Zappos removed management hierarchy in 2014, they're not the first company to do so but will the trend last ?
It raised interesting questions when Zappos changed internally, not only in terms of how the enterprise organizational model is going to look and operate in the future but of the technologies that can help support this kind of shift. Having been involved in many transformation programs it always amazed me to see the same top-down hierarchical business operating models applied when redesigning the business makeup:
Silo – Division – Department – Activity – Capability; they all amounted to the same rigid structure no matter how it was labelled. To a certain extent a lot of the large consultancies have sold these models for years so a business entity would hear much the same thing around their industry when looking to adopt change.
Now in light of what Zappos has publicly announced we need to carefully peel back architectures of old and reveal the hidden network of resources that operate ‘underground’ who are actually supporting the business in ways never seen or understood before because they fall outside of the strict roles imposed in a hierarchy.
Zappos and Holacracy: It's nothing new
What Zappos has done is nothing new. Holacracy, Wirearchy, Lateral Communication have been touted for years...in fact it's happening all around us, and you don't have much further than Silicon Valley to see it. Startups are flatter in structure by nature but they can still scale as a horizontal. Flat and Lateral structures have been written about before, for example, by IRG:
The term lateral communication can be used interchangeably as horizontal communication. In his text entitled “Organizational Communication,” Michael J. Papa defines horizontal communication as “the flow of messages across functional areas at a given level of an organization”.
With this system people at the same level are permitted “to communicate directly without going through several levels of organization”. Given this elasticity, members within an organization have an easier time with “problem solving, information sharing across different work groups, and task coordination between departments or project teams.
Indeed, as far back as 1999 Gabe Newell and the original Valve Software team worked very much in this way when creating their Half-Life hit. In an article published in Edge Magazine Gabe explained how the teams were organized around 'Cabals'.
The people involved were tired of working in isolation and were energized by the [Cabal] collaborative process, and the resulting designs had a consistent level of polish and depth that hadn’t been seen before.
Internally, once the success of the Cabal process was obvious, mini-Cabals were formed to come up with answers to a variety of design problems. These mini-Cabals would typically include people most effected by the decision, as well as try to include people completely outside the problem being addressed in order to keep a fresh perspective on things. We also kept membership in the initial Cabal somewhat flexible and we quickly started to rotate people through the process every month or so, always including a few people from the last time, and always making sure we had a cross section of the company. This helped to prevent burn out, and ensured that everyone involved in the process had experience using the results of Cabal decisions.
“The simple answer is that hierarchy is good for repeatability and measurability, whereas self-organizing networks are better at invention,” Gabe said, “There are a lot of side effects and consequences. The lack of titles (roles) is primarily an internal signaling tool.”
“The alternate answer is that organizations that think they are hierarchical actually don’t gain advantage by it (they actually have hidden networks), and that the hierarchical appearance is the result of rent-seeking.”
Hierarchy vs. Self Organized Networks
Networking is recognized as a major influence on an employee’s ability to work well in an organization and be successful. In fact, the most successful people in the world possess the capability to influence and shape the opinions of others, which today places greater emphasis on the types of networking a person does.
Internal enterprise networks have a major impact on organizational effectiveness, but more importantly these types of networks provide major business advantages for the participants.
There are major advantages when comparing a hierarchy against a networked enterprise community.
Formal vs. Informal
Formal and hierarchical divisional entities consist of areas such as Operations, Performance Management, Human Resources, Sales, Manufacturing …They are defined by organizational boundaries so are rigid and hard to change. Within them exist work domains such as virtual or project led teams who are organized, task oriented, they cross organizational boundaries but tend to have a ‘closed membership’.
A networked enterprise community however is shaped informally, has common interests, is self motivated, is more innovative due to lack of constraints, has a network of experts and knowledge communities, exists outside organizational boundaries and works on an ‘open membership’.
The most effective enterprise networks contain high-functioning people who are extremely skilled, knowledgeable, powerful, and who have strong personal networks. The informal network without the hierarchy and bureaucracy encourages the most interaction and achieves the most positive results.
Networking has always been an essential social skill founded on the interdependence of people. We all rely on the support and cooperation of others to achieve our goals. Networking within the enterprise involves bonding, sharing expertise and investing time and effort into others. It’s a natural operating model which has remained untapped for years because we always seek comfort in building walls between resources in order to correctly label them.
There’s another advantage in understanding the enterprise network dynamic. What is the impact of a key networked resource leaving the organization. Right now it’s build on their place in a traditional hierarchy and how many people sit below and above them in the chain. Under a community operating model that span of influence could be exponential yet completely hidden. Would you really let this person go if you understood how much the larger community relied on them ? I seriously doubt you would.
Does your business really look like an org chart or more like a Twitter map ?
Why networks matter
If we’re looking to understand improve organizations shouldn’t we look at how the internal business network actually operates ?
- Who are the brokers of information ? In reality it’s not data owners but individuals within the organization that people go to. They’re not necessarily the Subject Matter Experts either, be careful you don’t fall into that trap. In sociology and network analysis it’s all about centrality.
- How dense are the informal groups that people operate within ? I’m not talking about business divisions and formalized hierarchies, I’m eluding to the underground network of people who are connected to each other, what their sphere of influence is.
- Who is really connected in the enterprise and why ?
Networks matter for a number of reasons:
- Timely identification of experts and stakeholders. Avoid duplication of efforts by finding individuals in an enterprise with experience in the topic or relevant parties to involve. Like a tag cloud in a blog, topics of interest are associated with the real experts for rapid location of knowledge
- For re-organizations to understand how the business networks interact and translate them into the formal organizational charts
- To identify the impact of a key person leaving, both internally and externally
- For new employees to more quickly integrate into a company by seeking expertise, build relationships and their own networks
- To understand customer interactions and how better serve them
- To identify the key influencers within a group
21st century companies, 18th century mentalities
This isn’t to say that org charts and hierarchies aren't still relevant, they are, but we can no longer ignore what's happening between the lines. You can’t stick a Porsche engine in a VW Beetle and expect it to perform like a Porsche.
Roughly translated, you can’t run a 21st century business with an 18th century structure and expect it to outperform the competition either.
