Who's the boss at Zappos?

Photographer:Ethan Miller/Getty Images

Not Everyone Wants to Be the Boss

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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It’s been a tough stretch for Holacracy, the boss-free management system that not long ago seemed like it might be about to take the world (or at least a few techie corners of it) by storm. Last week, online shoe retailer Zappos -- which began testing the system in 2013 and went full Holacrat last spring -- fell off Fortune’s 100 Best Companies to Work For list for the first time in eight years. And on Friday, digital publisher Medium announced that it had “decided to move beyond Holacracy” in part because “the system had begun to exert a small but persistent tax on both our effectiveness, and our sense of connection to each other.”

What exactly is this system? If you want to know more, you can consult the Holacracy Constitution, a Fast Company article on the phenomenon, a Q&A I did in June with Holacracy creator Brian Robertson or the book he wrote. The short version is that in place of a management hierarchy, employees inhabit “roles” that give them full responsibility for some slice of what the organization does. There’s a process for making decisions and resolving conflicts that affect multiple roles, and a framework for “tactical meetings” to keep things moving along.

At least, that’s how the system seems to work at smallish places such as HolacracyOne, Robertson’s consulting and software firm, which pioneered the approach in 2007, and the David Allen Co., purveyors of the Getting Things Done productivity system, which adopted Holacracy in 2011. For a big organization transitioning to Holacracy -- and Zappos, a semi-autonomous subsidiary of Amazon.com, is the biggest so far -- things can get really messy. Here’s Fortune’s Jennifer Reingold on the current state of affairs at Zappos:

The shift to holacracy, combined with a wildly ambitious software project called Super Cloud -- not to mention a reconceived business strategy -- has left employees confused, demoralized, and whipsawed by the constant pace of change. Over the past year, in part owing to a buyout offer, 29% of the staff has turned over.

Holacracy is “a social experiment [that] created chaos and uncertainty,” says one Zapponian who left last year. A current employee, who filled out a survey (provided to Fortune by the company) following the all-hands meeting, praised Hsieh for openness about the negative feedback but added in a burst of frustration: “I would have liked to hear some actions that may be taken to address how drastically approval of managers and legacy leadership has fallen, and how strongly more and more employees are feeling like favoritism [and management issues are] becoming a bigger problem … They aren’t remnants of legacy structure that have survived despite holacracy; they’re things that have somehow found power in it and worsened in the current system.”

Hsieh is Tony Hsieh, Zappos’s chief executive officer. The all-hands meeting was where he announced that Zappos had fallen off the Best Companies to Work For list.

It’s worth emphasizing that Zappos let Reingold attend the meeting, read post-meeting surveys and observe an actual decision-making meeting in the employee-training department -- known these days as the “Pursue Growth and Learning circle.” And Reingold wasn’t the first journalist to get this kind of access. One of the reasons Zappos’s Holacracy experiment comes across as troubled is that the company has been so transparent about it.

Something similar may be true of hedge-fund giant Bridgewater Associates, where a semi-public management vote to resolve a dispute between its founder and his heir apparent put a spotlight on the firm’s strange, radically transparent approach to decision-making. Organizations that try to do things differently, and are open about it, get news-media scrutiny that more conventional companies don’t.

Press attention was actually a factor in Medium’s decision to ditch Holacracy. “We’ve … been challenged by Holacracy’s public perception,” head of operations Andy Doyle wrote in the announcement Friday. “The general purpose business press hasn’t shown much nuance in reporting on it.”

That’s not very nice of us, is it? Still, there are some real issues with Holacracy. One is that it deprives middle managers of the markers of status and success. If you’re a senior human-resources executive at a big company, you’d probably prefer to have that on your business card and LinkedIn profile rather than “lead link for the Culture -- Connecting the Dots circle” (that’s from Reingold’s Zappos article). Another, I think, is that distributing responsibility appeals to bosses -- at least a certain kind of boss -- more than to rank-and-file workers. This sounds a little crazy: Why would bosses like a boss-free management system? Well, maybe because being a boss can be a pain.

Zappos, the David Allen Co. and Medium -- which was founded by Twitter co-founder Ev Williams -- are all headed by dynamic, charismatic leaders who did much to shape their companies’ cultures. That’s a pretty small sample among the hundreds of organizations that have adopted Holacracy, but Robertson told me last year that it’s actually a common profile. It could be that Holacracy attracts these visionary, entrepreneurial types because they’re tired of being dragged into day-to-day managerial decisions, plus they think it would be great if everybody in their organizations were empowered to be visionary and entrepreneurial like them.

Not everyone can be visionary and entrepreneurial, though, and lots of people dislike having to make managerial decisions. While there’s clearly a link between autonomy and job satisfaction, I don’t think that necessarily extends to managerial responsibility.

I tried these arguments out on Holacracy creator Robertson. His e-mailed response:

I think that’s true initially -- many middle-managers aren’t that interested in having their management position disrupted out of existence, and many front-line staff are more interested in hiding behind a supportive parent-like manager than trying to figure out how to be an entrepreneurial adult in the workplace (like many kids who don’t want to leave home and fend for themselves -- and really, who can blame them?).  Being an adult is hard, in life and in the workplace.

Robertson went on to say that he’d never seen rank-and-file resistance thwart a Holacracy implemention -- only ambivalent CEOs had done that. And there does seem to be an inexorable trend away from hierarchy and toward more fluid, team-based organizations. But I’m not so sure that management really is superfluous.

What is most important to workers, Harvard Business School Professor Teresa Amabile and her husband and collaborator Steven Kramer found in a study of “inner work life” among employees at seven companies, is the sense that they're making progress. It doesn’t have to be major progress -- a “small win,” as Amabile and Kramer put it, is enough make a day on the job a good one. 

Consider, then, this 2014 Glassdoor review from an employee at ARCA, a North-Carolina-based maker of “cash handling devices” that had recently implemented Holacracy:

There is no opportunity for growth. Holacracy doesn't recognize reviews, instead you should get feedback from your circle. There is no such thing as a yearly merit increase.

Yeah, yeah. It’s just one anonymous griper at one company. But it squares with what Reingold found at Zappos and, if you read between the lines a little, what Doyle described at Medium. The problem with Holacracy, at least early on, is that it’s too much process and not enough progress. It does seem possible to work through that, as the companies that have stuck with Holacracy for years must have done by this point. But a skilled manager/boss finds ways for workers to achieve small wins even in times of turmoil and transition. This can be hard to do, and it’s often thankless work. Maybe some organizations can do without it. I'm pretty sure good managers have enough value that they can avoid extinction, though.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net