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Is Leadership Necessary? Zappos' Failed Holacracy Proves It Is.

Posted on February 25, 2016

When it comes to internet businesses, Zappos.com has enjoyed a charmed life. Founded in 1999 as an online shoe store, the company expanded to include all types of clothing and hit $1 billion in sales in 2008, only nine years after its initial founding. Well known for its outstanding customer service, it was equally renowned for its lively and fun corporate culture.

But it appears CEO Tony Hsieh may have taken things too far with the recent company-wide adoption of “Holacracy,” a radical new management system which seeks to do away with “bosses” and hierarchy and to instead foster more autonomy and collaboration.

Keeping with the Zappos tradition of paying employees severance who don’t want to work there, Hsieh offered a similar payout for workers who didn’t agree with the new Holacracy system. To his surprise and dismay, it was an offer accepted by 14% (approximately 210) of Zappos employees within the first few weeks.

 

What Went Wrong

“It was a weird transition,” confessed Josh Pedro, head of Zappos public relations.

Indeed, the utopian vision of workers freed from the shackles of hierarchy to create great things instead left many in a state of confusion. In the new system of no bosses or even job titles, it was unclear who was in charge, what people were supposed to do, and how they were supposed to be compensated.

Although Zappos is not at risk of closing, the resulting mess was a black eye to the idea of the flat and self-organizing company. In recent years management consultants have been pushing for more open collaboration within organizations but the Zappos example opens up the possibility of a dangerous new question – “Is collaboration something that can be taken too far?”

An Arab proverb states, “Better forty years of dictatorship than one day of anarchy.” While perhaps overstating the case, it does appear extremes on both ends of the spectrum produce bad results. The Soviet Union collapsed in 1987 due to its excessive hierarchy and a bloated, ineffective bureaucracy. But the resulting power vacuum where no one knew who was in charge was equally helpless.

 

What Works in Hierarchy

It appears, despite claims to the contrary, most people like and need some structure. While it’s true organization with too many management layers stifle creativity, doing away with hierarchy entirely reduces certainty, stability and output. The company ideal appears to be lie somewhere in the middle.

None of us particularly like hierarchy but as Ann Latham writes in Forbes, “order is essential” for anything, ranging from a new corporate initiative to hosting a dinner party, to happen. In every one of these events, “decisions must be made, responsibilities assigned, and plans laid.”

Working in its favor, hierarchy and order remove the need to make unnecessary decisions and reduces guesswork. In such a system, routine tasks follow a predictable path according to checklists, known procedures, or fixed templates. Removed from the need to reinvent the wheel every time on every task, organizations can move quickly and efficiently.

That said, collaboration is still an important function for driving company growth. As we’ve written here, here, and here, collaboration and open environments are capable of bringing about outstanding results. Vocoli’s signature product, a digital employee suggestion system, seeks to blend the two ideals – increasing collaboration and fostering creativity while at the same time retaining the order and efficiency of hierarchy. Contact us for a free demo today.

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