Zappos and the collapse of corporate hierarchies; Online shoe retailer Zappos’ plan highlights pros and cons of a manager-less system

January 6, 2014 4:29 pm

Zappos and the collapse of corporate hierarchies

By Andrew Hill

Online shoe retailer Zappos’ plan highlights pros and cons of a manager-less system

You come back from holiday to find your chief executive has given up power to a central constitution. Your team has been disbanded and your title scrapped. You are now all partners, each with an agreed role and a duty to support others whose work overlaps yours. Instead of allowing tension to fester internally, you will raise problems openly at regular meetings that promote positive action.What sounds like an egalitarian dream is becoming reality at Zappos. The US online shoe retailer plans to switch to this manager-less system – branded “Holacracy” – by the end of this year, making it the biggest company run along these lines. When the news broke last week, it generated valuable publicity for HolacracyOne, the consulting firm working with Zappos, which owns the trademark and sells licences linked to it. Business academics have already praised Zappos to the point of tiresomeness for its unorthodox style, so expect to hear more. But if the approach is more than a mere fad, what might more conventional companies learn from self-managing companies?

Quite a lot, I believe, but only if they discard some preconceptions and look to distil the most useful elements from such methods.

Self-organising does not, for example, mean ditching structure altogether, or getting bogged down in consensus decision-making. Holacracy – a cumbersome derivation from the Greek word for “whole” – is based on rules and processes, points out HolacracyOne’s Brian Robertson. He says adopting its generic constitution is more reliable than trying to copy cultures peculiar to the self-managing favourites of business thinkers, such as US companies WL Gore or Morning Star.

Even so, I think big companies run some large risks if they introduce self-government in one go.

One is that businesses built on the old model – including vendors, customers and investors – could be uncomfortable dealing with companies that have switched to an unfamiliar new structure. Zappos is owned outright byAmazon, which Jeff Bezos runs with old-fashioned micromanaging ruthlessness. He allows the shoe retailer a long leash, but what will happen when Holacracy clashes with Bezocracy?

Confusion is another risk. After PA Consulting abolished titles in the early 1990s, incoming chief executive Jon Moynihan had to quiz staff to work out who did what. He spent time reassembling the PA jigsaw when he could have been tackling its pressing financial problems.

Demolishing hierarchy could prompt talented staff aiming for a senior job to defect. Or it could force them to hide their ambitions, which merely pushes conflicts beneath the surface. Stanford Graduate School of Business professor Lindred Greer, who studies power shifts within teams, told me that “even in Silicon Valley, [where] people pride themselves on not having hierarchy, many are hierarchically driven”.

Advocates of new models have answers to some of these objections – they rightly point out that titles are not always the best way to identify the most influential staff members and can add to confusion. A bigger challenge, as academic Morten Hansen commented when I wrote about new management models last year, is the lack of hard evidence that self-organised companies outperform their conventionally structured rivals.

Research does show, however, that some underlying principles of self-management can change the dynamics of teams for the better.

Prof Greer and fellow academics have found, for instance, that, far from reducing infighting at senior level, hierarchy exacerbates it. The key to maintaining good relations between senior colleagues is not necessarily to flatten out all differences in rank, but to foster mutual appreciation of individuals’ skills in fulfilling their clearly defined jobs. Prof Greer has likened this approach to King Arthur’s round table, where individual knights each had a specified role. High-level teams “don’t just need to share leadership, [they] need to share respect”, she says.

Self-governing methods take these insights a step further. But for most companies to adopt such approaches takes time, a leap of faith and an act of unusual self-effacement by their leaders. Here, however, is a resolution corporate executives can make straight away: if you defer to each other’s skills, learn how to manage conflict, and share decisions, you are less likely to descend into pointless power struggles.

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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