Download the MP3 | Run Time: 11:32

Suzi, Molly and Brandon discuss an article from Business Insider in regards to Zappos’ CEO Tony Hsieh moving the organization to a holacracy, which is a self-management model. Each of them share whether or not they think such a drastic change can work in such a large organization.

Supporting Articles:

How a Holacracy Works

“Making Sense of Zappos and Holacracy” by Steve Denning, Forbes

Reinventing Organizations by Frederic Laloux, Ken Wilber


Suzi: Hello and welcome to our podcast today, It’s About People! This is Suzi Alligood and I have Brandon Laws and Molly Kelley with me today. Today we’re going to talk about an article that we found in Business Insider.com. It’s about Tony Hsieh, the CEO of Zappos, and his decision to shift their organizational structure to a holacracy model. And we’ll talk about what that is.
For a while now, Tony has been experimenting at Zappos with this whole holacracy model, and it’s essentially a self-management organizational structure based on clearly defined roles. It defines authority and accountability over what versus who. Essentially, it removes all people managers from the equation. So if you think about more of a hierarchy model, there’s zero hierarchy in this situation. He’s been experimenting with this and doing a little bit of it here and there in the organization, and he’s just recently made the decision to rip the Band-Aid off, so to speak. Effective April 30th, they are going to pull the trigger and became 100% manager free. It’s interesting because what they’re doing as part of the transition is they’re saying to employees, If you’re not comfortable with this new structure, we have an offer for you. One part of that is that you have to read the book Reinventing Organizations, which is a book about this type of structure and the benefits of it. And if you still decide, after reading that book, that this isn’t for you, if you’re in good standing you’ll be offered a severance and COBRA and you’ll be able to leave.
The whole idea behind this concept is that there’s equally privileged employees working autonomously with codependency with other circles or teams, so they’re not reliant on managers to fix problems. This is referred to as a “teal” organization, by the way. So I’m curious what you guys think about this and what you think might be some implications around this.
Brandon: When I read this article, I had so many different thoughts. My first thought was, I never read a book and then decide that I’m going to go experiment and see that book as the holy grail and put everything into practice. There’s a reason I read a lot of different books with a lot of different ideas. It seems like Tony Hsieh had read a book, thought Hey, this model makes sense for our organization. Let’s experiment! For me, experimenting with a large company and people…I don’t know.
Suzi: They have 1,500 employees.
Brandon: 1,500 employees! I’m all about removing layers, but there’s a certain type of person you’d have to have who would operate really well in this. And maybe that’s why the offer and the severance package.
Molly: We read Delivering Happiness for our book club years ago. They already hire a certain type of people. They have a very, very strong culture and very succinct people practices in terms of who they’re bringing in. So I think they actually could pull it off in the small little universe of Zappos. I try to think about that working for every company, Molly Kelley - reading bookand I’m not sure. All the questions from an HR perspective of How is performance measured? Who’s having conversations around performance? I feel like we at Xenium are a pretty progressive culture. We have, with our Xenium Promise, instilled in everybody the ability to have difficult conversations. I could be talking to one of my senior leaders and say, Hey, I felt like we weren’t aligned in this and hold them accountable without being their manager, or having any departmental tie or anything. So I think in the right culture that could work. But it really would be a huge shift from any other company that modern Americans have worked in. It really fascinates me, I can’t wait to see how it goes.
Suzi: Yeah, and I think it sounds drastic because he’s saying Effective April 30th! But he has been working on this, and he’s been working with consultants in terms of beta testing this within his organization. The one thing that he did say, which helped explain, to your point Molly, how it’s going to work when you rely on managers to hold people accountable to their performance and to help mitigate conflict.
Molly: And assess performance.
