The story behind Zappos’s shift to Holacracy

“No job titles, no managers, no hierarchy.” That’s how a number of media outlets summed up Holacracy when online shoe retailer Zappos first announced it was adopting the alternative organizational structure and management system in late 2013.

But, there’s more to the story than the catchy headlines—Zappos didn’t just adopt Holacracy overnight. The shift to Holacracy was part of a larger effort to rethink management and operations company-wide.

We recently interviewed John Bunch, Advisor to CEO Tony Hsieh and Lead of Internal Infrastructure/Systems at Zappos to find out why and how the company restructured itself to make individuals and teams more effective. In our conversation, John discussed Zappos’s journey to becoming a self-managed organization—and why Holacracy is only part of the whole story.

Cities: a model for change

About three years ago, John landed an incredible opportunity to become special advisor to Zappos CEO Tony Hsieh. John had already been working at the company for almost four years—first as a software developer and then as the Public API Team Lead—when he made the leap to the new role. This career transition coincided with broader organizational shifts that were starting to take shape.

“During that time, there was a lot going on with Zappos and we were making a lot of changes,” John recalls. “Everything from our move from the suburban area of Henderson to downtown Las Vegas to thinking about the direction of our company and where we wanted to head.”

No longer a small startup, the Zappos team sought to address the growing pains of operating a company with over 1,500 employees. “We realized that things we used to be able to do relatively quickly, like changes in course, were now taking a long time. That got us thinking, there’s got to be a different or better way.”

That’s when the leadership team started to explore alternative systems for structuring the organization and operating their work. Instead of getting swept up in the latest management trends, the team did their research, ultimately finding inspiration in an unlikely place: cities.

Whenever a city doubles in size, the productivity per resident increases by fifteen percent.

What caught the team’s attention was a surprising statistic from the book, Triumph of the City. Whenever a city doubles in size, the productivity per resident increases by fifteen percent—both the city as a whole and each individual living there become more effective.

For organizations, the opposite is true. Individual productivity tends to decrease as companies grow in size. This is only exacerbated during periods of rapid growth.

To solve for this, John says that the Zappos team decided to “structure our company more like a city is structured—and less like a traditional organization—so that as we grow we can become more effective on a per employee basis.” To make teams more flexible, more adaptable, and ultimately, more productive, Zappos embraced the concept of self-management. Unlike a traditional hierarchy, teams would be able to organize themselves and work autonomously.

The next step was to figure out how they were going to make this transition.

Enter Holacracy

Created by former programmer Brian Robertson in 2007, Holacracy is an alternative organizational structure and system of self-management. For Zappos, this was the operational piece of the puzzle to their larger goal of becoming more city-like. “Holacracy is just one element of that,” John says. “It represented the most well-codified system for helping us get to where we wanted to get.”

A core tenet of Holacracy is “distributed authority.” In a Holacratic company, decision making authority is distributed across teams that are self-organized into “circles.” Individuals fill roles that are collectively defined within each circle, and they can take on multiple roles in multiple circles. Instead of a traditional management hierarchy authorizing every decision, teams closest to the work make the call, and are able to move much faster to tackle new opportunities and challenges.

In a Holacracy, teams closest to the work make the call, and are able to move much faster.

“In a traditional company, a redesign might be a project that takes months and a ton of planning upfront to do. In a Holacratic system,” John says, “you can make a change very quickly, and also make a change back very quickly if for whatever reason it doesn’t work. We’re trying to get in the mode of quick changes.”

Distributing authority widely doesn’t mean that holacratic organizations are complete free-for-alls, though. “We have guardrails. You have decision making authority in your role, but there’s also certain things you can’t do within that context. For instance, not anybody can sign legal contracts on behalf of Zappos. Holacracy is also a system for helping us sort and evolve those things as we go.” This system is spelled out in the Holacracy Constitution, which includes rules for how circles can evolve their roles and processes on a frequent basis.

Rolling out Holacracy

In 2013, John led a pilot group to test out Holacracy. When the company decided to roll out Holacracy company-wide, John then took on the role of Holacracy Implementation Lead, and spent the next two and half years building a team to train, educate, and support Holacracy internally.

This was no small undertaking. When you’re shifting work paradigms, there are bound to be a few bumps along the way. “As we got into it, we realized that this was not an easy system to implement.” John recalls. “It’s not like we could turn it on across the organization in a day. It was really changing fundamentally the way that we work.”

Training and education have played a key role in the rollout of Holacracy at Zappos. John’s team, for instance, puts on three-day trainings on the why, what, and how of practicing Holacracy. To date, over 800 people have completed this training. “It’s completely voluntary,” John says. “There’s nobody forcing anybody to take the training, but I think people know that this is the way we’re going to operate the work, and therefore, are interested in learning more.”

As part of the rollout, John’s team also formed a group of more than 100 “certified facilitators.” These are Zappos employees with deep knowledge and experience in Holacracy practice (and have completed a certification process) who help new circles get up to speed.

In fact, Zappos has seen some of its easiest wins with newly formed circles. “New areas of work that didn’t exist in the traditional approach keep getting spun up and started. [These teams are] really figuring out what work needs to be done, and starting to execute on that work.” In other words, they’re living and breathing Holacracy from the get-go.

Scaling self-management, and beyond

Today, Holacracy is fully implemented and rolled out at Zappos. For John, this means his day-to-day role has evolved—just like the circles in a Holacracy that continuously iterate and self-optimize—to address a new need. His current focus is on the systems and tools side, specifically around creating scalable systems that enable Zappos to operate in a distributed manner as the company continues to grow.

So what advice would John give to leaders who are considering a shift to systems of self-management (Holacracy or otherwise) for their teams? Start with the “why.” “It’s really critically important that people connect with why you’re doing this first, or else it really doesn’t matter how you’re doing it.”

“It takes commitment, and it takes desire. You’re going to have to invest the energy of the organization to make this transformation. And you have to be prepared to go through that dip of learning in order to get to the other side and be stronger.” For Zappos, each step to becoming more city-like has been worth it.

If you’re interested in learning more about Zappos’s adoption of self-management and Holacracy, check out this recent article in the Harvard Business Review co-authored by John.

Special thanks to John Bunch and Zappos, an Asana customer, for contributing to this story.