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Effectiveness of Self-Managed Team in A Holacracy Organization: A Case Study on Zappos



Effectiveness of Self-Managed Team in A Holacracy Organization:
A Case Study on Zappos
Najih Suraya (15/391824/PEK/21270)

ABSTRACT

As the nature of work in today’s organizations becomes more complex, dynamic, and global. Top-down hierarchies have been used as the organizational structure by many companies in the past century, since the way we cooperate with each other in our businesses has changed a lot since the start of the information and telecommunication revolution. There has been increasing emphasis on distributed, self-managed teams as organizing units of work to gain effectiveness.
The purpose of this research is to present a theoretical framework to focus research toward effectiveness of self-managed teams and identifying implications for Halocracy organization. This research focus on the self-managed teams as functions on a Halocracy in Zappos. Holacracy promises a lean and adaptable organization, highly effective organization, distributed authority and purpose driven work. The belief that work is more structured with Holacracy than conventional management because the clear distribution made Zappos implemented this system.
Keywords:
self-managed team, holacracy, organizational effectiveness

INTRODUCTION

An organization is a system of consciously coordinated activities or forces of two or more person. Organizational design is defined as the structures of accountability and responsibility used to develop and implement strategies, and the human resources practices and information and business processes that activate those structures. Collaboration design on organization such as horizontal design often used as an approach to gain an organizational effectiveness. However, the new contingency approach which concern to make organization more effective when they are structure to fit the demands of the situation.
Companies are struggling to balance the need to make their core business more efficient with the need to move swiftly to new processes and business models, especially in the face of threats from disruptive startup. But we do not know that it turns out efficiency is an issue for startup, too, that the process also become less flexible as they focus on efficiency in their quest to improve the market. Interestingly, some start-ups come up with innovative ways to tackle problems. The new organization "Holacracy" at Zappos as a good example of how the company strives to avoid the efficiency of inhibit the growth of the market.
Zappos is known by the market in the footwear industry with a clever solution to the problem that online clothing retailers. Zappos eliminates shipping costs and invest it into a call center that not only focus answering incoming calls as quickly and efficiently as possible, but also focus on building strong relationships with customers. By providing plenty of time for customers to explain their problems, get recommendations, ordering a few pairs of shoes, try these shoes, and send back the shoes they did not like for free, Zappos basically bringing the store to the customer's home. From a financial standpoint, the idea is that the increased cost of providing great customer service and free shipping will be proportional to the increase in sales volume and cost reduction does not have to maintain all physical outlets. This new approach was very successful, and Zappos improve efficiency and expand its product line to handbags, sunglasses, and other clothing, to benefit from economies of scope. Today, still under extraordinary management of Tony Hsieh, Zappos sales were over $ 2 billion.
Launching an innovative company, selling it to Amazon, and had sales of more than $ 2 billion is enough for an employer, but not for the CEO, Tony Hsieh. Size clothing market in the US alone is about $ 225 billion. From this perspective, the market share of Zappos only a fraction of the entire apparel industry, so there is still room to improve the market. Model "without shipping and marketing relationship" can bring Zappos only in so far as it was only of interest to a number of people - more than 75% of sales Zappos is from repeat customers. Hsieh acknowledged that Zappos require further innovation to reach more customers in other segments of the apparel market is vast. In this case, Zappos is basically in the same position as the incumbent - faces a choice between sharpening existing business models or take advantage of current efficiency to explore further opportunities.
Holacracy at Zappos is that when business problems arise repeatedly, different teams were assembled to break it. The problems that occur repeatedly shown that their unresolved needs in the market and should not be treated as inefficiencies to be eliminated but rather as an opportunity to find innovative responses.
To understand how it might work, for example: the customer needs help in matching dresses with shoes and bags, and he asked for advice as he used to be from the personal shopper in a classy boutique. The first time this problem arises, one team may recommend that a customer wearing a gown and then call back via Skype so that the person answering the call center can give his opinion. When the problem reappears, the other team decided to hire an expert to provide advice mode. When this problem occurs for a third time, another team of designing an application so that customers can take pictures selfie and send it to the experts. The problem then appears again, and the fourth team created a platform to integrate all the features are.
Holacratic approach is generating tens of possible solutions to the same business problems, some of which will be more creative, bold, or completely unpredictable. After this selection is generated, corporate executives can analyze the solution singly or in combination from the standpoint of marketing and finance to find a way to boost the market. In our hypothetical example, the management view of all these solutions and, say, let's create a "sophisticated fashion for the customer service Zappos" platform based on recommendations developed by the fourth group. It becomes more accurate (and better guiding Zappos in deciding how to choose clothes bid to attract customers higher margin) for many customers provide information about the fashion equivalent of what works and what does not and why they need these clothes. Such information facilitates Zappos to boost the market.
If it works as envisioned, Holacracy version of Zappos has the potential to transform the company into a gigantic experiment in uncovering new business practices that not only generate new net growth, but make Zappos more successful and more disruptive. For established companies, to transform themselves to react to disruptive competitor is still a controversial challenge. A recent survey from the consulting firm Innosight revealed that only 36% of respondents from large companies think they can change their organization within five to 10 years to avoid interference from disruptive competitors.
Harvard Business Review May 2014, stated that Zappos replace traditional hierarchy with "operating system" organizes itself commonly called "Holacracy" (purposeful social organization through technology) business. The system is not necessarily be adopted by other organizations, though it proved to be Zappos organizational excellence.

