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Abstract

Purpose: The purpose of this paper is to explore how and when holacracy works for organizations. Design/methodology/approach: The paper illustrates the idea by drawing insights from the case of Zappos and Gidley’s framework of future organizations. Findings: The paper provides a balanced view on holacracy and how it can be beneficial for organizations. The potential of holarchical structures will be fruitful only if the structure-culture fit is achieved. The paper also highlights the lessons learned from previous implementations of holacracy and concludes with possible solutions for organizations. Practical implications: The structure-culture fit is still a pertinent question especially when organizations are growing in size. Organizations need to address the intergenerational differences and core tenets of organizational culture while adopting flat structures to promote flexibility and individualization. New ideas and ways of organizing are therefore best treated as experiments guided by strategic vision and a defined direction. Originality/value: The paper extends the existing knowledge on holacracy by applying Gidley’s framework and providing practical insights for practitioners in implementing holacracy.
Human Resource Management International Digest
Holacracy – the future of organizing? The case of Zappos
Vijay Kumar S., Subhasree Mukherjee,
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Vijay Kumar S., Subhasree Mukherjee, (2018) "Holacracy – the future of organizing? The case of Zappos", Human Resource
Management International Digest, https://doi.org/10.1108/HRMID-08-2018-0161
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Viewpoint
Holacracy the future of organizing?
The case of Zappos
Vijay Kumar S. and Subhasree Mukherjee
The increasing representation of Gen Y in the workforce, with its
entrepreneurial mindset, warrants new modes of organization to attract and retain
employees.
Dualistic traditions of top-down/bottom-up hierarchies are evolving due to new ideas, self-
reflexivity, and responses to external pressures.This results in transformation of
organizations into newly emergent styles and approaches to organizational design. Ga
´spa
´r
and Laure
´n (2013) attribute such transformation to openness to experimentation and
emerging trends in knowledge and organization.
However, experimentation in isolation is insufficient for holistic change. Gidley (2013)
identifies four themes for the future of work:
1. new generation of ideas;
2. new generation of individualism;
3. new generation of organizational structures; and
4. new generation of organizational culture.
Holacracy is one such design “[...] which will be dynamic, volatile, but invariably fruitful.”
(Gidley, 2013,p.29).
Holacracy as a self-managing organization structure
Self-managing organizations assume flat structures which distribute authority and decision-
making through self-managing teams. “Holacracy” is one such decentralized management
structure developed by Ternary software, headed by Brian Robertson, Exton, Pennsylvania.
It consists of teams called “circles” in which individuals have multiple roles, and “lead links”
carry leadership functions (Bernstein et al.,2016). This leaderless structure allows
immediacy in time and place and increases responsiveness. Overall, holacracy promotes
flexibility and individualization.
However, the extent to which such an approach is acceptable depends on its implementation
process and the adaptability of the organization’s members. Holacracy can be effective when
these members value autonomy, commitment, risk-taking, and creativity. The coupling of
holacracy with such traits in employees can sustain and revive an entrepreneurial culture.
The case of Zappos
Zappos is an online apparel-based firm, founded in 1999 by Nick Swinmurn, which became
a subsidiary of Amazon in 2009. Since 2014, the media has focused on Zappos with its
Vijay Kumar S. is based at
the Department of
Organizational Behavior,
Indian Institute of
Management Kozhikode,
Kozhikode, India.
Subhasree Mukherjee is
based at the Indian Institute
of Management Kozhikode,
Kozhikode, India.
DOI 10.1108/HRMID-08-2018-0161 ©Emerald Publishing Limited, ISSN 0967-0734 jHUMAN RESOURCE MANAGEMENT INTERNATIONAL DIGEST j
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radical” steps toward implementing holacracy. Although theoretically, the benefits of self-
organization are significant, some of its apparent “challenges” brought Zappos to the
attention of the media because 18 per cent of its employees chose to leave the company.
Tony Hsieh, Zappos’ CEO, offered a generous severance package to these employees who
were uncertain about the reliability, adaptability, accountability, and efficiency of the firm’s
operations.
With a workforce of 1,500, Zappos is known for its unique company culture which primarily
promotes self-management. Even before the implementation of holacracy, its hiring process
valued cultural fit as the organization’s core value. Ten core values that drive the culture at
Zappos endorse delivery of superior service, embracing and creating change, adaptability
and flexibility, learning potential, risk-taking, and highly committed and motivated
employees. A close look at these qualities suggests that these are the same traits desirable
in a decentralized or holacratic structure.
Has holacracy worked?
Holacracy was not without its sceptics. Since its inception, several organizations such as
Medium and the Lausanne Business School implemented holacracy before eventually
discontinuing it. The employees who remained with Zappos envisioned the initial years of
holacracy implementation as a transitional stage which would lead to learning and
innovation.
