04 / 03 / 2020

Holacracy vs. Transparency (or How Zappos Laid an Egg in the Cuckoo’s Nest)

There’s no disguising the fact that when the retailer went manager-less and let the people run the joint, things went a little crazy.

Carey Smith | Founding Contrarian

I’ve always had a bit of a soft spot for Zappos. Maybe it’s because I once toiled in a shoe store or maybe because for years I lived not far from its huge Kentucky bargain outlet. Or maybe — probably — it’s because Zappos’ experiments in organizational structure are so doggone entertaining.

About six years ago, Zappos famously underwent a radical transformation, whereby it replaced its traditional top-down hierarchy in favor of holacracy, a system that claims to increase flexibility, efficiency and employee autonomy. Holacracy dispenses with job titles and managers. In their place: hundreds of circles within which teams of employees assume various roles and are empowered to implement decisions without waiting around for a higher-up.

One of holacracy’s major goals, according to its constitution — yes, there is one — is transparency. That’s why I found it so interesting to read an article by Quartz writer Aimee Groth that Zappos, after initially requiring employees to sign up for a full-blown holacratic experience or ship out, has brought back managers and eliminated other oppressive aspects of the “operating system,” while still claiming to practice holacracy. Can you have it both ways? Sounds like somebody isn’t being totally transparent.

If you want to be transparent, then you need to admit your mistakes, and that includes falling for an organizational fad filled with arcane terminology and rigid guidelines. (Isn’t that what Scientology is for?) If there’s one thing I’ve learned in my umpteen years in business, it’s that customers don’t think less of you when you issue a plainly worded mea culpa. On the contrary.

At Big Ass Fans, we made a doozy of a mistake once when a salesperson sold a church an industrial fan that didn’t fit the setting. But we owned up to it and replaced it, covering all the costs along the way. Then, feeling repentant, I asked if there was anything else the church needed for all the trouble we’d caused. The minister volunteered, “Well, we could use new windows.” Ultimately, it cost us nearly $75,000 to not sell a fan, but, because we paid for it, we learned from our mistake and redeemed ourselves in the customer’s eyes, so it was worth it.

Back when Zappos first announced its extreme makeover, I questioned whether getting rid of managers was a good idea. (OK, I thought it was a lousy one.) To me, what makes more sense is getting rid of bad managers. Managers play an essential role, and when they play it well, they improve efficiency, employee morale and company performance. A good manager must be equally compassionate and dispassionate, as well as be tuned into people’s strengths and weaknesses — there’s a real art to the job. And recognizing who has the skills to be a good manager? That can be an even tougher job. If at first you don’t succeed, try again. And when you blow it, ’fess up. Confession is good for the soul — and good for business, too.