Zappos: Is there a hole in Holacracy?

In 2014, we began hearing more about Tony Hsieh’s organizational experiment at Zappos. His goal is to eliminate traditional hierarchy and promote collaboration under the tenets of a management structure called Holacracy. That means removing job titles and providing roles tied to projects – roles that change frequently in response to the work. In theory, the organization evolves in small shifts constantly instead of every few years with a large-scale transformation. Holacracy also aims to distribute authority based on roles and projects so decisions can be made “locally,” thus reducing bureaucracy. 

I am all for a breakthrough in conventional management, but I’m not sure this is it. My biggest critique of Holacracy is that it’s entirely inward-focused. It takes the energy of the workforce and directs it toward constantly evolving internal roles and painfully detailed processes. It’s incredibly complicated. Just take a look at the Holacracy Constitution (holacracy.org/constitution), which makes the iTunes Terms & Conditions read like a haiku. Change inside a corporation is hard, even when the directive is straightforward. This methodology seems arduous and exhausting, and the customer plays no part in its structure. For a company like Zappos, known for its extraordinary customer service, that seems out of character.

The naval-gazing central to Holacracy isn’t the reason I think it won’t succeed at Zappos. I believe it will fail because it generates an unprecedented level of uncertainty – a death sentence for businesses that rely on people cooperating to deliver their products and services. When employees operate from fear and panic, the “fight or flight” mechanism in the brain is activated and higher brain functions (like reason and logic) shut down. According to management guru Margaret Wheatley, people in this downward spiral look for someone to blame, and they focus their efforts on self-protective behaviors. They take fewer risks, hesitate to participate and stop thinking about the future. The resulting chain reaction can cripple a business.

Since the introduction of the new structure 18% of the workforce has left Zappos, taking Mr. Hsieh up on his offer for a severance package. Perhaps that was the point. In a comment on the New York Times article about Zappos last week, Reasonable [sic] Person from NY said, “Instead of laying off people, simply implement Holacracy. Same effect with better PR.”