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Debuting holacracy: self-management for greater good

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Zappos.com CEO Tony Hsieh wants an
environment where reasonable people do the
right things when not worried about intrusion.
ETHAN MILLER/GETTY IMAGES Zappos.com CEO Tony Hsieh wants an environment where reasonable people do the right things when not worried about intrusion.

Zappos.com, the online shoe and clothing shop based in Las Vegas, declared it had no more “people managers” as of April 30 – a bold move and one that all ambitious, self-starting employees will applaud (or will they?).

Its new structure is a holacracy – a system in which authority and decision-making are distributed throughout self-organizing teams rather than being vested at the top of a hierarchy.

To better understand Zappos' reasoning behind a truly disruptive move, consider the thought that went into the decision by its CEO, Tony Hsieh. He is an advocate of Frédéric Laloux's 2014 book, “Reinventing Organizations.”

In his book, Laloux describes the historical development of high-potential organizations. He lists three breakthrough characteristics of top organizations:

(1) Self-management – Driven by peer relationships.

(2) Wholeness – Involving the whole person at work.

(3) Evolutionary purpose – Let the organization adapt and grow, not be driven.

Laloux's book has a firm foundation in Gestalt psychology, which states that if you put a good person in a bad system, the system wins every time. Great attention is paid to how the most transformative organizations are structured and how they operate day to day.

Curiously, these organizations are not the typical hierarchical organization seen in pyramid organizational designs. There is a move away from static job descriptions and beginning-of-the-year employee performance goal-setting.

Rather, organizations are encouraged to develop new, innovative work practices that enable extraordinary productivity and more purposeful organizations. The objective is to change organizational structure from one that is autocratic and top-down to one that is more decentralized, more organic, fluid and bottom-up.

Ultimately, the goal is to encourage the emergent, creative properties of individuals to become more self-organized. In many regards, it is about asking employees to conduct work responsibilities in the same self-directed fashion that they go about responsibilities at home.

For example, while at home, the employee is not compelled to contact his supervisor for permission to go grocery shopping or take his children to soccer or mow the lawn. The employee does that because it is in his interest to do so.

This is the type of environment that Zappos.com desires – an environment where reasonable people do the right things when they are not worried about an intrusive work environment that interferes (or even discourages) people from thinking. It is much like Pablo Picasso's observation that growing up takes the artist out of most of us.

To overcome the challenge of minds turning-off at work, Zappos.com is building a culture that emphasizes the creation of intrinsic motivation – behavior driven by internal rewards. In other words, the motivation to engage in a behavior arises from within the individual because it is intrinsically rewarding.

To support a smooth transition to self-organizing and self-managing business-centric circles (or nodes), Zappos.com instituted a software system and process for prioritization and resource allocation. This helps to ensure sustainability of operations and focus.

The role conducted by management has not disappeared. Rather, setting direction and objectives, planning, coaching, guiding, controlling and evaluating no longer reside in dedicated management roles. Instead, these duties become the role of everyone.

Power and control are not viewed as a zero-sum game, but instead a dynamic state that each employee shares. They move and evolve to fit the circumstance.

In essence, holacracy is about each person having the power, authority and control to take all necessary actions needed to do her job.

The point to be emphasized is that in holacracies, the intent is not to make all employees equal, but rather to enable all employees to grow into the strongest, healthiest version of themselves as possible.

There are hierarchies of influence, rather than position. People contribute where best-suited. Authority is demonstrated by expertise, working through others to accomplish goals and adding value.

When people stop contributing in these ways, their influence will wane (and also their compensation).

In the end, holacracies are far from being flat organizations. Hierarchies develop around business issues and then recede when no longer needed. This is leadership on-demand.

The most influential person in directing one problem must be capable of releasing control, power and authority to the most influential person directing the group's next project.

In a holacracy, leadership is continually being passed, like a sprinter's baton, among the most capable and influential.

Employees that succeed in holacracies find that with the new freedom comes new responsibilities.

No longer can problems, difficult decisions or risky actions be thrown up the hierarchy with the expectation that the “boss” will take care of it. Everyone is expected to grow up and take full responsibility for their thoughts and actions.

In announcing the rollout of holacracy, Hsieh acknowledged that self-management and self-organization are not for everyone, and anyone who could not support the change would be given a severance package. Hence, adopt holacracy or leave.

Many grew up in traditional organizations and will have trouble getting their minds around the concept of self-managing organizations.

Yet, the young and emerging talent in your organizations grasps this concept readily. It has grown up with crowdsourcing and crowdfunding and naturally gravitates to Web-sharing and collaboration.

In discussions with executives, the challenge facing each is discovering how to unleash the untapped potential in employees. Holacracy is trending toward this end.

Gregory J. Smith and Marcia Broemsen-Smith are co-founders of Executive Human Resource Solutions LLC, based in Lower Saucon Township, which provides talent management products and services to help businesses grow. For information, visit www.executivehrsolutions.com or call 610-838-4981.

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