Organising behaviour – learning from Zappos shift to holacracy

Organising behaviour – learning from Zappos shift to holacracy

4 years ago 0 0 1417

We create structure and process in a business for only one purpose – to organise behaviour so as to create efficient and effective ways of getting things done. With Zappo’s in the news for instituting a ‘holacracy’ model of organisation, it raises some interesting questions about how we can – and should – organise behaviour.
How well does it work when you tell someone with depression to “Be Happy”?

The paradox implied in the instruction “Be spontaneous” should be clear – how is spontaneity spontaneous if you have ordered it? This has never been better demonstrated in the corporate world than is currently happening at Zappos: “You will become a holacracy”! Forcing the organisation to become self-organising has an ironic paradox buried at its heart.

However, as the organisation pursues this idealised structure, it will provide a fascinating case study over time. With it reported that one in seven employees already leaving Zappos, the start of the process has obviously not been to everyone’s taste.

The process of Zappos shifting to a holacracy also provides an interesting lens on how we organise individuals into functioning structures, how we direct and modify human behaviour, and how we look at individuals (human capital, human resources, empowered contributors or something else?)
The idea that we can adopt a rigid process (even if it is non-rigid) to organise human behaviour is interesting in itself. Is there really an ideal way to organise people to get the best outcomes in all circumstances? Are there factors which should be considered as we decide which structure suits the group of people to be organised, or can we simply open a text book and follow a recipe for success?

It raises some interesting questions:

Why organise?
With no defined structure or process, a business lacks the ability to take decisions and get tasks done in the most efficient and effective way possible. In a sole-operator business, there is no need for formal structure, but there is a need for process. As the number of people in the organisation increases, there is a need for structure and authority. Who has the authority to take what decision, and how that decision is made, are critical elements of any business.

In small businesses, leaders often have ‘line of sight’ on all functions, and take all key decisions. As the organisation expands further, it is simply not possible for a single person (or group of people) to control all decision making without it slowing down the organisation unnecessarily. Some of the decision making has to be delegated, and the processes through which this is done need to be clearly developed. It is here that important decisions need to be made – what type of organisation do you adopt to be the most efficient and effective at what you do?

Do different contexts demand different structures?
The three types of leadership style provide a useful model for considering the different types of organisations that can be developed. Authoritative organisations have the power at the top, and authoritative decisions are taken, rigid processes are followed and outcomes are prescribed. Democratic organisations have the power spread across a number of personnel, who all have equal say in outcomes. Different outcomes may emerge depending on the nature of the democratic discussion and decision process.

Lassiaz Faire organisations completely delegate power to others, allowing them to shape outcomes based upon their specialist knowledge. Outcomes from such organisations are more random and in line with personal values of those executing the plans.

If we think about these three systems, the ‘autocratic’ model makes sense when knowledge is held at the top of the organisation, compliance and repetitive outcomes are critical to success, and there is a high need for immediacy of action (rather than lengthy discussion). A military unit is a perfect example where authoritative organisation is critical to success.

Democratic systems work best when knowledge is shared or distributed across a range of functions, where trade-offs are important in resource allocation and there is appropriate time to discuss and consider positions before a group decision (and buy in) is taken. Democracy works well where people of equal status work in functional teams.

Lassaiz Faire organisation is valuable when the specialists have the knowledge, and the leadership simply direct or constrain the general direction of their efforts. In this case, the specialists know less about the matter than the leaders, and are delegated the authority to act within a set of rules according to their best knowledge. A university research department is a great example of this. The researchers are constrained in terms of the ‘types’ of projects that they do, but their intimate knowledge of the subject area means they are left to drive the outcomes themselves.

In this way, context is everything. Ensuring that the behaviour is organised through the processes and structure that best serves the situation can mean the difference between effective and efficient outcomes, and failure. Consider each of the three examples above, and how applying different organisational models would potentially cause chaos.

On another dimension, we can consider more socialist or more platonic organisations of behaviour. A socialist system will have fairness and benefit for the group is placed above the benefit to the individual. Such organisational systems often discourage individuals striving for personal excellence and significance, and instead seek the benefit of the group. Many schools are set up on this premise, with teachers being extremely uncomfortable about one of the group being acknowledged above the others.

A platonic system looks at justice and excellence. (If we consider Plato’s Republic as a model) Processes are just, and individuals are encouraged to strive for excellence within the frameworks that are just, with people being honoured for the excellence that they achieve as individuals.
The distinction between these two ends of the spectrum is often seen in sales teams (platonic) versus production teams (socialist). Once again, there is no ‘better’ system of organisation, and there are times when more socialist or more platonic organisational structures are appropriate, and serve the overall outcome of the business.

What constrains which structure is the most appropriate?
When we decide how we want people to behave in an organisation, we can organise them structurally, and apply process, to ensure the highest chance of success. However, starting with a vague notion of how we want the business to be organised before we decide on what behaviours we want to encourage is a recipe for disaster!