Zappos employees can customize their careers based on their choices.They earn
badges based on the roles and skills they acquire. Remuneration is commensurate
with the badges they earn. This provides them with an opportunity to simultaneously
explore new functions, pursue their passions, and increase their earnings. Self-
management enables heterogeneity in expertise in its demographic of circles. These
circles are further divided into sub-circles managed by lead links, with employees
freely moving across circles based on their new interests and desire to learn new
functions.
Zappos is enhancing a collaborative mindset and making the system more appealing by
introducing a coworker reward policy. This enables employees to spread satisfaction by
rewarding coworkers for their vital contribution and diligent adherence to cultural values.
This is facilitated by a stringent recruitment process which continues to focus on cultural fit.
Therefore, employees are motivated to work as mini-entrepreneurs, running their respective
circles as mini-enterprises.
What could HR managers learn from Zappos?
Gidley’s (2013) framework which analyzes whether an organization is ahead of its time
reveals that Zappos has indeed attempted to implement Gidley’s four principles. First,
the CEO realized that current thinking was insufficient to break the mold. Self-
management structure in a growing organization was implemented to improve
productivity, despite an increase in organization size. Although it was in its prime,
Zappos did not shy away from the new generation’s concept of holacracy. Second,
new ideas and collective individualism have together enabled Zappos to sustain its
position. This was also evident in its focus on symbiotic growth through the coworker
rewards systems and its shared-leadership structure. Third, Zappos adopted
holacracy as its collaborative organizational structure to foster an understanding of the
changing role of self and others in a team. Finally, the synergy between ideas,
individuals, and structure was integrated by organizational culture. Zappos has been
unique in is its ability to holistically operationalize and diffuse culture into the system.
This accords with existing research findings that organizational culture is one of the
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essential dimensions of a firm as a strategic resource that provides a sustainable
competitive advantage (Barney, 1986).
The case of Zappos reveals three lessons for HR managers:
1. Culture which is merely an artifact has no benefit until it is imbibed into an organization’s
ideas, individuals, and structure.
2. As organizations evolve, culture should drive changes across all organizational domains,
including recruitment, operations, and strategy.
3. Core values for growing organizations should not be compromised, as demonstrated
by Zappos.
While Gidley’s framework shows Zappos to be ahead of its time, its implementation was not
without problems. As they followed new generation principles, senior-level employees felt
their power ebbing. The design of a transparent incentive structure was also a concern
which was reflected in the compensation system. These factors possibly explain why
Zappos lost its coveted position in the Fortune 100 list.
The case of Zappos and its journey toward an organization that is ahead of its time has
three noteworthy lessons:
1. Conflict between old and new generations is inevitable when implementing new ideas.
However, a total focus on the new generation is insufficient. The best of both worlds
should be embraced.
2. Do not wait for critical events to force change. Initiate the change process when the firm
has enough buffers to absorb the shocks.
3. Companies should also take care of the “too-much-of-good-thing” effect (Pierce and
Aguinis, 2013) to reduce chaos and to avoid detrimental effects in the long run.
Conclusion
Structure alone is insufficient for producing desired change. Implementation of a new
culture will remain at the heart of the problem. Clear core values, as seen in the case of
Zappos, will enable firms (including young entrepreneurial firms) – irrespective of their size
– to propel themselves with sustainable growth and retention of valuable workforce. Gidley
(2013, p.29) argues that “[...] [the] potential of holarchical structures will be dynamic,
perhaps volatile, but invariably fruitful.” However, new ideas and ways of organizing are
best treated as experiments for an explicit duration and using the resources available,
guided by strategic vision and a defined direction.
References
Barney, J.B. (1986), “Organizational culture: can it be a source of sustained competitive advantage?”,
Academy of ManagementReview, Vol. 11 No. 3, pp. 656-665.
Bernstein, E., Bunch, J., Canner, N. and Lee, M. (2016), “Beyond the holacracy hype: too much of good
thing?”, HarvardBusiness Review, Vol. 94 No. 7, p. 13.
Ga
´spa
´r, T. and Laure
´n, L. (2013), “Future generations: widespread changes in our living-together”,
Futures, Vol. 45 (Special Issue: New Generations), pp. S1-S5.
Gidley, J.M. (2013), “Are futures organisations ahead of their times? A view of the world futures studies
federation in the 21st century”, Futures, Vol. 45, pp. S16-S31.
Pierce, J.R. and Aguinis, H. (2013), “The too-much-of-a-good-thing effect in management”, Journal of
Management, Vol. 39 No. 2, pp. 313-338.
Keywords:
Organizational culture,
Strategic HRM,
Zappos,
Holacracy
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About the authors
Vijay Kumar S. is a doctoral candidate in the area of organizational behavior and human
resources at the Indian Institute of Management Kozhikode (IIMK). Vijay Kumar S. is the
corresponding author and can be contacted at: vijayk09fpm@iimk.ac.in
Subhasree Mukherjee is a doctoral candidate in the area of strategic management at the
Indian Institute of Management Kozhikode (IIMK).
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