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News Analysis: Tony Hsieh and the Holacracy Experiment

I guess the more successful people become, the more criticism they face. Serial entrepreneur and purveyor of happiness in business Tony Hsieh, best known as CEO of Zappos.com, is facing a surprising level of criticism for embracing the self-management concept of Holacracy at his company of about 1,500 employees. Created by another tech entrepreneur, Brian Robertson, CEO of Ternary Software, Holacracy seeks to eliminate the concept of bosses and replace it with a flat, task-oriented organization managed by carefully measured output rather than by bosses.
 
Whatever becomes of the experiment at Zappos.com, all of us in business once again owe Hsieh our gratitude for experimenting with new ways to make work more engaging, enriching and productive. It is still rare to find a CEO so focused on creating a virtuous form of capitalism that the criticism sounds to me more like jealous carping than anything productive – that is, until we learn what comes of this experiment, at which time objective analysis will certainly be productive.
 
In the meantime, how many other executives would dare to undertake such a well-meaning effort to eliminate traditional management structures – especially one that is so radical and in many ways quite complex? Holacracy replaces management with a rigorous set of processes and measures, new nomenclature that will put any newcomer to the test, and the regular use of meetings that some critics find excessive. It also raises issues related to job titles, roles and responsibilities, pay structures, etc. The fundamental premise, though, has merit: that top-down structures crush innovation and sap people (especially at lower levels) of task value and engagement by giving them no ways to shine or be heard.
 
There’s a clear reason why Holacracy has appeal. So many business leaders are autocratic and stifle innovation by allowing other bad managers to remain in place. Many organizations have layers of management that indeed crush innovation, as well as silos and fiefdoms that discourage alignment, communication, efficiency and, worse yet, diminish the focus on the most important priorities, starting with meeting customer needs.
 
That said, in the spirit of debate I will make a prediction I may later regret. Holacracy will fail at an organization as large as Zappos.com and is unlikely to catch on as a major movement for one basic reason: great leadership has been pivotal to accomplishment in all times and places. Almost no successful undertaking of merit that I know of has ever been accomplished without great leadership and organization based on division of labor. In fact, people often love great leaders. Great bosses make people feel like they want to come to work, or at least reduce the dread. They increase productivity by helping to keep people focused on goals, addressing issues as they pop, and providing at least temporary closure on controversies by taking responsibility for a decision.
 
The problem, in my view, is not the concept of having leaders or organizations broken into divisions; the problem is that we have many bad leaders who don’t understand how to inspire the entire organization, break down silos and fiefdoms by aligning everyone on a single clear mission, create an environment in which everyone can be heard by putting the right types of managers in place, and having active innovation strategies that reach out to everyone at every level. Before I’m convinced, I would personally like to see examples of successful athletic teams, businesses or other organizations that have rapidly accomplished great goals without managers or coaches, or evidence from experiments at Zappos.com or other large companies where such a strategy has worked.
 
It seems to me that concepts such as Enterprise Engagement that seek to reform capitalism by drawing upon all that is successful in it will be better suited to help organizations make the change from being process- to people-oriented than concepts that require a radical organizational overhaul.
 
But we should all applaud the creators of this concept and be grateful to those willing to try it, because this is the sort of leadership we need to harvest the full benefits of capitalism.