Here’s Why Eliminating Titles And Managers At Zappos Probably Won’t Work

Here’s Why Eliminating Titles And Managers At Zappos Probably Won’t Work

ALISON GRISWOLD

52 MINUTES AGO 362

As you’ve probably heard by now, Zappos is in for a radical restructuring.

The online retailer is nixing all job titles and managers as it shifts to a super-flat structure known as “Holacracy.” When CEO Tony Hsieh first announced the shake up in November, he described Holacracy as a “self-governing” system that would boost transparency and streamline operations, Quartz reported. In the place of bosses and managers, Zappos will create hundreds of committee-like “circles” filled by employees. While the term Holacracy is relatively new — inspired by the Greek “holon,” which means something that is at once a whole and a part — structures like it have been around for decades. At their best, such setups are viewed as a way to tap the full potential of talented and motivated employees. But at their worst, Holacracy systems have a troubled past: routinely failing after just a few months and driving top talent out the door.

The concept of self-directed work teams (alternatively known as “self-management” and “autonomous work teams”) was popular in the 1980s, according to Jan Klein, a senior lecturer at the MIT Sloan School of Management who spent years researching the topic. Back then, it was mainly applied to factory work.

“There was a belief that if you empowered the workforce they’d be more productive, and you’d have creativity and all of that,” Klein said. “So in many factories they went in and eliminated first-line supervisors.”

It wasn’t just tiny factories that tried that. Big-name companies like Shell Oil and Cummins also jumped on the band wagon. But of all the places that implemented the system, Klein says she only knows of one that made it last long term. Almost everywhere else, she said, the effort started to flounder after just six months. And the bigger the company was, the quicker it tended to run into problems.

The fundamental issue? People just didn’t self-regulate as well as the companies had hoped. Teams weren’t good at disciplining themselves either. “We’re human beings; we just don’t do that,” Klein says. “We’re social beings, and social issues get in the way of logic sometimes.”

Another challenge was attrition. Companies bled talent as successful managers jumped ship instead of losing their titles. At the same time, poor and mediocre managers that the companies hoped to effectively demote continued to be seen as de facto leaders.

What remains particularly unclear in the case of Zappos is how deep the elimination of titles will run. Sources told Business Insider that some execs will still decide what everyone gets paid, and that certain employees will have broader responsibilities than others. If that’s true, Holacracy at Zappos could be more of a nominal rebranding — or as Klein says, “window dressing” — than anything else.

In her research, Klein discovered one company that successfully implemented a true title-less, manager-less system, and it used the system for more than 20 years. Although she was asked not to disclose its name, she says it was a highly unique case: a factory located in a rural area where everyone knew everyone, with the same leader for two decades, and staffed by local families. It was underpinned by the existing, tight-knit community.

Perhaps that’s what Hsieh thinks he has in place at Zappos, and if so, maybe its holacratic system has a shot. But a company of 1,500 in downtown Las Vegas is quite different from a small rural town. And experts agree that any type of self-governed system gets increasingly difficult as it scales, since more structure is typically required to coordinate work responsibilities.

“I question how they’re going to be able to do this with 1,500 people,” Klein said. “But more power to them.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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