THE WALL STREET JOURNAL By RACHEL EMMA SILVERMAN
Brironni Alex was so good at answering telephone calls and emails from customers at Zappos.com Inc. that the company
promoted her to customer-service manager.
But when the online retailer adopted a management philosophy called Holacracy, she lost her job title and responsibility for performance reviews. Since the end of April, Zappos has zero managers to oversee employees, who are supposed to decide largely for themselves how to get their work done.
“I am managing the work, but before I was managing the worker,” says Ms. Alex, 26 years old, now part of a team implementing Holacracy throughout Zappos. Ex-managers haven’t been guaranteed another job and could have their pay cut next year, though Zappos says that is unlikely. Ms. Alex says the changes give her more time for a workplace diversity committee and to perform on the Zappos dance team.
The shake-up has been jarring even for a company famous for doing things differently. Earlier this month, Zappos said about 14%, or 210, of its roughly 1,500 employees had decided Holacracy wasn’t for them, and they will leave the retailer.
They were offered at least three months of severance pay by Zappos Chief Executive Tony Hsieh, who wrote in a 4,700-word memo in late March that the company hadn’t “made fast enough progress towards self-management.” Buyouts are part of an accelerating effort to “rip the bandaid,” he wrote.
Employees say the new system has been confusing and time-consuming, especially at first, sometimes requiring five extra hours of meetings a week as workers unshackled from their former bosses organize themselves into “circles” and learn the vocabulary of Holacracy.
Created by a former software executive, the philosophy is spelled out in a 30-page “Constitution” where doing a job is called “energizing a role,” workplace concerns are “tensions” and updates are made at “tactical meetings.”
Beyond initial snags, known inside Zappos as “the dip,” some employees wonder how they will win pay raises and advance their careers with no management track. Other workers have said the new system feels like a drag at a company where “Create Fun and a Little Weirdness” is one of 10 “core values” and a conference room features a Chuck E. Cheese’s-style pit filled with small plastic balls.
Mr. Hsieh, 41, concedes that Holacracy “takes time and a lot of trial and error.” He still has faith that the system empowers employees “to act more like entrepreneurs” and stokes faster “idea flow,” collaboration and innovation, he says.
Those forces could help Zappos sell more shoes and apparel, though it declines to comment on the financial impact so far. Mr. Hsieh says Holacracy is just one of the self-management tools used at Zappos.
Boss-free companies are the extreme version of a recent push to flatten out management hierarchies that can create bottlenecks and slow productivity. W.L. Gore & Associates Inc., the maker of Gore-Tex fabric, says it has more than 10,000 employees and annual sales of more than $3 billion but no traditional organizational charts or chain of command.
‘Master of the ninjas’
Research shows that the value of flat organizations is mixed, though highly motivated workers who thrive on creativity generally are best suited for going bossless.
The results at Zappos will be watched closely because it has long embraced employee independence even while striving to meet exacting customer-service standards. “Delivering Happiness,” a 2010 book by Mr. Hsieh, was a best seller and spawned a management consulting firm.
On its Facebook page, Zappos posted in March an online-chat transcript in which an employee nicknamed “master of the ninjas” quickly agreed to replace a pair of defective Ugg boots. “I slay bad customer service around the globe,” he said.
Corporate-structure overhauls often occur when business is suffering. Zappos appears to be thriving, though the company doesn’t disclose revenue or profits. Amazon.com Inc.acquired Zappos for about $1.2 billion in 2009 and lets it operate as an autonomous subsidiary, except for most warehouse-related tasks, which are handled by Amazon employees.
An Amazon spokesman declines to comment on Zappos. In a letter to shareholders last year, Amazon Chief Executive Jeff Bezos said the “clever people at Zappos” inspired Amazon to offer warehouse workers as much as $5,000 to quit if they aren’t enthusiastic about their future at the online giant.
New hires at Zappos get a month’s pay to leave if they are unhappy. Roughly 1% to 3% take the money and run, according to Zappos, which says it is a small price to pay for a loyal, long-term-focused workforce.
One reason for the shift to Holacracy is because change is what Zappos does. Mr. Hsieh (pronounced “Shay”), who made his first fortune when the Internet advertising firm he started was sold to Microsoft Corp. for $265 million in 1998, has said he is more interested in the Zappos culture than footwear.
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Tweaks to how employees work at thecompany’s headquarters in the former Las Vegas city hall are common. Employees from every part of Zappos frequently mention its second core value: “Embrace and Drive Change.”
About a year ago, Zappos stopped posting many jobs online in favor of a free membership program that immerses potential hires in the company ethos and connects them with current employees.
The company plans to test “surge pricing” pay for customer-service employees who agree to work especially busy shifts. Call-center workers earn an average of $14.50 an hour, according to Zappos. The new scheduling tool is akin to an algorithm used by car-service app Uber Technologies Inc. to charge customers more money for rides during periods of high demand.
Zappos began testing Holacracy with a small group of employees in 2013. Mr. Hsieh then declared at a companywide meeting that Zappos would get rid of bosses and put employees in charge.
The management philosophy replaces work teams with circles. Employees start or join a circle based on the type of work they want to do, and each circle has a “lead link” who is similar to a project manager with limited authority.
Circle members decide their roles and responsibilities in a series of “governance meetings” and track progress in “tactical” meetings. So far, Zappos employees have formed more than 300 circles in customer service, social media, Holacracy implementation and other areas.
