3 reasons the Zappos exodus doesn't spell doom for holacracy

Zappos Employees Manage Themselves, but How Is It Working?

Holacracy is not the only major transition the company is enduring.

Once again, holacracy is making headlines both for how radical the flat management philosophy seems and how difficult it is to adopt.

Look no further than the latest batch of stories about the tribulations at Zappos. According to a post on the company's web site by COO Arun Rajan, 18 percent of Zappos' 1,429 employees--a total of 260 people--have left the company since March. That was when CEO Tony Hsieh announced that anyone who did not accept the company's change to holacracy--or its overall effort to become a more "teal" organization--could take a generous buyout.

A few weeks after Hsieh made the initial buyout offer in March, 210 employees took him up on it. So what this latest batch of news really means is that 50 more employees have taken buyouts in the last six months or so. You could look at this news skeptically and wonder: What transition could possibly be worth a loss of so many employees? You could even make the case, as Roger Hodge did in The New Republic, that upper management is out of touch with employees.

You could also view the news optimistically. You could note that the rate of attrition is slowing down. Likewise, you could recognize that the move to holacracy is not the only difficult transition Zappos is enduring. For the sake of playing devil's advocate to the prevailing wisdom that holacracy is to blame for the exodus at Zappos, here are three reasons employee attrition doesn't necessarily spell doom for holacracy--at Zappos or anywhere else.

1. One complex transition is hard enough.

The holacracy transition is happening at the same time that Zappos is migrating its backend IT systems to Amazon's platform, a multi-year project the company is calling Supercloud.

Barry Van Beek, the project's program manager, who has been at Zappos eight years, told Hodge he thought Supercloud was the single largest e-commerce replatforming in history. Hodge also asked Van Beek if he would have preferred for Hsieh to wait until after Supercloud to make the buyout offer. "Oh, absolutely," Van Beek told him. "I call it executive interruption. That's expected, especially at Zappos. But when Supercloud began, I wouldn't have been able to imagine executive interruption at this scale, especially toward the end of what we're trying to do."

2. Holacracy has happy customers.

For Mort O'Sullivan, founder of ArcaTech Systems, a $100-million designer and manufacturer of hardware and software systems for devices that handle cash, the appeal of holacracy was its rule-based framework. The company, based in Mebane, North Carolina, had grown organically by leaps and bounds since its 1997 inception, making seven Inc. 5000 appearances.

In 2014, O'Sullivan and his leadership team decided it was time to grow through acquisitions. Prior to its holacracy implementation, ArcaTech did not have a spelled-out governance framework--nor a documented set of rules and roles--explaining how the company operates. Employees who came aboard via acquisition would be rudderless. But with holacracy's framework in place, O'Sullivan believes ArcaTech and its 450 employees are now in a better position "to bring other employees into [the] company and integrate them into how we do things," he says.

In addition, O'Sullivan has seen a change in the way his employees perceive him. Instead of being the answer man for everything, he's an employee with clearly demarcated supervisory roles. Now when he shows up at a meeting, he's not there as the CEO per se. He's there as the global HR policy coordinator. The work he's doing at that meeting "is captured in that role," he says. "The work I'm actually doing isn't that different. But the way the rest of the organization perceives me carrying out that role is different."

Mind you, ArcaTech is just one company happy with its holacracy transition. Others include the David Allen Company and Medium. Of course, that doesn't mean the system is for everyone. Buffer is one prominent example of a company that tried holacracy and then changed its mind.

3. Holacracy transitions are not supposed to be fast or easy.

The transition to holacracy hasn't been without hiccups for ArcaTech. Last year, at what in holacracy terms is known as a governance meeting, O'Sullivan and his top team encountered a situation in which "the rules can sometimes feel unnecessarily constrictive," he says.

Following holacracy's rules for meetings, the group had asked clarifying questions about a particular "tension," which is holacracy's term for a problem. After the questions, as per holacracy meeting rules dictate, the proposer of the tension had a chance to modify his proposal, then and there.

The hiccup? The proposer admitted he was at a loss for how to do it on a moment's notice. It was tempting for O'Sullivan's top team to stop then and there, and begin a spontaneous discussion about how to modify the proposal. That way, they could leave the meeting feeling as if they'd eased the so-called tension. "But the rules don't allow it," says O'Sullivan. "Whereas if we could've deviated from that, we would've facilitated that tension much faster," he says.

Of course, another of holacracy's charms is that, once you adopt the rules, you can modify them any way you like. But what you can't do is decree that modification on the spur of the moment, in the midst of a meeting.

In other words, O'Sullivan or another ArcaTech employee could very well share a proposal at the next governance meeting--or even via a group email or a collaboration system like Slack--to change the meeting rules, permitting a bit of old-school, free-form discussion for the sake of modifying proposals on the spot. But a change like this can't just happen because the leader formerly known as the CEO (and still in reality the owner) says so. There's a well-defined process in place.

