Have you experienced this with youth sports? You cluster a bunch of five-year olds together into their first soccer program. You try to teach them the basics. You go to the first “game” against another team of five-year olds. The parents and coaches tell the kids, “We are not keeping score, just go out and have fun.” The game ends and some kids are sad and some are happy. And the happy kids are jumping around saying, “We beat them 10 to 5.”Kids playing soccer

No matter what well-intended rules the parents put in place, the kids know the score. It is just human nature.

A similar philosophy is spreading through organizations today as “enlightened” organizational leaders are trying to create organizational structures without managers; structures that encourage employees to strive for self-actualization and self-management.

The largest and highest profile company trying this right now is Zappos, the highly regarded on-line shoe and clothing retailer. More about Zappos in a moment.

Holacracy. An organization without managers is now commonly called a “Holacracy.” Holacracy has its origins in the word holarchy, which means a hierarchy without a top or bottom. Today some firms have committed themselves to becoming a holacracy and use systems and tools from Brian Robertson’s website Holacracy.

Holacracy is a very complicated system to use in practice. A Holacracy structures roles in the organization in a system of self-organizing circles. Circles are organized hierarchically, and each circle is assigned a clear purpose and accountabilities by its broader circle. However, each circle has the authority to self-organize internally to best achieve its goals.

As one can imagine, the bigger the organization, the more complicated the system as smaller circles or groups of people are connected to each other within a larger circle, which is connected to another circle. Sort of like our universe.

Circles hold their own meetings, select people to fill roles, and are accountable for the work within their authority. Circles are connected by two roles known as a “lead link” and a “rep link”, who sit in the meetings of both their circle and the broader circle to ensure alignment with the broader organization’s mission and strategy. From my reading the most successful Holacracies are those that begin when a firm is in the start-up phase or shortly thereafter when the number of employees is small.

This is why people are watching Tony Hsieh’s Zappos experiment. Zappos, which is now owned by Amazon, has annual sales greater than $1 billion, 1,400 employees, and ships 280,000 orders every week.

Tony Hsieh and Zappos. Tony Hsieh (pronounced “Shay”) is the now legendary Zappos CEO who joined Zappos in 2000 and helped create Zappos’ fun and exciting work culture with these 10 core values:

  1. Deliver WOW Through Service
  2. Embrace and Drive Change
  3. Create Fun and A Little Weirdness
  4. Be Adventurous, Creative, and Open-Minded
  5. Pursue Growth and Learning300px-Tony_hsieh
  6. Build Open and Honest Relationships With Communication
  7. Build a Positive Team and Family Spirit
  8. Do More With Less
  9. Be Passionate and Determined
  10. Be Humble

After selling Zappos to Amazon in 2009, Hsieh stayed on as its CEO on one condition – he would have total control to lead the organization. Additionally he would collect a modest salary of $35,000 and would have no stock options.

As Zappos grew after 2010, Hsieh became more and more frustrated with how Zappos was becoming more bureaucratic and less flexible and less fun. In 2012 Hsieh met Brian Robertson and became inspired by his Holacracy model. Then Hsieh read Reinventing Organizations by Frederic Laloux and began introducing Laloux’s philosophical “Teal” and Holacracy concepts to all Zappos employees.

Zappos and Holacracy. In March this year, clearly frustrated with the slow speed of Holacracy adoption, Hsieh sent a very long, 4,700 word e-mail to all employees announcing that “as of April 30th, in order to eliminate the legacy management hierarchy, there will be effectively no more people managers.” He went on to offer termination buy-outs for anyone not interested in this new structure. According to a New York Times article, 210 employees or about 14 percent took the offer and left.

After reading a number of sources, including an article by Roger Hodge in the New Republic, here are five things about this Holacracy experiment at Zappos you might find interesting.

  1. Productivity. People have multiple “roles” and many report wasting many more hours per week in meetings because communication previously expedited by managers is being replaced by inter-circle meetings. One woman reported a day with five hours of meetings and three or four hours of actual work. Meetings are, however, very structured and facilitated by trained people in facilitator “roles.”
  2. Compensation. They have yet to create a clear compensation adjustment “circle.” When they eliminated managers, confusion about raises and pay adjustments for employees grew. Hsieh himself is now the “Lead Link” for the compensation circle and they are wrestling with what an employee needs to prove to get a pay adjustment. They are actually playing around with using a badge system, similar to Boy and Girl Scouts.
  3. Poor Performers. If a person cannot perform their role to the satisfaction of other people in their circle, they go to a metaphorical “beach” where they get a time-limited opportunity to look at their own skills and then try to find another circle they can try to join. If they fail to obtain a new role after a certain amount of time, they have to leave.
  4. Complexity Not for Everyone. While this complex system does give each person a voice in what they do and what they achieve, it is not a system for everyone. Holacracy may not be for people who like their “roles” but don’t want the hassle of reaching out to other circles to help solve problems. And it is a very difficult system to explain to new applicants. Thus, it could narrow the pool of candidates for open positions.
  5. The CEO Still Rules. In many cases at Zappos the circles have not developed enough to take-on large strategic issues, like a new compensation system. So, in Holacracy meetings when no one steps forward to volunteer for projects, like a recent one researching task hours, Hsieh the CEO had to keep pushing a specific person to take on the role until they said “yes.” I guess positional power still has to rule.

While I admit I am drawn to the Holacratic philosophy, I cannot but wonder how it will attract and retain the high-performers. Tony Hsieh is a brilliant entrepreneur with a wonderful personal philosophy of helping each person be the happiest s/he can be. But he is also a multi-millionaire with a penchant for experimenting with human behavior.

So, I wonder if Holacracy can deliver Hsieh’s desired state of nirvana in Zappos or, like my youth soccer example, will it be a set of well-intentioned rules that people see right through. Perhaps it is just the wrong thing to do for the right reason. What do you think?