At the end of April, 210 employees left Zappos because they don’t like Holacracy®, a new flat management system that the company is moving to.  

In the 12 days since that happened, have you heard that:

  • US Steel announced more layoffs, bringing them to 9000 people cut for the year.
  • Siemens cut another 4500 people, bringing their cuts to more than 12000 for the year.
  • Lenovo laid off 235 people.
  • Labinal Power Systems let 480 people go.
  • Manitoba Telecom and Mountain Iron both laid off 400 people.
  • Zynga cut 364 people, Conduit Global cut 592, Corrections Corporation of America cut 252, WMS Gaming cut 247, Jennie-O Turkey cut 230, General Motors of Canada laid of 1000, Mercedes-Benz laid off 259, Conoco-Phillips 200, WorleyParsons 2000, and Dow Chemical let 1750 people go.

That’s nearly 15,000 people that have lost their jobs in 12 days – it’s a bloodbath.  And I’m willing to bet that there are three primary reasons for those layoffs:

  1. The firms are looking for “efficiency gains” or,
  2. The upper management teams are incompetent, or,
  3. Both.

How many blog posts have been devoted to this corporate management problem? Any?

Here’s my question: how is possible that 15,000 people have lost their jobs due to bad management and we don’t hear a peep about it, but people have gone nuts over Zappos having 210 people volunteer to leave?

It’s as though we’re acting out this quote from John Maynard Keynes:

Worldly wisdom teaches that it is better for reputation to fail conventionally then to succeed unconventionally.

The issue isn’t whether or not Zappos is succeeding or failing, but rather that they are doing things unconventionally.

This is terrible.

A change management stroke of genius?

There are two important questions here, and the discussion around them is confused.  The first is: how do we effect major change within an organisation? The second is: is holacracy the best way to implement flat management principles?

The first question is the real story with Zappos.  Any time you try to change things, there are three groups within an organisation.  There will be the bunch that loves the new idea (usually around 20% of people).  There is another bunch that hates the new idea, or often any new idea (usually also around 20%). And the majority in the middle is usually indifferent.

Whether or not a change management initiative succeeds depends on which way the 60% in the middle decide to go.  This usually involves a long, drawn-out political process of negotiation, power, influence and everything else that goes into moving a bureaucracy.

Here’s what Tony Hsieh might have just accomplished at Zappos: knocking nearly all of the change-resistors out of the company in one quick action.

This is potentially brilliant.

The critical question is who makes up the 210 people that left? Are they middle managers that are unwilling to adjust to a new role (these are probably change resistors)? Are they people that are genuinely uncomfortable with lower levels of hierarchy (a mix of change resistors and the indifferent middle)? Or are they some of the best people, who are capable of easily finding other jobs, and just wanted the financial benefit of the buyout (these would be change drivers)?

Often, when firms have voluntary redundancies, the people that leave are the change drivers – which is a bad outcome.  Zappos has taken some steps to try to ensure that most of the people that left are either change resistors or in the indifferent middle.

If Zappos just knocked out the change resistors, it’s one of the boldest change management moves ever.


Holacracy does not equal Flat

An entirely separate question is whether or not holacracy is the best way to implement flat management principles.  I’m not so sure about the answer to this question.

First off, like Dave Snowden and Dan Pontefract, I am skeptical of the book being used to frame the change – it’s not well-supported by data, and it’s pretty fuzzy.  On the other hand, firms like UnderCurrent seem to be having some success with holacracy, after a tricky implementation.

I believe that we have to be moving to flatter management structures.  In that context, holacracy is important because it is the highest-profile version of flat management out there right now. My hypothesis is that the high level of bureaucracy that lies underneath it will ultimately make it really hard to implement holacracy, and that eventually we will settle on a model that looks more like that used at Morning Star Farms.

Digital transformation is real, and getting flatter management structures is an important part of the response to this change.

The important point is that holacracy is a version of flat management, but it is not the only one.

One argument that seems to be being made is:

Zappos is implementing holacracy, 14% of people have left because of it, so holacracy has failed and flat management is clearly bad.

This is wrong.

The 210 people leaving doesn’t tell us anything about whether or not holacracy or flat management is good.  It tells us that Zappos figured out how to get rid of the change resistors.

This is important, because now if holacracy fails there, it won’t be because of internal sabotage – the potential saboteurs are gone.

If it works, then that tells us something about holacracy and flat management.  If it doesn’t, it is a pretty good test of holacracy, but we still need to test other versions of flat management.

Regardless, people need to stop freaking out just because the approach is unconventional.  Zappos will be fine. I’m much more worried about Siemens, Dow Chemical and all the others that are in trouble right now.

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