Big Money: Zappos kisses bosses goodbye

Do businesses need managers?

Amazon-owned online shoe retailer Zappos doesn’t think so.

In a bid to combat what its leaders saw as the increasing bureaucracy at the famously innovative retailer, the company announced in November that it would implement a radical management system known as ‘holacracy’.

Instead of the corporate hierarchy, which organises a company according to people, holacracy organises a company into specific tasks. Each task is a circle, with several members contributing to getting that task done. Workers can be part of multiple circles. And every circle is self-governing.

The system was developed over a decade ago by entrepreneur and engineer Brian Robertson, and has some high-profile adherents. These include Twitter co-founder Evan Williams, who uses it at his start-up publishing company Medium, and time management guru David Allen.

Zappos is by far the largest company to sign up, and it’ll take a year to get the company fully operating on this basis. In his speech announcing the change, founder and chief executive (for now) Tony Hsieh told his 1500-strong workforce that by December 2014, the company will have around 400 circles.

It’s always good to see companies trying new ways of working, and it is this correspondent’s opinion that plenty of workplaces could use a little more democracy. 

But it’s easy to be sceptical of Zappos ditching its titles.

In an interview with Business Insider, MIT Sloan School of Management professor Jan Klein, an expert on the topic, said that few companies that implemented flat structures in the 1980s – it isn’t the first time this trend has reared its head – lasted long. The fall tended to come quicker if the company was large.

As she described, immediately after making the change, companies began bleeding their best talent as managers jumped ship instead of losing their job titles. The poor and mediocre managers stayed around, and they continued to be treated as leaders by their charges regardless of any formal equality. “We’re social beings, and social issues get in the way of logic sometimes,” Klein said.

Such issues could potentially be overcome with time. Even if some people leave the company, presumably others would be attracted by its culture, and upsetting a few middle managers may be worth seeing all employees step up and take a more proactive position.

But even if such problems were solved, Zappos’ mere size could make it impossible for such a system to work.

Plenty of Australian small businesses employ flat structures. SmartCompany’s interviewed a few of them about it. None denied that it takes work – though they say it’s certainly manageable and worth the benefits.  

In a large firm, however, it can be hard to coordinate all the relevant actors into doing something. That’s why it makes sense to issue orders from on high, and why large corporations tend to be more bureaucratic.

But technology has made it easier than ever before to communicate across large groups. That’s certainly the opinion of people like the Institute of Executive Coaching’s Dr Hilary Armstrong, who published a research paper last year arguing that changes in technology would kill command and control leadership.

Does that mean a company of 1500 can successfully ditch its managers? Zappos’ experiment will be fascinating if nothing else.

Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.