About a year ago Zappos decided to become a “holacracy,” getting rid of job titles and managers in favor of self-organizing around the work to be done. The jury is still out on whether this reorganization will be effective, but one thing is certain: The movement away from command and control management is growing. The danger is going too far in one direction, where any sort of bureaucracy is avoided.
I frequently see young entrepreneurs start new companies to escape the bureaucracy of corporate America. While this can be strong motivation, it can also lead to a management approach that says all process and structure is bad. For example, many extremely talented and smart engineers I talk to view their companies as overly bureaucratic. They feel hampered by too many meetings and processes. They believe the management structure is too rigid for them to accomplish anything of significance. As a result, some decide to take an idea they’ve had and start their own companies, convinced that they will manage them much better than their former employer.
The problem is that many entrepreneurs do not know how to run a company. They believe that knowing what NOT to do is the same as knowing WHAT to do. They avoid the processes and systems that plagued them at their old jobs. They eschew hierarchies for flat organizations.
This lack of bureaucracy is not an issue at first. Initially, employees will feel empowered, because they are given wide autonomy to perform their jobs. Jim Schleckser, CEO and managing partner of the Inc. CEO Project, says that early-stage companies often make up for the lack of processes and systems with talent.
However, when all process is eliminated or avoided, it becomes very difficult for the business to scale and grow. Employees eventually become discouraged, because the chaos of the workplace overwhelms their ability to get things done. Every task takes longer than it should, and employees never feel certain about their work or performance. Also, it is impossible to establish meaningful metrics, because everyone does things differently. Employees may try to invent their own processes, but find it difficult without management support.
Founders in these types of companies may become micro-managers, believing they have to fully understand every issue to make a decision. Unfortunately, most of these decisions are in areas where they have absolutely no experience or expertise. This inhibits the company’s progress and decreases employee morale even more. This is partly why so many young entrepreneurs are replaced as CEO.
What is the right approach then? Flatter hierarchies can work if the founder/CEO understands his or her role. The CEO job is a unique one that takes just as much knowledge, skill, and preparation as other disciplines. Entrepreneurs who know the responsibilities of the role will understand where to spend their time and how to be most effective. In addition, entrepreneurs should look for a partner who can make up for their lack of skills and knowledge – typically a business partner if they are technical or vice versa.
Another factor is the necessity of procedures and systems for growth. Schleckser advices companies to make investments in key systems early on to gain efficiencies and deliver on the company’s value proposition. This gives organizations true competitive advantages, while failure to have more mature systems and processes inhibits growth.
No matter what the organizational structure is, employees will not be motivated unless they understand their individual roles and how they contribute to the organization’s higher purpose. It is essential for entrepreneurs to establish a vision and then communicate it clearly and compellingly to all constituents. This includes how the organization is going to achieve this vision.
In addition, establishing a system of record is critical to helping employees understand how they can support the company in their day-to-day work. Each company should have a set of four to six corporate objectives every quarter. Leaders should then work with employees to create individual goals that map to these corporate objectives. A formal, written system where goals can be tracked and measured regularly – and that is shared by everyone from the CEO on down – is a good way to ensure that everyone is on the same page and working in harmony.
I am rooting for Zappos to thrive under its holacracy, but more importantly, it’s critical for every leader to understand the fundamentals of how to manage a company and motivate employees. This requires some “bureaucracy,” which CEOs need to embrace.
Do We Need Hierarchy? Forbes