LITERATURE REVIEW

Self-Managed Teams
Reviews of the literature on self-managing teams conducted by Goodman, Devadas, & Hughson (1998) and Pearce & Ravlin (1987) suggest that self-managing teams lead to enhanced organizational effectiveness. Some longitudinal case studies of organizations that implemented self-managing teams found improvements in commitment and performance (e.g., Goodman, 1979; Hackman, 1990; Walton, 1977).
Only a small number of experimental or quasi-experimental field studies have been conducted to evaluate the worth of self-managing teams. Pasmore (1978) describes a study whereby self-managing teams were introduced into one unit, and jobs were enriched in the other unit at a food company. Job satisfaction increased in both units; however, only self-managing teams demonstrated a productivity increase. Wall (1986) conducted a longitudinal study at a U.K. food company which found that employees in self-managing teams were more satisfied than employees in traditionally managed work teams. However, there was no difference in commitment or performance. Cordery, Mueller, and Smith (1991) found that employees in self-managing teams over time were more satisfied and had higher commitment than employees in traditionally managed teams. Cohen and Ledford (1991) found that self-managing teams had higher job satisfaction and were rated more effective by management than employees in traditionally managed teams. No differences were found in commitment or performance.
Cohen, Ledford Jr, Spreitzer (1996) found that self-managing work team effectiveness is defined as both high performance and employee quality of work life. Drawing on different theoretical perspectives including work design, self-leadership, sociotechnical, and participative management, four categories of variables are theorized to predict self-managing work team effectiveness: group task design, encouraging supervisor behaviors, group characteristics, and employee involvement context.

Holacracy
According to (http://www.holacracy.org/how-it-works/) Holacracy is a new way of running an organization that removes power from a management hierarchy and distributes it across clear roles. The work can then be executed autonomously, without micromanagement. The work is more structured with Holacracy than conventional management. There is a clear set of rules, and processes for how a team breaks up its work and defines roles with clear responsibilities. As seen in Figure 1 there are the differences of traditional company & Holacracy.

In Traditional Companies

  • Job descriptions
    Each person has exactly one job. Job descriptions are imprecise, rarely updated, and often irrelevant. 
  • Delegated Authority
    Managers loosely delegate authority. Ultimately, their decision always trumps others.
  • Big Re-Orgs
    The org structure is rarely revisited, mandated from the top.
  • Office Politics
    Implicit rules slowly down change and favor people “in the know”.

