Why Zappos Is Struggling with Holacracy: Because Humans Weren't Designed to Operate Like Software

Organizations are not emotionless systems and people are not code. As the old saying goes, 'business would be easy if it weren't for customers and employees.'

Aimee Groth reports in Quartz:

Developed by a software engineer, Holacracy pushes humans to run like a computer. The barrier to hyper-efficiency is human emotion. (So) it attempts to eliminate the ways in which humanity interferes with productivity. The appeal of Holacracy’s organizational design reflects the Silicon Valley ethos— an optimal confluence of human and technology. (But) “Silicon Valley has an empathy vacuum. People become numbers, algorithms become rules, and reality becomes what data says. Empathy is not a buzzword but something to be practiced.”
“We want to believe that we are thinking, rational people and on occasion tangle with emotion, flick it out of the way, and go back to thinking,” renowned vulnerability expert Brene Brown told a packed house at the Smith Center in downtown Las Vegas just before Labor Day Weekend. “That is not the truth. The truth is we are emotional beings who on occasion think.”
Brown has become a celebrity in the realm of self-help based on the popularity of her 2010 TED Talk, The Power of Vulnerability, which has been viewed nearly 30 million times. She is a Ph.D researcher at the University of Houston who has collected 15 years of data on topics including vulnerability, courage, empathy and shame. Her message has even sparked a movement of sorts around radical vulnerability (although she personally does not support “radical vulnerability”; it’s not backed up by the data). In a culture that tends to focus on developing a superficial kind of confidence, Brown pitches vulnerability as the definition of inner strength and “the birthplace of innovation, creativity, and change.”
On this evening, Brown built upon her popular keynote by digging into human physiology, and how our natural wiring affects our ability and willingness to be vulnerable and connect with other human beings. Her host, Zappos CEO Tony Hsieh, sporting a red Mohawk, introduced her to the crowd, which included a number of his 1,500 employees.
That Hsieh would tap Brown to rally his troops is out of step with his management philosophy. Hsieh doesn’t believe in vulnerability for himself (“vulnerability implies you’re insecure about something,” he explained to Quartz) and has reorganized his company under a system, Holacracy, that has been criticized for putting a disproportionate focus on process. In fact, the system is pushing Zappos employees to operate in a way that goes against their very human nature.

Running like an operating system

Holacracy was developed by software engineer Brian Robertson, who has sold CEOs like Hsieh on a product that promises to push humans to run like a computer operating system. The biggest barrier to such hyper-efficiency is the complexity of human emotion. Holacracy doctrine, in turn, attempts to eliminate or compartmentalize the ways in which our humanity interferes with productivity.
As Zappos onboarded its employees to the system over the past four years, one of the biggest complaints, far and away, was around the rigid meeting format, which provides the guardrails for the system. Tactical meetings, as described by the Holacracy Constitution, tightly govern how and when employees can speak up. The meetings, which typically are held once a week, open with a check-in round and then dive into checklists and metrics. The Constitution is clear that there is “no discussion” during the check-in and closing rounds. In other words, there is no natural, back-and-forth conversation that begets camaraderie, respect, trust, and connection. No small talk.
“In the beginning, you feel that the human element is lost completely,” Jamie Naughton, Hsieh’s chief of staff, previously told Quartz. “I remember sitting in meetings wanting to scream at the founder of Holacracy, ‘You don’t get it, you don’t get it at all!’ He said, ‘You’ve got to trust the process.’ And I thought, ‘This sucks.’ You just have to wait your turn to speak your opinion.” Years into the experiment, Zappos employees are still unsettled about Holacracy. (Robertson says that it takes five years for Holacracy to work.) Some are uncomfortable with the way Hsieh has attempted to “gamify” the company. Zappos has explored “badging” (giving employees badges based on their proven skill sets) and “people points,” which is currency that employees use to fill roles within the company. (For example, hypothetically, an employee could designate 50 of their 100 people points to an engineering role, 25 points to a PR role, and 25 points to a more peripheral role in the company, like philanthropy. People points determine how an employee allocates their time, and it also determines their salary—some skill sets are still more valuable than others within a Holacracy.) Employees who have too many unallocated people points are sent to “The Beach” where they either need to find new roles within the company or are let go. The overwhelming feeling of instability (worrying about people points, or whether they’ll be sent to The Beach) has sparked the fight-or-flight response that Brown spoke about in her keynote. “When something difficult happens, emotion drives,” Brown told the crowd at the Smith Center. “And cognition, thought and behavior are not riding shotgun and telling emotion where to go. When something difficult happens, thought and behavior are tied up in the trunk and emotion is at the wheel.”
As it turns out, eliminating “the human element” doesn’t make it go away. Worse, it leads to an undercurrent of resentment. At Zappos, dissatisfaction with Holacracy played a role (though it wasn’t the only reason) in nearly a third of the company walking out the door in 2015. That same year, Zappos dropped off of Fortune’s “Best Companies to Work for list” for the first time in years.

The management equivalent of Dungeons and Dragons

Medium founder Evan Williams, once among Holacracy’s biggest evangelists, abandoned the system earlier this year. Obsession with process was getting in the way of doing the work. While Medium’s announcement was cordial, others have used stronger language to describe what is an inherently unnatural system.
In his piece “Holacracy Is Fundamentally Broken,” management thinker Jurgen Appelo (also author of the 2016 book Managing for Happiness) articulated what feels off about the system:

Most importantly, when I delegate work to someone, I ask a human being. I asked my friend Sergey to automate some of our business processes because I fully trust his programming skills as a developer and his business insights as an entrepreneur. I specifically did not delegate this work to our Business Process Architect, because A) we don’t have one, and B) we don’t want one. We have Sergey.

Ironically, as it seeks efficiency and attempts to eliminate human emotion, Holacracy imposes layers of bureaucracy and adds unnecessary psychological weight on to employees. Appelo quotes Bud Caddell, a management consultant who spent time inside Zappos to advise Hsieh on how to improve the Holacracy rollout: “The average employee is already overworked and undertrained; asking them to learn the management equivalent of Dungeons and Dragons on top of their workload is foolish, if not inhumane.”
Executive coach and management consultant Julia Culen describes the system as equally disturbing in her post, Holacracy: Not Safe Enough To Try:

I felt like being part of a code, operating [within] an algorithm that is optimized for machines, but not for humans. Instead of feeling more whole, self-organized and more powerful, I felt trapped. The circles I was being part of did not feel empowering at all but taking away my natural authenticity as well as my feeling of aliveness. It was fully unnatural and we were disciplined by rigorous protocols and procedures.

The appeal of Holacracy’s exquisite organizational design to Hsieh, Williams, and other tech CEOs reflects the broader Silicon Valley ethos—the constant search for an optimal confluence of human and technology. Technology journalist and entrepreneur Om Malik captured this pursuit and the problems it’s created in his recent piece for The New Yorker, “Silicon Valley has an empathy vacuum.” “People become numbers, algorithms become the rules, and reality becomes what the data says,” he wrote, concluding that “empathy is not a buzzword but something to be practiced.”
Empathy and vulnerability are two sides of the same coin, according to Brown. It’s why entrepreneur Maren Kate Donovan wrote that Silicon Valley has a vulnerability problem, too. Perhaps the key to making Holacracy work at Zappos is crafting it in such a way that it still retains its bent toward self-organization, but via a more humane, flexible system.