Two Large-Scale Holacracy Experiments: Zappos.com vs. Bol.com
Both Zappos.com & Bol.com are online retailers. Around 2015, each launched transformation journeys inspired by Holacracy. While they share similarities, the journeys were quite different. What do these pioneers teach us, five years down the road?
Zappos is American and Bol is Dutch, but the similarities are striking:
- Both are e-commerce players
- Both were founded in 1999
- Both are owned by larger retail organizations (Zappos by Amazon, Bol by Ahold/Delhaize)
- Both generate annual revenues of $2.5B to $3.0B
- Both have between 1,500 and 2,000 staff
- Both started a transformation around 2015
While both had similar reasons for implementing Holacracy, the principles guiding their journeys could not have been more different.
They tried to transform overnight to Holacracy with a big bang.
These are the principles that seem to have guided their journey:
Zappos transformed behind closed doors. They appear to have been quite secretive about their journey, on purpose. The result is their journey is wrapped in mystery.
We visited them ourselves in 2016. Then, when they were in full transformation mode, it was hard to figure out what was really going on.
In recent years they have opened up a bit more, and some crucial elements in their journey have become more common knowledge.
Top down /
At Zappos, CEO Tony Hsieh started the change to Holacracy. He was inspired by the idea of turning his company into a city-like environment without central planning. Why? He argued that cities are resilient and flexible, and every time a city doubles in size, productivity per resident rises by 15%. In contrast, traditional companies see productivity per capita fall as they grow.
Hsieh chose Holacracy as the tool to access that kind of resilience and productivity. But why choose Holacracy? There are many companies that have developed a unique model of self-management.
The reasoning: "Aside from it arguably being the most publicly well-known, it is one of the only pre-built, out-of-the-box options that any organization can implement, regardless of size, sector, or industry. Holacracy immediately provided us with a set of rules and processes that everyone could see, with a lot of the nuances and checks-and-balances already figured out for us."
Implementing Holacracy as a pre-built, off the shelf model is the path they chose. In 2015, they did away with managers, and restructured into >400 holacratic circles.
This dogmatic approach was not always easy, admitted Christa Foley, senior director of brand vision and culture: “Holacracy has been a big exercise in getting comfortable with experimentation and trying and reiterating and then backing up and going forward again."
And the change was mandatory for all. That is how Zappos changed overnight.
In March 2015 Hsieh gave an ultimatum to employees: either fully commit to the new model as a genuine participant, or leave the company and recieve a generous buyout offer. 18% took the offer.
Now, let us look at the Bol journey. They transformed more gradually, and transformed like a movement.
These are the principles that guided their journey:
Closed / Open
Contrary to Zappos, Bol have been open about their transformation journey. Their change initiator, Harm Jans, now Director of People & Organization Development, has been sharing insights about their journey regularly (to us, and many others), via this blog and in our book.
Top down / Bottom up
It was not the CEO that started the change. It was Harm Jans, and he was inspired by Holacracy. It laid the foundation for the change movement which internally is known as the "Spark" initiative. Jans was then a team leader in Logistics.
At the time Bol faced the challenge of coping with rapid growth. They hired many experienced people from established, well known companies and retailers. But the new people not only brought knowledge and experience in logistics and operations, they also brought traditional ideas about how to run companies.
Outside IT (particularly) the organization became more hierarchical and bureaucratic. People gradually became less engaged. But the original people at Bol knew, from their start-up days, they did their best work in small, autonomous, cross-functional teams with challenging goals and enough room for fun.
Jans: "Therefore, we were desperate to explore flatter operating models for the whole organization, which distribute decision-making power effectively and place accountability at the lowest level in the organization."
Dogmatic / Pragmatic
When Jans started thinking about how to implement Holacracy at Bol, he knew he could not be too dogmatic, and that he had to tailor it to their specific environment. He knew that if he wanted to make this work, he had to be very pragmatic in his approach.
Jans: "People within Bol have a rolled-up-sleeve and down-to-earth mentality. They were not going to buy-in on Holacracy if we would ask them to first read the 40 page Holacracy constitution with all the rules, structure and processes of the organizational operating system."
That is why they simplified the Holacracy constitution. They condensed it to a single page, which summarized the core principles. They did not even use the word Holacracy, but talked about Spark.
The Spark model only adopted the basic principles behind circles, sub-circles, plus the role of the lead link, and elected roles like facilitator and secretary. For example, they abandoned the role of the ratifier, rep link and the concept of cross linking to keep things more straightforward.
Jans adds "We do not follow all the rules of the governance processes and meetings that are in the Holacracy constitution. For example, we allow teams to combine governance and tacticals into the Spark meetings. We tend to be somewhat more flexible in the creation or removal of circles."
Mandatory / Voluntary
Unlike Zappos, Jans started small when implementing the change. He created a bottom-up movement. People could adopt Spark only when they were fundamentally motivated to do so. And they could do it at their own pace.
Jans started the first Spark experiment with two teams in his logistics department. Everybody involved in that experiment became a Spark ambassador. This caused the start of a movement with other teams joining, and asking for help in adopting Spark.
Soon, the Spark Model became the de-facto way of working in logistics. Subsequently, Jans' movement spread to other departments like customer service and commerce.
Now, in a new role, Jans still leads the movement across the organization, inspiring people to join the movement, and change the way they work. Today, around 1300 people work according the Spark Model in more than 170 circles.
