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Here's Why Eliminating Titles And Managers At Zappos Probably Won't Work

Here's Why Eliminating Titles And Managers At Zappos Probably Won't Work

Tony Hsieh Zappos

Danny Moloshok/Reuters

Zappos CEO Tony Hsieh

As you've probably heard by now, Zappos is in for a radical restructuring.

The online retailer is nixing all job titles and managers as it shifts to a super-flat structure known as "Holacracy." When CEO Tony Hsieh first announced the shake up in November, he described Holacracy as a "self-governing" system that would boost transparency and streamline operations, Quartz reported. In the place of bosses and managers, Zappos will create hundreds of committee-like "circles" filled by employees.

While the term Holacracy is relatively new - inspired by the Greek "holon," which means something that is at once a whole and a part - structures like it have been around for decades. At their best, such setups are viewed as a way to tap the full potential of talented and motivated employees. But at their worst, Holacracy systems have a troubled past: routinely failing after just a few months and driving top talent out the door.

The concept of self-directed work teams (alternatively known as "self-management" and "autonomous work teams") was popular in the 1980s, according to Jan Klein, a senior lecturer at the MIT Sloan School of Management who spent years researching the topic. Back then, it was mainly applied to factory work.

"There was a belief that if you empowered the workforce they'd be more productive, and you'd have creativity and all of that," Klein said. "So in many factories they went in and eliminated first-line supervisors."

It wasn't just tiny factories that tried that. Big-name companies like Shell Oil and Cummins also jumped on the band wagon. But of all the places that implemented the system, Klein says she only knows of one that made it last long term. Almost everywhere else, she said, the effort started to flounder after just six months. And the bigger the company was, the quicker it tended to run into problems.

The fundamental issue? People just didn't self-regulate as well as the companies had hoped. Teams weren't good at disciplining themselves either. "We're human beings; we just don't do that," Klein says. "We're social beings, and social issues get in the way of logic sometimes."

Another challenge was attrition. Companies bled talent as successful managers jumped ship instead of losing their titles. At the same time, poor and mediocre managers that the companies hoped to effectively demote continued to be seen as de facto leaders.

What remains particularly unclear in the case of Zappos is how deep the elimination of titles will run. Sources told Business Insider that some execs will still decide what everyone gets paid, and that certain employees will have broader responsibilities than others. If that's true, Holacracy at Zappos could be more of a nominal rebranding - or as Klein says, "window dressing" - than anything else.

In her research, Klein discovered one company that successfully implemented a true title-less, manager-less system, and it used the system for more than 20 years. Although she was asked not to disclose its name, she says it was a highly unique case: a factory located in a rural area where everyone knew everyone, with the same leader for two decades, and staffed by local families. It was underpinned by the existing, tight-knit community.

Perhaps that's what Hsieh thinks he has in place at Zappos, and if so, maybe its holacratic system has a shot. But a company of 1,500 in downtown Las Vegas is quite different from a small rural town. And experts agree that any type of self-governed system gets increasingly difficult as it scales, since more structure is typically required to coordinate work responsibilities.

"I question how they're going to be able to do this with 1,500 people," Klein said. "But more power to them."


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