Holacracy challenges management norms by removing the central point of contact

In this week’s column, Kehlan looks at Holacracy, a management experiment that some of the biggest companies in the world are exploring. What is it, and why did one major retailer get into hot water by implementing it?   

Zappos is one of the largest online shoe and clothing retailers in the world.

It has for long had a reputation for being a good place to work. It has a fun atmosphere, offers generous perks, and looks after its staff.

However, chief operating officer Arun Rajan recently announced that since implementing Holacracy — a self-management tool for the workplace — a fifth of its workforce had left.

Holacracy in the workplace is where normal management structures are taken away.

Employees must therefore collaborate more with the teams and people around them, rather than looking to a central point of contact for direction.

In a recent article, The New York Times pointed out that the online seller had run into major problems in plans to migrate its computer systems to a super-cloud server system, because a lot of people had left the company.

The computer problems had a knock-on effect to the retailer’s website and its operations.

3 Reasons the Zappos Exodus Doesn't Spell Doom for Holacracy https://t.co/beEZsz5iIP pic.twitter.com/ggjML3lnBH

— Inc. (@Inc) January 16, 2016

Those who wanted to leave the company were told they could take a pay-off if they were not happy with the new way of doing things. Many took the payments and left.

In a piece a few weeks ago examining the technological changes we could expect for 2016, I discussed management in the workplace, and how the move towards empowering employees to take more management decisions was bound to evolve.

The Zappos case is an example written large —though perhaps in a very dramatic form.

Holacracy is about democratising the workplace. But is this a great theory or something that can really take hold in workplaces?

For centuries, workplaces have used the same frameworks: The boss and upper management at the top, then middle management and other workers.

There was a hierarchy. Those on the level above made decisions for those below them.

From corporations to small businesses, the structure is essentially the same. According to this way of thinking, people need leading, and there is a defined chain of command.

In the last 10 years the traditional structure has slowly started to unravel, as employees look for greater autonomy. Several tiers of management appear more of a hindrance than a help.

Company decision-making moves up and down a pyramid, which can stifle productivity in any workplace. In some cases, management becomes the company’s worst enemy.

Enter Holacracy.

It’s important to point out that Holacracy doesn’t want to fire every manager. Managers’ jobs are still safe.

A company needs direction and accountability. There will almost always be a need for some sort of hierarchy in a workplace.

However, Holacracy redefines the way employees work on projects and the exact roles in which staff are employed.

Effectively, the idea of Holacracy is to arrive at ways of making decisions that involve consent — where everyone is equal and everyone is responsible for the decision- making process.

Imagine you have four departments in a company.

Each department is represented by a circle. Employees are linked when they work on the same project.

Projects are discussed, updated, and decisions on delegation are made by the people involved.

Collaboration is encouraged in the group.

This means ideas and solutions to problems are acted on by the people who are directly involved in each project.

No one person is in command or is making decisions on the project.

Management will still oversee the broad direction, but it will be up to the employees themselves to make it work.

Everyone has the same level of accountability for the project.

If you then move out and draw lines between projects, connecting the four departments to each other, you arrive at an organisation in which all members of each project are connected with each other, and in turn each department is connected with each other.

Everyone collaborates and acts on what needs to be done. It also gives a voice to everyone in the organisation.

It provides a platform for ideas and conversations about the issues under discussion.

It is no longer just hoping that management will recognise the importance of a project or a pressing issue, because problems and solutions are implemented in the group.

Another important point is that no one falls outside the circle. Each manager and board room director is part of this new business idea.

You have employee circles and management circles too.

So, what went wrong at Zappos?

Zappos, in its approach to adopting Holacracy, forgot the fundamental part of Holacracy.

It failed to nurture collaboration among its employees and didn’t listen to their opinions.

Issuing an ultimatum to accept the new way or take a pay-off showed that chief executive Tony Hsieh didn’t understand what it was all about.

You can’t talk about collaboration and a new democratic workplace and then give ultimatums before its implementation.

Mr Hsieh’s fundamental misunderstanding led to confusion. Many did not understand their new roles.

Experts say that the best way to introduce new ideas is to remove the responsibility for their implementation out of the hands of management altogether.

There should be no directives or orders. There should be a way of introducing new ideas to employees freely and independently.

Ideas should be phased in and not involve any wholesale and sweeping changes, which only leave everyone feeling like rabbits in the glare of headlights.

There is a big stumbling block for this new model and company structure —the ability of management to loosen control.

They have to understand that not every piece of information needs to be run past them.

For some, losing influence in a company will be a step too far, but employees now expect a lot more from the workplace.

Staff seek more independence, and a better chance to make decisions and influence the direction the company is taking.

For Holacracy to work, it first needs management to understand that being a good manager isn’t all about control.

It is about redistributing power to the extent that not only top managers have a say in the future of the company.

That will take some getting used to. The way Zappos implemented Holacracy is an exercise in how not to implement it.

It involves a slow and steady process. Getting it right may change forever how your company operates, and boost its productivity.