Brian J. Robertson, the chief evangelist of the holacracy movement, is the first one to admit the system can be frustrating. In the absence of standard org charts, holacracy uses detailed governance (spelled out in an oft-revised constitution) and role-based structures to spell out who does what. "If you don't want bosses and bottlenecks, then, like a society away from kings and dictators, you need the rule of law," he says. "You cannot have an open society without imposing order, if you don't have a basic framework in place that is legally clear."

But learning that framework can take a while. And on top of the learning, your employees will still have their everyday jobs to do. "The challenge with the rollout is, it's not like we can completely shut down the business to roll it out," says Zappos' John Bunch, who is leading the company's holacracy initiative. "All business needs have to keep being met."

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3 reasons the Zappos exodus doesn't spell doom for holacracy
LAS VEGAS, NV - DECEMBER 14: Zappos.com CEO Tony Hsieh attends the Mondays Dark 2nd anniversary at The Joint inside the Hard Rock Hotel & Casino on December 14, 2015 in Las Vegas, Nevada. (Photo by Gabe Ginsberg/WireImage)
Tony Hsieh, CEO of Zappos, responds to questions from interviewer Dennis Berman at 2015 WSJD Live on October 20, 2015 in Laguna Beach, California. WSJ D Live brings together top CEOs, founders, pioneers, investors and luminaries to explore the most exciting tech opportunities emerging around the world. AFP PHOTO / FREDERIC J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP/Getty Images)
LAS VEGAS, NV - SEPTEMBER 25: Zappos CEO Tony Hsieh speaks onstage during day 1 of the 2015 Life is Beautiful festival on September 25, 2015 in Las Vegas, Nevada. (Photo by FilmMagic/FilmMagic)
A package from Zappos.com moves down a conveyor belt during the afternoon sort at the United Parcel Service Inc. (UPS) Worldport facility in Louisville, Kentucky, U.S., on Tuesday, April 21, 2015. United Parcel Service Inc. is scheduled to release quarterly earnings results on April 28. Photographer: Luke Sharrett/Bloomberg via Getty Images
SAN FRANCISCO, CA - OCTOBER 08: Evan Williams and Zappos.com CEO Tony Hsieh attend the Vanity Fair New Establishment Summit Cockatil Party on October 8, 2014 in San Francisco, California. (Photo by Michael Kovac/Getty Images for Vanity Fair)
DENVER, CO. - JUNE 25: Tony Hsieh, chief executive officer, speaks at the closing plenary session of the Clinton Global Initiative America at the Sheridan Downtown Denver, Wednesday morning, June 25, 2014. (Photo By Andy Cross / The Denver Post)
SAN FRANCISCO, CA - OCTOBER 08: Zappos.com CEO Tony Hsieh and Yelp Co-Founder and CEO Jeremy Stoppelman speak onstage during ÂA World of Cities at the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on October 8, 2014 in San Francisco, California. (Photo by Michael Kovac/Getty Images for Vanity Fair)
LAS VEGAS, NV - MARCH 27: Zappos.com CEO Tony Hsieh speaks onstage at CinemaConÂs final day luncheon and special presentation during CinemaCon, the official convention of the National Association of Theatre Owners, at Caesars Palace on March 27, 2014 in Las Vegas, Nevada. (Photo by Charley Gallay/Getty Images for CinemaCon)
Tony Hsieh, president, founder and chief executive officer of Zappos.com Inc., speaks during an interview in Los Angeles, California, U.S., on Thursday, Nov. 4, 2010. Zappos.com is an online retailer of shoes and clothing. Photographer: Jonathan Alcorn/Bloomberg via Getty Images
NEW YORK - JUNE 07: (L-R) Zappos CEO Tony Hsieh and Lance Armstrong Foundation CEO Doug Ulman attend the Livestrong celebration for the launch of Hsieh's book 'Delivering Happiness' at Hudson Hotel on June 7, 2010 in New York City. (Photo by Michael Loccisano/Getty Images)
LAS VEGAS - FEBRUARY 17: Zappos.com CEO Tony Hsieh delivers a keynote presentation at the MAGIC clothing industry convention at the Las Vegas Convention Center February 17, 2010 in Las Vegas, Nevada. Zappos.com is a shoe and clothing online retailer. (Photo by Ethan Miller/Getty Images)
NEW YORK - JUNE 07: (L-R) Zappos CEO Tony Hsieh and Zappos Chief Happiness Officer Jenn Lim attend the Livestrong celebration for the launch of Hsieh's book 'Delivering Happiness' at Hudson Hotel on June 7, 2010 in New York City. (Photo by Michael Loccisano/Getty Images)
FRANCE - DECEMBER 10: Tony Hsieh, CEO of Zappos.com in Paris, France on December 10th , 2009. (Photo by Thomas SAMSON/Gamma-Rapho via Getty Images)

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