Zappos Does Away With Bosses—5 Things You Need to Know

Editor's Note

The right organizational structure doesn't guarantee results. But the wrong organizational structure aborts results & destroys capacity to grow and prosper.

Based on the proposition that knowledge is a unique form of capital, and knowledge workers are now the major creator of corporate wealth, Peter F. Drucker identified the ideal organizational structure to maximize the productivity of a knowledge-based workforce.

In essence, Drucker reasoned a knowledge-based workforce demands a responsibility-based organizational structure–that if properly implemented, creates a mission/vision everyone understands, a spirit of performance that flows from making everyone a contributor (from the lowliest of employees to those with senior positions).

Many knowledge-based organizations still cling to yesterday's command-and-control organizational model.

Drucker took the position that in the knowledge organization, a manager who uses power to force people to obey is viewed as a petty tyrant and a weak leader.

Knowledge workers must in large part self-manage, that is, plan, do and control their own performance.

Simply put, the entire group of, say, a strategic business unit must have responsibility for the unit's performance. "When people are held responsible," noted Drucker, "they act responsibly."

To reiterate: The command-and-control organizational model which was very effective for a manual-based workforce doesn't work well for a knowledge-based workforce.

"To Make Everybody A Contributor"

When organizational members talk about "entitlement" and "empowerment," senior-level executives should realize something has gone astray with respect to where the focus should be.

Said Drucker: "We should instead be talking about responsibility and contribution… Our aim should be to make people more responsible… What we ought to be asking is not, 'What should you be entitled to'? but, 'What should you be responsible for'?…

… The task of management in the knowledge-based organization is not to make everybody a boss… It's to make everybody a contributor."

The following article presents an overview of what we term "the responsibility-based organization."

CLN will be presenting over the next several months a series of interviews with very senior-level organizational leaders who have spearheaded the transition into a responsibility-based organization, so stay tuned!

Introduction

Bringing an already zany corporate culture to perhaps its wackiest peak, online shoe and apparel retailer Zappos recently announced at its year-end meeting that the company will be ditching the traditional corporate hierarchy entirely.

No more bosses, no more job roles. Instead, the company will be organized via a Holacracy, a system of "overlapping, self-governing circles." It’s a bold move from an already bold company. Here’s five things you need to know about the management shift at Zappos:

It’s called Holacracy—and it’s used more frequently than you think

Holacracy is a social technology that promises to help companies both focus work and do away with ego issues in the workplace. It’s a distributed authority system operating from the inside out instead of the traditional top-down.

Zappos isn’t the first company to implement this workplace concept; the Washington Post reported that Medium, a company run by one of Twitter’s cofounders, uses Holacracy, and so does the firm of time management expert David Allen.

Zappos is the largest company to ever adopt the system.

With $1 billion yearly revenue and 1500 employees, Zappos is the largest yet to say hola to the new corporate governance.

The company will be organized into about 400 "circles" by the end of 2014, with designated but equally-weighed roles within them.

The Holacracy constitution lays out exactly how the system will work (all employees will have to study up), but the basic concept is circles of employees work in different domains. A "lead link" helps coordinate the functions of circle members, but each employee helps govern the circle.

Kind of like The Lion King (which was actually performed by Zappos employees at their year-end meeting), except all of the animal groups actually get along internally as well as externally—and Scar is way dead.

There are plenty of skeptics waiting in the wings.

Alison Griswold pointed out on Business Insider that although self-directed work teams were popular in the 1980s, the bigger the company, the faster they folded—often within just six months.

"Experts agree," she writes, "that any self-governed system gets increasingly difficult as it scales." Jan Klein, senior lecturer at the MIT Sloan School of Management and an expert on work teams, is a vocal doubter of a company's ability to wholly self-regulate. "We’re social beings, and social issues get in the way of logic sometimes," she said.

Fail or success, the move is a win for Zappos.

Consider that none of us ever knew of a little company called HolacracyOne before Zappos just lit it up on the interwebs. Now, consider all of Zappos’ corporate antics—be them meaningful or plain hype—as vehicle to get their name on our lips.

The company is already soaring, so the PR boost may not be of great necessity. But if I happened to be in the market for some alligator skin galoshes this very moment (for my friend’s swamp-themed party happening tomorrow night), there’d be a single online retailer fresh in my mind.