Can this guy let go a little bit?

Photographer: Ethan Miller/Getty Images

Running a Company Without Bosses

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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You may have heard about online shoe retailer Zappos’ experiment with the non-hierarchical management approach Holacracy. It hasn't been without hiccups, as Rachel Emma Silverman reported in the Wall Street Journal in May:

Earlier this month, Zappos said about 14 percent, or 210, of its roughly 1,500 employees had decided Holacracy wasn’t for them, and they will leave the retailer.

They were offered at least three months of severance pay by Zappos Chief Executive Tony Hsieh, who wrote in a 4,700-word memo in March that the company hadn’t “made fast enough progress towards self-management.” Buyouts are part of an accelerating effort to “rip the bandaid,” he wrote.

Holacracy is the brainchild of former software entrepreneur Brian Robertson, who is now “Constitution Steward,” “Holacracy Spokesperson,” “People & Partnership Lead Link,” “Compensation Architect” and about 20 other things at HolacracyOne, the consulting firm he co-founded to spread the word.

The name Holacracy is derived from author Arthur Koestler’s term “holon,” which means a whole that is part of a larger whole, but Robertson says the approach is less a grand philosophical scheme than the product of trial and error. The experimentation continues at Zappos, publishing platform Medium, the office of the Chief Information Officer of the state of Washington and more than 300 other organizations. Robertson has just written an engagingly straightforward account of what Holacracy is about, titled -- can you believe it? -- “Holacracy.” I talked with him last week in New York, and what follows is an edited transcript of our conversation.

Question: Why do we need a new way to manage organizations?

Answer: If you think about the way they’re managed today, it looks a little bit like a feudal empire. There’s kings, there’s lords, there’s barons, there’s peasants and serfs. In our societies we’ve seen the shift from top-down management, from feudal systems and dictatorships, to where people have the freedom to pursue their individual purposes within a framework of rules and interconnection and order. I want to see the same benefits that we’ve seen societally, in an organization. 

Q: But corporate organizations are often get lauded for being quick-moving, at least in comparison with governments. They can change direction quickly.

A: I’m not saying that management hierarchies are necessarily bad at that. I just want to know what’s better. In our society, innovation comes when government provides a framework within which people can actually self-organize. Innovation doesn’t come from top-down bureaucracy. It comes from individual actors within a system free to pursue whatever makes sense to them locally.

Q: So what do you think is the best way to go about organizing that framework in a business?

A: That’s the question we explored when we came up with Holacracy. Holacracy is sometimes misunderstood as any system that has no managers. It’s not. It’s a specific system that replaces the management hierarchy with a different framework of rules for how we can work together. Our best answer is captured in the Holacracy Constitution. That itself is evolving. It’s an open-source system.

Q: It sounds like you start with a lot of meetings at the very beginning to avoid having so many meetings later on.

A: There is an element of that. For me the focus that people have on fewer meetings is missing the point. What we want is for every minute in a meeting, however many minutes there are, to be the most productive thing you could possibly be doing at that time. If it’s not, then go do something else.

You see a lot of meetings in companies where people are trying to build buy in and come to consensus on the direction to take. That’s a symptom of not having enough clarity on who can make the decision.

Holacracy is sometimes mistaken for a consensus-based system. It’s not. The meetings are only used to define authority and boundaries. Kind of like in a society, where you don’t have to come to consensus with your neighbors every time you want to take your car and drive it somewhere. Now if you want to take your neighbor’s car, you need permission. There are boundaries. Holacracy brings that into a company. The meetings are used to clarify those boundaries so you know exactly what’s yours to lead. Then we don’t need to meet about it, you don’t need to build buy in or consensus, you can get whatever input you want and lead. And you know what your neighbor’s property is, so you know that if you want to mess in this area, you need to make sure they’re OK with it.

Q: In a Holacratic organization, then, the person formerly known as the CEO could conceivably have a huge amount of authority to change the direction of the organization.

A: Absolutely, yes they could. They also have limits on that authority. Here’s the interesting thing: others have lots of authority too. In my company I know I have a lot of freedom to do whatever makes sense to me, but I know where I need to get someone else’s permission. I am the founder, but when I want to make a change on our website, I know that our website manager role has the authority. I can’t tell him what to do. I have to pitch him like I’m pitching my boss. It’s his property. He controls it for his role.

Q: If you want a change on your company’s website and you can’t persuade your website manager, how is conflict like that dealt with?