Jans: "We have not yet gone all-in on Spark but are slowly reaching the tipping point where everybody is working more in circles instead of their functional departments. Departments such as Finance and HR are just starting to adopt Spark. Our model is very much open and anybody within Bol who wants to start using Spark as a way of working within his or her team is free to do so."
Two Large-Scale Holacracy Experiments: Zappos vs. Bol
Beyond Holacracy: Towards the marketplace
Just like Bol, it seems Zappos has distanced itself from the dogmatic aspects of Holacracy that challenged employees early on. Now, some years later, they have moved beyond pure Holacracy and created their own models.
Zappos executive John Bunch said that pure Holacracy created some big challenges in its business metrics and they looked to redirect employee focus back to the customer, instead of being too internally focused.
Hsieh explained: "Our circles were still arranged hierarchically, where budgeting or head count was allocated from the top down." So, "instead of circles arranged hierarchically, we’re transitioning so that each circle is its own small business or startup.”
As part of the solution, they added that each circle must manage its own budget and determine the services it will provide to customers. These can be other circles within the company, or outside clients.
As a result, the e-retailer started to introduce a Haier-like internal marketplace where teams are run like small, independent businesses, including managing their own P&L.
And, also Bol is now launching pilots in the direction of an internal marketplace. Jans: "We recently started experimenting with giving store teams budget and freedom to spend it. We see that circles take accountability for spending budget in an appropriate manner delivering value to Bol.com, we may scale that practice to other circles as well."
Both these pioneering companies have moved beyond the original Holacracy Model. Their exploratory work provides others with valuable lessons about what worked, and what did not, for them.
This seems especially valuable for their parent companies, Amazon, and Ahold/Delhaize. They are starting to see these pioneering subsidiaries as ‘guinea pigs’ for new management practices.
Shouldn't every large organization have a part dedicated to pioneering new management models?
Shouldn't every large organization have a part dedicated to pioneering new management models?
Pros and cons
Clearly, each approach has its distinct advantages and disadvantages.
Which approach do you prefer? And why?
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I think the least any organization could do, is to be open to new (and perhaps better) ways of organizing, and invest time, energy and dedication to explore them. As Kennedy said ‘...not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills...’
It is the combination of organisational desired outcomes and the environment in which they need to be achieved which determine the most optimal method/structure/approach to do so.
The adoption of any existing method, especially one which relies on decisions in the form of rules/protocols/contracts, is bound to fail. The same way "self-managing teams" are not the solution to every problem.
Changing the fundamental assumptions of an organization and in particular a power distribution from the hierarchy down to the people interacting with clients directly cannot be implemented with too much of a J-curve. Fear & backlash of the formerly powerful will thrive when novelty and uncertainty during initial changes lead to too much and too long of a loss in productivity.
Rather such a change needs to be wildly successful in most people’s view early on (which is only possible when starting small, focused, inspired by a local leader and flexibly caring for the people that join rather than being dogmatic). Only then can this new approach spread by inviting more groups to join that aspire similar success. As a corollary it must be crystal clear what this attractive success of the change actually is. Also such cultural changes are probably only possible, when the originally controlling hierarchy at the top chooses to loosen control and focus on culture-change instead, by actively creating a sense of „permission“ and safety for the ones changing. This I believe at a certain point the CEO that might not have started the initiative at bol.com must have been won over and deeply understood the principles of the new culture.
Well I am not so impressed by Bol. They invited me for a vacancy last year, but insisted that I would take a test before the first appointment. The test consisted of three subtests on intelligence, writing and math - like subjects. Uhhhhh what?! I have 20 years experience in the data field and a university degree. I did not comply to this manner of ‘ testing’ as I thought it was not reflecting any trust or serious level of communication for a skilled professional, and also not an equal way to treat me in the process. So I cancelled my application. I think HR there still has Some Things to learn!
So these companies implemented a mode they did not believe in, but did something else. So it is not holacracy they implemented. The article does not make clear exactly improved and what it is that “worked”: more effective? More efficient? More employee engagement? Better product quality and delivery? Customer satisfaction? Employee health and turnover? So what really changed beyond a new language? Without specifics is what was changed and how it changed the bottom line, and without foundation in research for examples, these non-holacracy experiments are more nuclear as to what they entail and lead to. Good story, that goes well with these kinds of brands, but is it more than a story? Based on the article we still do not know.
I don't think there's a right or wrong answer here – organisations should experiment in a way that seems 'right' for them at the time, as long as it's a positive change.
It's the same with the various models you could draw inspiration from. You don't have to become a holacratic organisation, but instead take inspiration from that bits that feel right and would work.
Leaders know the company, the people, the culture, and the way of working better than anyone – a copy/paste formula doesn't work.
We examined Holacracy and ended up designing our own purpose-based structure with open-book management. It was more natural and it matched our vision and strategy.
However, these designs, no matter how codified, are difficult to maintain if there is a change in C-level leadership or Boards of Directors.
Earlier this year, I wrote about VkusVill, the Russian supermarket chain that is reinventing the retail industry. The Russian pioneer proves that you can rapidly scale a profitable chain of retail shops by letting frontline employees make all the important decisions. They do this with impressive results; the company is not only growing rapidly (CAGR 40%), it also manages to keep bureaucracy and hierarchy to a minimum, as upper management accounts for less than 10% of the total payroll.
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