John Bunch began his career with online retailer Zappos in 2009 as a software developer. Since then, he has become the lead organizational designer and technical adviser to Zappos CEO Tony Hsieh. Bunch was the key leader in the company’s shift from a traditional business hierarchy to a self-organizational structure called holacracy. Workforce Editorial Associate Bethany Tomasian spoke with Bunch about Zappos’ journey away from the more traditional business structure and how holacracy has changed the workplace environment.
Workforce: In your own words, can you describe the concept of holacracy?
John Bunch: There are several different elements that holacracy brings to an organization. Traditional organizations’ hierarchy are positions from entry level to CEO and an employee resides in one place along that ladder. One of the ways that holacracy is different is that it’s a hierarchy of work, not people. That means that within holacracy there are different circles of work and an employee can reside in different circles. A circle is just another name for a team, and an employee holds a certain role in that circle. A single employee could hold different roles throughout several circles in the organization. In that sense, holacracy breaks down the one-person, one-team ideology.
Along with that element, there is distributed authority. In a traditional hierarchy you get the authority from a person higher than you in the organization, your boss. In holacracy there is a governance process which determines what roles have the authority to take which actions. The goal should be to unleash people’s creative power, let them be autonomous and only implement restrictions when there is a good reason. There are processes for distributing authority and for limiting that authority within a circle or throughout the company.
In holacracy there is also the concept of evolution. Within holacracy, you are constantly evaluating if those roles and circles in the company need to change. Anybody in the organization can propose a change to what work is being done. I think in traditional organizations, restructuring work is a big deal that could take months to unpack and it might happen infrequently. In holacracy those restructures of work can happen on a weekly basis.
Workforce: What have been the greatest challenges to overcome in a self-managing workplace that is very adaptive?
Bunch: In self-managing workplaces there is more autonomy and there also tends to be more opportunity. One of the things that we talk about is how traditional workplaces run on a job ladder where your progression at a company eventually leads you to your boss’ position. In our workplace, there are so many roles throughout the organization, and if an employee is interested they can pitch themselves for any role. Our mental model is that we are moving away from the job ladder and to the job jungle gym.
However, with more autonomy, opportunity and self-lead progression comes its challenges. Some people thrive in the holacratic environment while other people need more defined direction in terms of their day-to-day work and overall career. It can be a challenge for those people to learn and grow in the new environment. We’ve done things to help those people adapt such as offering a mentorship through the process of professional development and life-training.
Workforce: What have been the greatest successes since introducing holacracy?
Bunch: The biggest successes are the ideas that get off the ground that probably wouldn’t have happened if not for holacracy. In this new environment, your job doesn’t have to be contained to a specific team as you can move across these different circles which enables people to offer ideas that can benefit the whole company. Whereas at a traditional company, your job might be in finance and finance is all you do.
One example of this was when we launched our initiative Zappos Adaptive. This initiative focused on customers that might have adaptive or special needs in terms of their clothes and shoes. Zappos Adaptive was done through employees whose traditional job did not include this focus. These employees had a passion and a vision for helping people in that community.
Workforce: What lessons have you learned along the way with perfecting this method of organization?
Bunch: Whenever you have a change within your organization, you have to be patient with every team and individual’s journey through that change. Especially with a change as fundamental as holacracy. It could take months or even years to become efficient. Zappos, as an organization, had to be very patient in order to make this change. That is a person-to-person connection and we had to monitor where each employee was during their journey. We preach to not only be patient with yourself but also with others. That went a long way.
We also had to be open to trying new things with no guarantee that they would work. If those didn’t work, then we would have to learn and adapt. A good example of that process was when we were transitioning to holacracy. We were thinking about resource allocation and how that would work in the new environment. We realized that this was causing some big challenges in our business metrics. Our fundamental customer service metrics were being degraded based upon the way that we were operating at the time. That was a big deal to us because it went against out ideology, which is, “To live and deliver WOW.”
We tried something as an organization that ultimately wasn’t working and so we had to shift, learn and adapt. We created systems that righted the shift in our resource allocation and our metrics normalized, perhaps better than they were before. You have to be willing to learn from those mistakes and adapt.
Workforce: How has the self-management of holacracy impacted employee work-ethic and sense of personal value in the company?
Bunch: I think that the ability for different people to get involved with ideas across the company has allowed more self-direction. People can be passion-forward and get involved in things that they are passionate about. That can really help employees see the personal value that they create. This isn’t a part of holacracy specifically, but some of the other systems that are scaffolded on top of holacracy speak to this.
For example, we are working on internal market-based dynamics, which essentially means that each circle in the organization would be run like a micro-business. In this system, each micro-enterprise would be funded by the customers. These can be internal customers or external customers. Instead of a top-down funding model, we are shifting our funding as being derived from the customer of whatever work you do. In a traditional company, employees might not see the value that they are creating. This change is relevant to the employee’s personal value because employees won’t think of themselves as a cost to an organization. By creating these internal customers through these micro-business interactions, employees can really see the value that they add to the company.
Workforce: How can innovation in leadership and organization such as holacracy shape the future of how companies operate?
Bunch: As we grew at Zappos, there was this sense we got from our leaders that the things which worked very quickly as a startup were not happening as fast anymore. If you’ve ever been frustrated by how long it takes you to get something done then you might resonate with this. As we started examining that challenge, we were really inspired by this research that had been done about cities. The research found that every time a city doubled in size, productivity per resident grew by 15 percent. As cities grow, they become more productive on a per-resident basic. However, the exact opposite happens when organizations grow larger. As the size of an organization doubles, productivity per employee goes down. I think we sense this as employees at large organizations when we become frustrated by how long things can take.
What if we could structure our companies in ways that cities are structured? Could we see the same exponential relationship between growth and productivity? That is the vision of where we want to go at Zappos. We want to show that with holacracy we can make more productive and happier employees.
Workforce: What advice would you offer other companies and even startups that are thinking about evolving the workplace hierarchy dynamic?
Bunch: It is easier to start when you are small. At Zappos, we started on this journey when had around 1,500 employees. Some of the challenges that we went through were due to our size. Those were challenges that we might not have had if we started these changes when we were a five-person company. If we started when we were small, some of these changes would have grown in scale with the organization.
I would also tell companies to think small. Think about small ways that you can make your workplace more dynamic and give those a try. If you see positive change, then keep going.
It is easy to go with the status quo and the traditional methods of organization. However, there is a growing amount of evidence of the fundamental flaws with that line of thinking. If you want to have an organization that is inspiring and resilient then it is important to think about these changes.