A: The first line of defense is I just go to him and talk to him, and pitch him. I’m just trying to convince a colleague of something I think is a good idea, and we have a discussion. My next line of defense is I go to what’s called a governance meeting, and I think about what I need to expect from him. Not the specific decision but the pattern, the expectations. Maybe I fill a spokesperson role, and I really want to expect our website manager to provide space on the website for me to share my presentations. He still has the autonomy to figure out how to do that, but in that governance process any of his colleagues can propose new expectations for his role. He has a voice in that process, and there’s kind of a cool conflict resolution process to sort that out.

Q: What if there’s somebody who’s just not doing their job very well?

A: Somebody needs to get someone out of the role if they’re not a good fit. That need doesn’t magically go away because you have Holacracy in place. So there’s another role that is specifically watching for performance. Now, the difference is that role doesn’t have the authority to micromanage them and tell them what to do, but they do have the authority to choose the best person for the role, and to make a change if it’s needed.

What’s a little different is that they’re also not firing the person, because in Holacracy people fill many roles. I fill 20-some roles in my company, and somebody might be removing me from one of them, and I might be grateful, right? I might be a terrible fit, and yet a great fit for 19 others.

Q: Holacracy evolved from your previous company, right?

A: Yeah, it was a software company I started specifically from a hunger to find a better way.

Q: What did you discover there that you thought, “Oh, it’s going to work like this,” and it totally didn’t?

A: A lot of the ideas I had didn’t work out so well. For example, we wanted to make sure that if anyone anywhere in the company had wisdom that it got integrated. We thought, you know, then let’s just make sure everybody gets a voice in lots of key decisions. It was disaster. It was more meetings, painful meetings, egos at play. It was crazy.

We tried less structure, which a lot of startups nowadays do. At very small companies I think that can work to a point, but what quickly emerges is some political structure for how power really works, and that’s hard to change. It makes it easier for that CEO/founder/whatever to show up and really control everything without looking like it, and it makes it harder to actually grow and scale a business.

We realized that absence of structure is not the answer any more than the bureaucratic structure that we were trying to move past. Holacracy is actually more structured than a typical management hierarchy. It’s just a different kind of structure and one that gives you a lot more clarity on who makes decisions and who does what.

Q: Is Zappos the biggest organization that’s doing this?

A: They’re the biggest one that’s doing it end-to-end across the whole company.

Q: They’ve been getting lots of attention, and it’s clearly a painful process. When you watch it from the outside, or you read that big Wall Street Journal article about it, are you surprised, or is it sort of like, “Dudes, what did you expect?"

A: Some of it is yes, what do you expect? It’s a huge change. This isn’t something you do in a few months. This is a multiyear journey. But the press reports this Zappos thing as if people walked out up in arms, and that’s not what happened at all. Zappos consciously said that if you’re not on board with this 100 percent, we’ll give you a huge buyout if you leave now. The amount of people that left probably is not that different than any major reorg, except typically it would be over a year or two after they were initially resisting the process. What Zappos did was get everyone to buy in up front or leave relatively happy with a big chunk of money.

Q: There is a history of successful new tech companies being built around one dynamic leader. How does that square with Holacracy?

A: Many of the companies adopting Holacracy are coming right from that. Tony Hsieh of Zappos, right? A big, charismatic leader. Half the press on Zappos is all about his personality and the culture he’s built around it. And it has worked. Zappos was an amazing, incredible company way before Holacracy came in.

When Tony first found Holacracy, he was already looking for an approach to harness more self-organization and to scale Zappos more like a city, where productivity goes up as you get bigger, as opposed to a company, where the larger you get, productivity per worker goes down and bureaucracy sets in. He already knew there was only so much he was going to be able to do as that heroic leader at the top pulling all the strings.

Q: What happened to you in your career that made you think, “Dang, we need this?”

A: An aerospace company I worked at won an award for being the best mid-sized company in America to work for, and I realized I didn’t like working there. That’s not totally true -- I liked it. It had phenomenal benefits, great culture, all the stuff you’d expect from a company winning that award. Yet even with all that I felt like I couldn’t use all my talents. I wanted to be creative and contribute, yet I had bosses to satisfy and politics to play to get change enacted, and everything was a little calcified.

That was one of the things. Then I had another experience that just became a metaphor for me. I’m a pilot, and I was flying a plane as a student pilot when my low-voltage light came on. Every other instrument said nothing’s wrong, so I ignored it, I kept flying and I nearly crashed the plane. I realized that the low-voltage light is tuned into information no one else has. When we show up in companies, we become the sensors, the instruments. If we can’t use what we sense, or if one person who senses that something’s off doesn’t have anything they can do with it, we risk crashing the organization. So for me there was just this drive of how can we create a company where anyone anywhere in the organization who senses something that could be improved, can act on it and get meaningful change enacted, without obstacles in the way?

  1. Amazon bought Zappos in 2009, but has allowed it great autonomy.

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Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net