“They are adopting Holacracy as more how to get to the next level, as opposed to how to fix something broken in their system, which is actually one of their unique challenges,” says Brian Robertson, 36, the inventor of Holacracy. The term comes from the word “holarchy,” coined by writer Arthur Koestler for self-organizing units that combine to form a larger organization.
About 300 firms have tried Holacracy since its debut about a decade ago, ranging from time-management guru David Allen’s consulting firm to psychic-hotline management company Expert Link Inc. to Medium, the online publishing platform started by TwitterInc. co-founder Evan Williams.
HolacracyOne LLC, a Spring City, Pa., firm that lists Mr. Robertson in alphabetical order on its website with nine other partners, charges anywhere from $4,000 to more than $200,000 to train employees and help enact Holacracy.
Instead of anarchy, employees who are freed from bosses and job titles attain at least the possibility of a kind of corporate libertarianism that promotes personal freedom at the office.
Zappos employees at a training session in Las Vegas. Earlier this month, the company said 14% of employees had decided that its bossless management system isn't for them and will leave Zappos. PHOTO: ISAAC BREKKEN FOR THE WALL STREET JOURNAL
Jason Stirman, a product designer and Holacracy coach at Medium, says the management philosophy has helped attract “entrepreneurial risk takers, the kind of people we want working for us,” though formally structured meetings seemed “unnecessarily contrived” at first.
Transportation startup firm Shift, co-founded by former Zappos manager Zach Ware,abandoned Holacracy after less than a year because it led to too many meetings and vague decision-making authority. “I didn’t have time for work,” says Mr. Ware, who shut down the Las Vegas company in March.
Downtown Project, a $350 million Las Vegas urban-renewal project backed by Mr. Hsieh, dropped most aspects of Holacracy last year after training dozens of employees. It was a distraction amid the project’s struggles, including a round of layoffs, employees say.
Mr. Hsieh says Downtown Project “still has the long-term goal of self-organization and self-management.”
Overall, about 80% of the companies that adopt Holacracy stick with it for at least a year, estimates Mr. Robertson. “When you are adopting a huge painful change—and Holacracy is a huge, painful change—even if it’s for all the right reasons, people experience the pain first,” he says.
At a three-day orientation session in the Zappos training center last fall, some workers looked confused or bored as John Bunch, the employee leading the Holacracy transition, explained how to hold “governance meetings” where each person’s tasks, roles and responsibilities are defined.
“The idea is for each person to selfishly process their own tension,” he said. “The reaction round is a sacred space.” (Translation: Each worker is entitled to his or her opinion and will get a chance to voice it during a part of the meetings when crosstalk and interruptions are forbidden.)
Employees practiced by running “governance meetings” for a fictitious food-truck business, getting help from a laminated cheat sheet with instructions. Mr. Bunch says feedback on the training “is largely positive.”
Marissa Jimenez, 24, who works for Zappos Insights, the company’s training and consulting arm, says it took about six hours of meetings a week for several months to set up two Holacracy circles with about a dozen employees each. “Then the fear set in,” she says. “There are a lot of things that haven’t been figured out yet,” citing pay and career progression. “People don’t know what is going to be in the books for them a year down the line.”
Meetings but no titles
Day-to-day routines were thrown into doubt, too. In many companies, managers announce new projects and direct employees to meet specified deadlines. The bosses usually track performance, make crucial decisions and swoop in if problems erupt.
Holacracy-driven employees establish their own priorities and raise problems with the rest of their “circle.” Meetings end with an opportunity for employees to say whatever is on their minds. Ms. Jimenez says she has heard employees say: “We got a lot done” and “I can’t wait to eat my leftover pizza for lunch.”
Each employee’s roles and circles are cataloged in a database where Zappos workers can look up the right contact person for a given task.
Zappos briefly experimented with splitting management tasks so that an employee might have to approach one person for budget approval, a “contribution appraiser” about performance reviews and a “#mentor” for career guidance. The company decided circles should determine how to handle reviews.
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John Bunch, a Zappos employee leading the online retailer's transition to a boss-free work environment called Holacracy, instructs other employees at a three-day orientation session.
While traditional job titles have disappeared, Mr. Hsieh says everyone will still have “external titles” that specify their duties to outsiders. The LinkedIn profile of Galen Hardy, 42, known as Zappos “clothing czar,” includes the title “senior director.”
It isn’t clear what will happen to ex-managers whose jobs were upended by Holacracy. Zappos has created a new circle called “Reinventing Yourself” to “help guide former managers to new roles that might be a good match for their passions, skills, and experience,” Mr. Hsieh told employees in late March.
Mr. Bunch, the employee leading the Holacracy transition, says Zappos expects “most managers will be able to grow into new areas of technical work to replace the time they were doing people management.” He often urges Zappos employees to be patient. “It’s a gradual process, it’s not a light switch,” he says.
Mr. Hsieh says it could take Zappos two to five years to finish the transition. He isn’t discouraged that 14% of employees decided to quit. “Another way to look at it is that 86% of employees chose to walk away from the ‘easy money’ and stay with the company,” he says.
Marques Smith, 31, who drives the company’s courtesy shuttles, found Holacracy hard to understand and “weird 100%.” But the turn-taking in meetings has allowed him to speak up about things that bothered him for years, like employees leaving trash in Zappos vans, he says.
Ms. Alex, the ex-customer-service manager, says the new philosophy has turned meetings into a model of efficiency. She recently sped through 27 agenda items in 90 minutes.
Before Holacracy, she says, “you’d get into a room, talk about the cat video on YouTube, and maybe really have 10 productive minutes.”
Write to Rachel Emma Silverman at [email protected]
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