The most appropriate organisation may be a mix of all organisation types. There may be levels of democracy, allowance for lassaiz faire approaches and some elements of the business may be subject to absolute authoritarian rule. There may be groups who are better structured platonically, and others who are better structured in a more socialist manner. There is no right answer for every organisation, but keeping an eye firmly on what you want to achieve will greatly impact your choices.

In the case of Zappos adopting holacracy, what are they trying to achieve? How does the holacracy model serve its customers better? Is it being done for their benefit, for the benefit of the employees, or so Mr Hsieh can demonstrate his leadership innovativeness? If the answer is anything other than serving the customer better, the Zappos has a problem. With people becoming inward focused in ‘circles’, I fear they may be taking their eyes of what made them special – their legendary customer service.

The behaviour and nature of individuals within the system is also something which can dramatically affect the way the business can be organised.

How does the behaviour of individuals impact organisational decisions?
In a perfect world, we could arrange the organisation any way that we chose. People would exist in the organisation as units of human capital and things would go as planned…. And then there is the real world! Each individual brings their strengths, weaknesses, social style, needs, wants, skills and so much more into every situation. Often, the ‘purity’ of a design process fails because it does not accommodate the people it seeks to organise. Zappos apparently lost 1 in 7 workers as they shifted to holacracy – these employees could have been highly productive, important contributors to the success of the business, but no longer felt included or important in the new organisation. For some people, position and authority are important markers of success. When you take these away, what do they have as intrinsic motivators? Some people are happier in a platonic environment, and others in a socialist one.

Some individuals are outstanding at working in teams, negotiating and collaborating. Others are less so. It does not mean that both types of employee are not equally valuable – it only depends upon the structure and processes you impose. Imagine how frustrating it would be for a ‘can do’ action taker to have to sit in on meetings all day?

The way we organise can change dramatically who can succeed, who will fail, who will be at their best, and who will be pushed out of their comfort zone. The nature of the individuals that you are organising cannot be forgotten in the process. Often, there is a need to hire for special skills, or particular motivations or styles to best accommodate the structure and processes. Otherwise, individuals may need additional coaching and training to be able to accommodate big shifts in organisation such as we are seeing in Zappos. It will be interesting to see how the people adapt to this newly ‘imposed’ structure. The increase in complexity (there is a ‘constitution’ which runs over 10,000 words on how people are supposed to work) may prove a struggle for some.

How does organising impact on culture?
Culture can be described as the way people operate and make decisions in the absence of formal direction. Culture is the accumulated sum of behaviours that emerges as people live the purpose of the organisation, and create its vision.

Organisation structure and process have critical impacts upon culture. In particular, the way that authority to act is delegated changes the comfort that people operate when forced to make a decision outside of the usual. When we have clear constraints on what makes us safe and successful, we can take decisions in line with the purpose of the organisation.

It is said that employees at the Ritz Carlton have a $2000.00 authority to act, without question, to enhance customer experience. Housemaids can take immediate decisions in line with the purpose of providing exceptional service to customers without needing to get higher approval or recourse. They can choose to spend up to that limit to benefit a customer. Imagine how that changes the culture, compared to the need to get every decision for any expenditure signed off by the ‘boss’?

If we are organising the business on a more socialist model such as Zappos holacracy, this will dramatically impact the culture. If decisions are required to be taken against a 10,000+ word constitution, requires circles of people to agree and delegate decisions, then the nature of the way people will work together will change dramatically, from one where authority is delegated to individuals to serve the purpose of the organisation (its customers).

What advice would I offer Zappos?
If I was asked to help Zappos with the change, there are some questions and ideas that I would share with them. As you think about the organisation of your processes and structures, perhaps you can reflect on how these apply to your circumstance.

The first question I would ask of Zappos would be “what was the driving force for this radical change?” If the answer was not about the customer, and better serving their purpose, then I would seriously question the need to make the change. Is something ‘broken’? Does it build on what you are already doing successfully?

I would then advise Zappos to consider where such organisational systems would add value to the business, and where they would not. Given the size of the organisation and the already very specific culture that Zappos has created, where could holacracy as a process be developed, and where in the business should it be excluded? How can it enhance the culture and improve customer experience?

I would also advise Zappos to look at the people, and understand their motivations and skills. It is likely that a change on such a scale is going to cause uncertainty, a sense in some people of a lack of fairness, a change in reward and alteration of perceived supports. This guarantees that engagement will be directly affected. Making the change in ways which accommodate the needs and capabilities of the employees should be strongly considered, including the staging steps of its introduction.

Finally, I would ask “what is the end game”? How does making this radical change create a sustainable, customer focused business which remains one of the best places to work, and one of the most trusted brands for customer experience in the retail space? Making the change that does not take the organisation closer to these aims in the short and long term would be something to be very careful of.

In the end, it is the ‘captain’s call’. It will be an interesting ongoing case study to see what happens in Zappos and other organisations that look to radically change their organisation model.

As you consider your organisation, does it serve to provide the structure and processes to deliver the most effective and efficient behaviours for success? What would need to change for this to be true?

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