s annual list of the 100 Best Companies to Work For. It has been so celebrated for its 10 core values—which include “Create fun and a little weirdness” and “Build open and honest relationships with communication”—that the company has its own consulting unit to help others emulate the Zappos way.But this year, nearing the third anniversary of a shift from a traditional management structure to “holacracy,” a system that replaces hierarchies and bosses with “self-management,” something is different. In between the rapping and the report on the company’s “Pawlidayz” initiative to support pet adoptions, Hsieh, 42, takes to the stage to report disappointing news. He announces that scores on Fortune’s Best Companies to Work For survey have tumbled on 48 of 58 questions. Indeed, Zappos has fallen off the overall list for the first time in eight years. Two questions that generated particularly dismal results: Do employees think management has “a clear view of where the organization is going and how to get there”? And do managers “avoid playing favorites”?

I've been following Zappos for many years.  In fact, I visited the company in 2009 just prior to the Amazon acquisition.   I admire their ability to delight customers and engage their employees.  However, this move has created many problems.   I have three thoughts on this radical shift at Zappos. First, the organization has always adopted the notion that you can achieve great success by putting employees first.  However, I wonder whether this move to holacracy is truly in the best interests of employees.  Creating such confusion and ambiguity can be harmful to many employees.   No wonder then that many employees have left, some as a result of a buyout offer the company provided.  In the end, confusing employees could harm the ability to delight customers.  Second, Fortune reports that Hsieh made this move because he felt that Zappos was becoming too bureaucratic.  However, removing hierarchy does not equate to reducing bureaucracy.   In fact, holacracy brought with it many rules and procedures for how things should get done now.  Many meetings ensued as well.  Some have described holacracy as "doctrinaire."  In other words, the new approach may, in fact, be quite bureaucratic, but just in a different way.  Third, Hsieh purportedly hoped to reduce politics at the organization.  However, political behavior is not simply an outgrowth of hierarchy.  Politics emerges for a variety of reasons in organizations.  A lack of clarity about decision rights and organizational responsibilities, coupled with unclear mechanisms for employee evaluation, can actually lead to enhanced political behavior.