With Holacracy

  • Roles
    Roles are defined around the work, not people, and are updated regularly. People fill several roles.
  • Distributed Authority
    Authority is truly distributed to teams and roles. Decisions are made locally.
  • Rapid Iterations
    The org structure is regularly updated via small iterations. Every team self-organizes.
  • Transparent Rules
    Everyone is bound by the same rules, CEO included. Rules are visible to all.

Figure 1: The Differences of Traditional Company & Holacracy (http://www.holacracy.org/how-it-works/)

According to Pepijn Van De Kamp (2014), the organizational structure of holacracy consists of a holarchy of self-organizing teams, called ‘circles’. This holarchy of circles emerges in the process and evolves over time. Hereby Holacracy aspires to result in a natural hierarchy focused on work instead of individuals.

Figure 2: Ternary of Traditional Organization Diagram

Traditional organization chart is commonly used structure diagram. It is used to accommodate the task and roles of people who is in charge stated in the job description. Traditional organization chart seems like the best proportion of an organization, however, Holacracy gives another preference in organizational structure. As seen in Figure 2 the Ternary of Traditional Organization Diagram, there is a management who control the organization and handle one up to three employees in team.

Figure 3: Ternary Traditional Organizational Chart with Circle Overlay

Hence, Figure 3 brings two views of the organization together, by overlaying the circle structure on top of the traditional org chart. This is really the same view as Figure one, just taken from a different angle. This view also shows how a manager serves as a connection or conduit between a broader and more focused circle, both circles overlap the manager role.

Figure 4: Ternary Holarchic Organizational Structure Diagram

One of the most notable differences between a traditional organizational governance and governance with Holacracy is the fact that individuals do not carry job titles anymore, hence there are no management titles either. Holacracy states that job titles are often status-related and are often vaguely related to the work the individual is actually doing on a daily basis. Figure 4 shows a view of a Holarchic circle structure for a software development organization similar to Ternary Software (Kamp, 2015). With Holacracy, roles are defined with a clear purpose only at the point where they contribute to the organizational purpose and the aim of the circle. When a role does not contribute any more it is withdrawn. Individuals can energize multiple roles. Roles serve a specific purpose and include real responsibility and authority. “Everyone becomes a leader of their roles and a follower of others”. By removing job titles and defining roles when they are needed, Holacracy aspires to make the work to be done more explicit. By giving roles authorities and responsibilities, decision-making is distributed throughout the organization.

Figure 5: The Holacracy Process
(Source: http://www.topmanagementdegrees.com/holacracy/)

By distributing leadership throughout the organization, Holacracy aspires to be more of an open system where its employees are more in touch with the changing environment. By energizing their roles, individuals sense opportunities, called ‘tensions’, to improve the organization to align better with its purpose. Holacracy divides tensions in two categories: tensions on operations (the processing of the work) and tensions on governance (structure of the organization).
To facilitate the effective execution of tensions of operations, the members of a circle have various meetings with different scope and at different intervals, from daily to yearly. Circle members also meet regularly to evolve the governance process of the circle to uncover the roles needed to reach the circle’s aim. The various circles synchronize their information by applying the concept of double linking: In each circle meeting one elected member from the super circle (‘lead link’) and one elected member from every sub-circle (‘rep link’) attends the meeting to ensure the circles decisions align with the needs of the super circle and the perspectives of the sub circles. Decisions are made based on consent (instead of consensus) and should lead to actions that allow rapid feedback rather than a thorough cause analysis. This concept of rapid decision-making based on real data to enable rapid feedback is called Dynamic Steering in Holacracy.
According to Greenfield (2015), unlike some of its contemporaries, Holacracy does not advocate for a flat organization, she gave an example in Medium is in charge of fonts and makes all font-related decisions, however Medium still has managers, because each circle has a leader. Medium, which implemented Holacracy about three years ago, had a rough adjustment phase, too. Governance meetings can take hours. People got stressed about understanding the system, and began neglecting their jobs as a result. "Being bad at something is frustrating," Williams told me. "To do that something else that we're good at actually, we have to do this thing we’re bad at. As a group, we’re going to do this awkward dance. It’s hard and messy and it causes stress, and you’re like, 'why are we doing this?'". The recent data by Reingold (2016) management at medium changes and they gave up from holacracy. Greenfield (2015) found that the Holacracy approach could, especially in a rapidly evolving business like IT, uncover the great potential of being more in touch with the environment and benefit from this, but also doubt how Holacracy will work out with more junior teams and people who are not proficient yet in the art of self-organizing.