Suzi: Some of the steps they referred to, to help ensure accountability, were one, peer pressure systems. And he felt that those worked, based on studies and research, that if they have each of these teams focused on a different business function, maybe one circle has to do with development, one circle’s people and partnership, one circle’s service and delivery. And then the teams basically have their own objectives and metrics and there will be public scoreboards for each team. So they’re hoping that will drive the accountability, it’s a self-directed team concept of course, but that the peer pressure between the teams is going to help with that accountability. And then the other thing he said was, the other key piece, was implementing a good conflict resolution process and training employees. Giving them a model and training everybody to be able to have conversations to work through differences of opinions and so forth.
Molly: Every organization needs that!
Suzi: I’m fascinated, and I would love for this to work out, because I think people are seeking more control and autonomy and collaboration and getting away from the siloed feeling. So I think you’re right—if you’ve got the right organization and you’ve got the right resources and tools and you’re hiring the right person that fits and thrives in this type of organization, I think it could be great.
Brandon: OK, HR people, let me ask you this: Who does the hiring? Who does the terminating? Who sets salaries?
Suzi: The teams.
Brandon: The teams set salaries?!
Suzi: Well I don’t know if the teams would set salaries.
Brandon: There’s got to be some management, at some level.
Suzi: Yeah, that’s interesting.
Brandon: And somebody’s got to do comp plans.
Suzi: The finance team! [Laughing]
Brandon: So they’re in charge of dispersing the money evenly? They’re penny pinchers!
Suzi: I don’t know! That is interesting. He doesn’t address that, it’s more focused on how the work is done versus some of these higher-up business decisions and structure. I don’t know, I want to read the book!
Brandon: I’m glad he’s experimenting, I just hate that he’s doing it on other people, and it’s their livelihood he’s messing with.
Suzi: Well, they’ve got all the existing managers, right? So they’ve got people in existing management roles saying, What am I going to do?
Brandon: They’re going to shift to something else.
Suzi: What they’re doing, they are working with some of those managers and they’re doing some coaching around Okay, how can we match your passion and interests and 20140724-IMG_6130experience with the work that needs to be done? And they’re not going to change their pay or anything, at least not right away. So they’re really trying to create a smooth transition for those folks, which some folks might see it, as long as they’re not getting their pay cut, they may see it as a blessing. Because you think about all the added responsibilities and pressure in being a working manager. I don’t know.
Brandon: I can appreciate a guy just trying to innovate the workplace. I have nothing wrong with it.
Molly: And they have other innovative approaches. I know we’ve talked about this a lot, but most people are probably familiar with the fact that when you go into Zappos orientation session, which is lengthy, like the second week or so you are offered—as a new hire you are offered—a $2,000 walk away bonus. It basically says, At this point we feel like you know enough about our organization, how we function, that we will literally pay you $2,000 no questions asked if you want to quit today. And if you’re willing to take it, then that tells us that this is not a fit for you and it’s not a fit for us, and we wish you well. I think that’s fascinating and that was a landmark move when they started that. So they’re kind of known for pushing the envelope.
The other thing about Zappos is they’ve got an applicant pool like Google’s. They’ve got so many people clamoring to get in there because of the culture, because of the environment. So they are going to be able to handpick the best folks that would be a fit for this, and they’re known for really good interviewing techniques. So they’re going to get at the heart of, You’re not just telling me that you want to work here because maybe you don’t like being managed at all and you have people skills problems. They’re still going to be assessing your ability to cooperate, collaborate, team partner with the team versus the manager. If anybody can pull it off, I really think it would be them. We’ll have to see.
Suzi: Yeah, it’s going to be interesting to watch.
Molly: And now we all want to read the background books!
Suzi: I know! The book is Reinventing Organizations, I’m definitely interested in it.
Molly: We’ll have to do a follow-up podcast!
Suzi: Well this has been some really interesting discussion about this whole holacracy model, and again, as we talked about, it’ll be interesting to watch Zappos and see what success they see out of it. I do know, in some recent experience, that this is something that a lot of the high tech companies are looking at and looking to implement, at least at some level.
Definitely a topic to watch! Thank you everyone for joining us! We’ll include links and resources along with this podcast, so if you’re wanting to check that out, that article is a good read and we look forward to next time. Thanks again!
Image credit: Michiel2005