A Company Without Job Titles Will Still Have Hierarchies

Radically flat. That’s the management goal that Tony Hseih, founder of e-commerce giant Zappos, aims to achieve by the end of 2014. To get there, Hsieh plans to toss out the traditional corporate hierarchy by eliminating titles among his 1,500 employees that can lead to bottlenecks in decision-making. The end result: a holacracy centered around self-organizing teams who actively push the entire business forward.

Think of it as management operating system 3.0.

It’s not a new concept. The term “holarchy” made its debut in Ghost in the Machine, a analysis of the human brain and its failings penned by Arthur Koestler in 1967. Derived from the Greek word holos (root of the English word whole), it defines an entity in which all parts are working together to create an autonomous whole. Think: a total entity greater than the sum of its parts.

Management consultant Brian Robertson took that idea and founded HolacracyOne, a firm dedicated to helping companies (including Zappos) achieve this corporate ideal. The approach comes with its own lengthy constitution which details how to restructure an organization peopled with leaders who are held accountable for their own roles and contribute equally to the success of the entire unit.

There are reasons to think the experiment might work at Zappos. From Hsieh down through the newest customer service rep, Zappos’ entire staff is driven by its ten core values. And the company has already begun implementing the new approach with about 150 employees. But is it a sustainable choice for any business?

There is evidence to support how smashing management silos within an organization not only saves money, but also supports nimble decisions unencumbered by the myopic judgments of a handful of executives.

On the flip side, critics point to the way human nature takes over when hierarchical structures of power disappear along with the titles that denote them. Jan Klein, a senior lecturer at the MIT Sloan School of Management whose research focuses on organizational change, told Business Insider that the concept had a run during the 1980s when factories tried holacracy on for size.

The elimination of first-line supervisors at Shell Oil and other manufacturers of varying sizes stalled after only six months –and more rapidly at the even larger companies. According to Klein, some staff walked out rather than lose a hard-won management title. Others simply couldn’t self-regulate.

It’s no wonder. Innate perceptions of status kick in to draw the evolutionary lines of who’s boss and who’s not.

In this, people are like dogs, suggest researchers Sanjay Srivastava of the University of Oregon and Cameron Anderson of the University of California, Berkeley, in a paper on the perceptions of power and status in social groups. The social animals who travel in packs care about two things: First, who is dominant? And second, who likes me?

They say humans subconsciously rely on visible cues like attractive features or extroverted personalities to assign status in a group that has no labels to indicate otherwise. In a company devoid of bosses, these perceptions of status will take hold to establish a pecking order.

Add to that the fact that people naturally strive to attain higher status in the form of admiration and respect from peers and those perceived to be more powerful. In a holacracy, our instinctive inclination to climb up the ranks at work will find no reward when there is no boss to offer feedback or a pat on the back.

That’s because status is as important to us as breathing. Research shows that perceptions of social status –of ourselves and others– and our overall standing in social hierarchies affect how we make decisions, how altruistic we are, as well as our overall mental and physical health. In his book The Status Syndrome, Michael Marmot details how closely status is aligned with longevity and good health. Status even surpasses education and income, two factors that usually determine how healthy an individual can be throughout their life.

Some employees will therefore naturally converge around a perceived leader, leaving others feeling insecure. Since our brains are hardwired to tune in to threats over rewards, people tend to act more defensively when they feel their status is at stake. As David Rock, co-founder of the NeuroLeadership Institute, writes, even an ordinary conversation can devolve into an argument when people feel threatened. As a result, a host of physiological reactions occur, impairing our memory and our ability to make good decisions. Not exactly fertile ground for collaboration and innovation.

In a holacracy, the titles disappear, but human dynamics won’t. In an environment where everyone is a leader, some other mechanism needs to be put in place to ensure that everyone can maintain and optimize the tenets of fairness, trust and transparency so the entire organization can move forward.

Harvard Business Review