DISCUSSION

Holacracy is made by Brian J. Robertson, this new system is a breakthrough system by eliminating power management in organization. Holacracy is a revolutionary management system that redefines management and turns everyone into a leader. Holacracy distributes authority and decision-making throughout an organization, and defines people not by hierarchy and titles, but by roles. Holacracy creates organizations that are fast, agile, and that succeed by pursuing their purpose, not following a dated and artificial plan.
Holacracy, a relatively new governance framework that could possibly replace top-down hierarchies in organizational designs in order to increase the effectiveness of organizations. Because Holacracy aspires to bring agility to the organizational. Holacracy organizes work (and people) around circles within circles within circles. People within those circles have "roles" that give certain team members complete control over their domains. In companies that adopt Holacracy system, the company set up small teams of independent and interconnected. Each team has the authority make their own decisions: they are given a purpose, and then they decide for themselves how to achieve that purpose.
Millennial generation, suitable work in company with Holacracy system. The reason is, because Millennial tend to be upholding democracy. Moreover, Millennial are the generation of innovative who do not like to just be a robot in a giant machine, but want their voices and ideas be heard. If the manager can arbitrarily conventional companies delegate authority to the people, and the decision cannot be contested, with Holacracy, companies become more democratic.
Furthermore, Millennial also known as the generation of "fleas", often moving work and the company quickly, because of boredom. Holacracy could be a solution to overcome the boredom. If the conventional organization, every person has a clear job description, in Holacracy not a job description, but roles. One person not in just have a role, because the roles are defined not by people, but by work. One person can have more than one role. The role is not a permanent nature, in the sense that management can get the first few months there is a role. A role is omitted, as for example the company again do not need this role, so all roles will continue to be relevant. It increased the employee performance.
Holacracy is not a utopia, however this style is not for everyone. Holacracy suitable for organizations that its employees with high initiative and full of creative ideas. Hence, Holacracy widely adopted by startup company. For corporations, the transition from conventional systems to Holacracy may not be easy, but Zappos as a new startup company could handle it. Employed self-managed team, everyone and the Zappos team would have a sense of belonging to the company higher, because they felt contributed directly for the decisions they take. This can be one of the ideal criteria for Millennial.

The Nature of Self-Managed Teams

Self-managed teams are defined as groups of workers who are given administrative over side for their task domain. The term self-manage does not mean turning workers loose to do their own things. A common feature of self-managed teams particularly among those above the shops floor or clerical level is cross functionalism. Specialists from different areas are put on the same team.
Self-managing teams combine the attributes of formal and informal teams. Generally chartered by management, they often take on lives of their own as team members take responsibility for their day-to-day workings. In self-managing teams much of the responsibility and authority for making management decisions are turned over to a group of people who perform interdependently in order to accomplish an assigned task (Katzenbach, 1993). The overarching goal of self-managing teams is to find solutions to problems.
Self-managing teams are often associated with terms describing high performance and autonomy. Perhaps the most self-managing of self-managing teams is the concept of self-directed work teams (SDWTs). A self-directed work team is an intact group of employees responsible for an entire work process or segment that delivers a product or service (Wellins, 1991). An organization embracing self-managed teams should be prepared to undergo revolutionary changes in management philosophy, structure, stuffing, training practices, and reward systems.
Self-managed teams wok or self-directed teams operate without a manager and was responsible for a complete work process or segment that provide products or services to external customers or internal. Self-directed work teams are designed to give employees a sense of "ownership" of the entire work. For example, in Tennessee Eastman, a division of Eastman Kodak Company, the team responsible for the entire product line-including processing, lab work, and packaging. With the team's responsibility to work together, team members often have wider job duties and cross-train to master another job. This cross-training allows for greater flexibility of the team.
No matter what kind of team is formed, the benefits of teamwork are many, including synergies and increased skills, knowledge, productivity, flexibility, and commitment. Among other benefits is an increase in job satisfaction, employee empowerment, and improving the quality and effectiveness of the organization.

