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
|
With Holacracy
|
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.
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.
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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