Holacracy is a self-management practice that encourages organizations to reevaluate and transform their traditional hierarchies. Zappos, under the leadership of its CEO Tony Hsieh, was one of the early adopters of Holacracy, transitioning away from the conventional corporate structure. In a Holacracy, authority is distributed across circles or teams, each with specific roles and accountabilities. This approach aims to foster autonomy, agility, and adaptability among employees.
Zappos’ adoption of Holacracy was a bold experiment in self-organization and transparency. It sought to redefine how decisions were made, roles were defined, and power was distributed within the company.
Several key characteristics distinguish Zappos’ implementation of Holacracy:
Circles and Roles: Zappos organizes itself into circles, each with its set of roles and responsibilities. Circles are self-governing units that focus on specific aspects of the business.
Role Flexibility: Employees hold multiple roles, and these roles are not fixed but can evolve as the organization’s needs change.
Governance Meetings: Holacracy involves regular governance meetings where tensions and concerns are addressed, roles are clarified or modified, and decision-making occurs through structured processes.
Transparent Rules: Holacracy relies on clear and transparent rules and processes, reducing ambiguity and promoting accountability.
Dynamic Governance: Decisions are made in a dynamic and iterative manner, allowing for rapid adjustments to organizational structures.
Advantages of Zappos Holacracy
Zappos’ adoption of Holacracy brought forth several advantages and opportunities:
1. Enhanced Autonomy:
Employees have greater autonomy and are empowered to make decisions within their roles, reducing the need for constant oversight.
2. Increased Agility:
Holacracy allows Zappos to respond quickly to changing market conditions and customer needs, as decision-making is decentralized.
3. Transparency:
The system encourages transparency and open communication, leading to improved information flow and alignment.
4. Employee Engagement:
Holacracy can boost employee engagement by providing a sense of ownership and purpose within their roles.
5. Innovation:
The flatter structure fosters innovation, as employees are encouraged to experiment and take ownership of their work.
Challenges of Zappos Holacracy
However, Zappos’ journey into Holacracy also encountered several challenges:
1. Cultural Shift:
Implementing Holacracy requires a significant cultural shift, and not all employees may embrace or adapt to this change.
2. Complexity:
Holacracy can be complex, with numerous rules and processes to follow, which may lead to confusion or resistance.
3. Unclear Boundaries:
Role tensions and overlaps can arise, leading to uncertainty about responsibilities and decision-making authority.
4. Leadership Transition:
The transition from traditional leadership to a distributed model can be challenging and may result in leadership gaps.
5. Time-Consuming Meetings:
Governance meetings, while essential, can be time-consuming, impacting employees’ daily routines.
Real-World Implications
Zappos’ experiment with Holacracy had far-reaching implications:
1. Influencing Organizational Design:
Zappos has been a trailblazer in demonstrating that alternative organizational models like Holacracy can coexist with traditional hierarchies, encouraging other companies to explore similar approaches.
2. Employee Empowerment:
The emphasis on employee empowerment and self-management has inspired a shift in workplace culture, with some organizations adopting similar practices.
3. Learning Experience:
Zappos’ experience with Holacracy serves as a learning opportunity for companies seeking to introduce more agility, transparency, and employee engagement into their structures.
4. Reevaluating Leadership:
The move towards self-management challenges traditional notions of leadership and encourages organizations to redefine leadership roles and responsibilities.
5. Experimentation and Adaptation:
Zappos’ journey reflects the importance of experimentation and adaptation in today’s rapidly changing business landscape.
Balancing Freedom and Structure
Zappos’ Holacracy experiment highlights the need to strike a balance between freedom and structure within an organization. Here are some considerations for achieving that balance:
Clear Purpose: Maintain a clear sense of purpose and shared values to guide decision-making within a self-management framework.
Ongoing Training: Provide ongoing training and support to employees to help them navigate the complexities of Holacracy effectively.
Continuous Feedback: Encourage open and continuous feedback to address challenges and refine the implementation of Holacracy.
Flexibility: Recognize that the model may need to adapt over time to meet the evolving needs of the organization.
Conclusion
Zappos’ journey into Holacracy represents a bold experiment in reimagining organizational structures and employee empowerment. While it faced challenges and complexities along the way, it has also served as a source of inspiration for organizations seeking to embrace more agile, transparent, and innovative approaches. As the business world continues to evolve, Zappos’ experience with Holacracy serves as a testament to the importance of reevaluating traditional hierarchies and exploring new paradigms of organizational design and management.
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The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
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Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