Advantages

As noted earlier, self-managing teams offer a number of potential advantages over traditionally managed teams, including stronger commitment, improved quality, enhanced efficiency, and faster product and service development. Moreover, some research suggests more satisfied employees, lower turnover, and lower absenteeism. Having team members cross-trained to do various jobs increases the flexibility of the team in dealing with personnel shortages. Their knowledge of work processes helps team members solve problems and develop improvements.
Self-managed team (SMT) benefits of which are used for the main reason for the growth in popularity. The concept of SMT is a benefit that is reported by the organization that has been adopted, such as:
1.     Greater improvement in service quality, speed, process, and innovation
2.     Sense of belonging and ownership in one's work
3.     Large motivation
4.     Accelerating the development of new products
5.     Large participation of employees
6.     Reduce operating costs due to a downgrade of managerial and greater efficiency
7.     Grated employee job satisfaction, commitment, and productivity, and lower turnover and absenteeism

Drawbacks

For all of their apparent advantages, self-managing teams suffer certain limitations. Here is a non-exhaustive list of some of the noteworthy drawbacks:
1. Self-managing teams are difficult to implement, and they risk failure when used in inappropriate situations or without sufficient leadership and support (Hackman, 1986).
2. A ruling by the National Labor Relations Board (NLRB) regarding teams making decisions regarding pay and security (Robbins, 1996) suggests that management groups must allow teams considerable discretion with regard to the composition and selection of members, the latitude of issues to be handled, and the continued existence of the team.
3. Some organizations have been disappointed with the results from self-managing teams, for example; Medium.
4. Some employees in organizations undergoing layoffs as a result of self-managing teams have come to view cooperating with the team concept as threatening their future employment.
5. The overall research on the effectiveness of self-managing work teams has not been uniformly positive. For example, employees on self-managing work teams seem to have higher absenteeism and turnover rates (Wall, 1986; Cordery, 1991). Specific reasons for this finding are unclear.

Decision Making in Teams

Teams vary in terms of their effectiveness. Some are effective and some are not. There are five dysfunctions that every team must overcome to be effective: lack of trust, fear of conflict, lack of commitment, lack of accountability, and inattention to results. Much of the literature portrays team effectiveness as a function of both internal and external factors. Supporting this viewpoint, one model of team effectiveness focused on internal team processes such as group learning, self-leadership, interdependency, and team cohesion (also referred to as group potency) as influencing factors of  team effectiveness. Another model examined three contextual factors—team design, organizational resources and rewards, and process assistance—as determinants of team effectiveness. In conclude, team effectiveness has three components task performance, they are:
1.     The degree to which the team’s output (product or service) meets the needs and expectations of those who use it group process
2.     The degree to which members interact or relate in ways that allow the team to work increasingly well together over time; and individual satisfaction
3.     The degree to which the group experience, on balance, is more satisfying  than frustrating to team members

Leader Centered Decision Making Model

This model focuses on the points leader with the following recipe for success:
1. Leaders must focus on the task and ignore personal feelings and relationships whenever possible.
2. Leaders must seek opinions about trying to get a deal but never waived the right to make a final choice.
3. Leaders must stay in control all the time and group discussion should politely but firmly stop the annoying and irrelevant discussion.
4. Leaders must prevent members from expressing their feelings and should strive to maintain a discussion, rational logic without emotion.
5. Leaders must keep against threat to his authority in group.

Team Centered Decision Making Model

This model preference when the relevant information and expertise scattered among different people, when participation is necessary commitment needed, when unpopular decisions need to be made. Centered team approach offers the team leader following recipe for success:
1.     Leaders must listen and observe nonverbal cues attentively to realize the needs of members, feelings, interactions and conflicts.
2.     The role of a leader should serve as a consultant, advisor, teacher, and facilitator and not as a director or manager of the team.
3.     Leaders must set an example of leadership behaviors are appropriate and encourage members to learn to do their own behavior.
4.     Leaders must build a climate of approval for the expression of feelings and ideas.
5.     The leader must cede control to the team and allow it to make a final choice in all kinds of appropriate decisions
The advantage of this model is that it can improve the quality of decisions, it shifts a lot of the actions of decision-making away from the leader, thus freeing him to think more strategically, allowing responsibilities to be spread among several people, thereby facilitating support for some kind of unpopular decisions, and it produces a higher commitment by members of the team to implement the decision than the decision that is made by a leader.
Weakness team-based decision-making is that it could take longer than the decisions made by the manager, can be self-serving and contrary to the best interests of the organization, if the team has goals or priorities that differ from the leaders, and could end up a compromise worse than the optimal solution, when the team members cannot agree among themselves.

The Changing Role of Leadership in Self – Managed Teams

Changes in leadership roles in SMT has to be held because of the difference pattern of the team. There are several SMT facilitator of effective team building activities such as:
1.     Opening the forum to resolve interpersonal conflicts
2.     Create opportunities for social interaction
3.     Improve mutual acceptance and respect among members of diverse teams
4.     Maintaining open communication policy
5.     Highlighting the common good, rather than differences, team members
6.     Improving the identification of the team through the use of ceremonies, rituals, and symbols
7.     Using team-oriented incentives to encourage teamwork

The Challenges of Implementing Self – Managed Teams in Holacracy Organization

The implementation of SMT face many challenges, the transition difficulty from the environment command-and-control traditional working to the new modern one. To understand the nature of SMT, there are two keys that need to be understood; the differences SMT from the conventional team and the widespread of the organization. SMT is different from a conventional team in some way. Different Characteristics Self-Managed Teams and Conventional Team can be seen in Figure 6.
In a conventional team, provide the team leader with directions and maintain control over work-related issues. However, SMT is not.

Characteristics
Self-Managed Teams
Conventional
Leadership
Inside Team
Outside team
Team Member Roles
Interchangeable
Fixed
Accountability
Team
Individual
Work Effort
Cohesive
Divided
Tasks Design
Flexible
Fixed
Skills
Multiskiils
Special

Figure 6: Different Characteristics Self-Managed Teams and Conventional Team


CONCLUSION

Holacracy is a new way of running an organization that removes power from a management hierarchy and distributes it across clear roles. The Halocracy can then be executed autonomously, without micromanagement as seen in Zappos.
Holacracy could possibly replace top-down hierarchies in organizational designs in order to increase the effectiveness of organizations. Because Holacracy aspires to bring agility to the organizational level it is likely to complement with Zappos approaches in the organization, hence it is relevant to provide an overview of what Holacracy is and what we can learn from Holacracy in managing our own businesses. Self-managing teams in Holacracy offer a number of potential advantages over managed teams, including stronger commitment, improved quality, enhanced efficiency, and faster product and service development.
A holacratic organization consists of a hierarchy of self-organizing circles in which employees energize multiple roles. Each role has a defined purpose with an explicit description of the work to be done and the necessary responsibilities and authority to fulfill the role. Hereby decision-making is distributed throughout the organization and employees are given the opportunity to act on tensions they feel at their level of the organization. Information flows through all levels of the business by providing a framework for efficient tactical meetings and governance meetings. The structure of the organization emerges naturally by energizing tensions throughout the organization in order to satisfy the purpose of the organization effectively.
Holacracy is suitable for organizations that its employees with high initiative and full of creative ideas such as Zappos, however it not applicable for the traditional organization which cannot face the global changes and organization with minimum competence of human resources.
 

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