How “flat” should an organization really be? Zappos eliminates managers

by Jamie Flinchbaugh on January 9, 2014 · 5 comments

Lean means getting rid of managers, developing a flat organizational structure, and abdicating all responsibilities to the front line employees. Right?

Too many people just read that without twitching. But it’s wrong. That’s not lean at all.

Before going too far, lean also doesn’t mean adding organizational layers. There is no “right” organizational design, but more on that later.

Writing about this topic today was inspired by two recent readings. First, I was working my way through Creating a Kaizen Culture, a new book by my friend and fellow blogger Jon Miller and his co-authors Mike Wroblewski and Jaime Villafuerte. I will post a more thorough review of this book shortly, but a particular passage caught my eye because I wholeheartedly agree and yet it flies of the face of most lean “conventional wisdom”:

One of the greatest misconceptions made by modern management is placing unquestioned virtue in flatter organizations. On the surface, a flatter organization, because it has fewer management positions, would appear to have lower costs…there is nothing inherently better about an organization with fewer layers of management.


Form follows function

One of the key lessons we teach about organizational design in our HR’s Lean Transformation course is that you first have to determine the work, the process, before you design an organization around it. In a lean organization, people development is a high priority. If managers take on that responsibility for themselves, then it’s very hard to do that if you have 87 direct reports. As Miller et. al. continue:

There is a correlation between group size and the ability of a teacher to effectively develop the students…Far too many supervisors and team leaders have teams that are so large that they have no time for training, improvement, planning, and the more adaptive behaviors that make teams and organizations successful. The first step is to change our thinking from span of control for a leader to span of support.

This doesn’t mean that only have 5 direct reports is also the right thing you do. You have to first develop your intentions and objectives before deciding what kind of organizational design you want. As with much of architecture, form should follow function.

Zappos eliminates managers

Zappos made some headlines by announcing that they will eliminate managers. Now, before I get all of the Zappos fans rushing to defend them, I am not saying that Zappos won’t be successful with this endeavor.

Here’s a description of their design:

The unusual approach is called a “holacracy.” Developed by a former software entrepreneur, the idea is to replace the traditional corporate chain of command with a series of overlapping, self-governing “circles.” In theory, this gives employees more of a voice in the way the company is run.
According to Zappos executives, the move is an effort to keep the 1,500-person company from becoming too rigid, too unwieldy and too bureaucratic as it grows.

First, this is hardly new. I’ve seen a few organizations with similar designs, just with different names, some dating back nearly 20 years. Second, it doesn’t always work out. In one example, the “circles” became groups that sought consensus without a mechanism to force consensus. As a result, there was essentially veto power for any 1 individual, because it prevented consensus. The organization wallowed in indecision, ultimately leading to crisis that lead to reverting back to a traditional organizational design.

The circles weren’t wrong, and Zappos isn’t wrong. But it isn’t enough to change the organizational design. For Zappos to be successful, the behaviors must be in place to enable the decision making culture they are looking for. Based on their track record, I think they will be successful because they know exactly how important the behaviors are.

My concern isn’t Zappos. It’s all the organizations that read about Zappos and decide to copy them without understanding why they are copying them, or what needs to be in place to enable this. Is this right for Zappos? Is this right for your organization? Those are two very different questions. It may be very right for Zappos, but more unlikely than likely that its a good idea for your organization.

Fundamentally, organization design should never occur as a vacuum. It is not the strict purview of Human Resources. It is one piece of a complex puzzle towards building the kind of operating system you design.

Operating System

LLC consistencyAs we write about in The Hitchhiker’s Guide to Lean, an Operating System is your template for how you work. It is the integration and aspiration of your Principles and Behaviors, Systems and Processes, Skills and Tools, and Evaluation and Metrics. But the hidden dimension of this is that all 4 of those elements must be Consistent with one another.

Poorly thought out organizational design can be one of the biggest threats to that consistency. And organizational design fads are threat to the stability and success of any organization that follows them as a fab.

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{ 5 comments… read them below or add one }

1 John Hunter January 11, 2014 at 10:25 pm

“My concern isn’t Zappos. It’s all the organizations that read about Zappos and decide to copy them without understanding why they are copying them, or what needs to be in place to enable this.”

This sentiment needs to be adopted by managers for everything they learn about management. There are good management ideas. But there are very few management ideas that you can just take and adopt easily in your organization.

The success of management practices is highly dependent on the rest of the management system of the organization.

I find we are nowhere near accepting enough of the complexity involved in management. We want simple solutions. This unwillingness to deal with the full system is responsible for a great deal of failed management effort.

2 Jamie Flinchbaugh January 12, 2014 at 12:40 am

John, exactly! This is why I despise most benchmarking. Because most benchmarking is just copying stuff, without understand why you are doing it, what problem you are solving, what must be in place to enable success, and so on.

3 Andy Wagner January 12, 2014 at 11:19 pm

Companies that have been successful with flat org structures like Morningstar Farms, WL Gore, and Valve Software are known for having rigorous, mature operating systems to back them up, and to put strong emphasis on the personal relationships that drive coaching, mentoring,and teaching in the absence of formal leadership titles. Even companies like GE (Durham, NC) and Harley-Davidson (Kansas City) use these methods in the context of smaller operations. By contrast, plenty of companies with lots of titles and hierarchy don’t do well when it comes to managers acting as coaches and teachers.
Self-organization a great example of “respect for people”, but not the only way to achieve it. To your point, in the absence of good disciplines, it won’t work. There’s also some question about how well it works in organizations larger than 150-200 people. This is “Dunbar’s Number”–the number of acquaintances a person can remember in a given context. Flat hierarchy works when everybody knows everybody and can hold everybody accountable. It typically breaks down as groups get larger. This is why WL Gore’s plants are all less than 200 people.
Zappos is taking on new territory applying these tools to an organization with 1500 people! I do wish them luck.

4 Jamie Flinchbaugh January 12, 2014 at 11:55 pm

Thanks for sharing, Andy.

Yes, there some seem to be some practical or theoretical limits to this approach. One question is whether or not Zappos will create modules that are smaller but act as more self-contained units to accomplish this. As you, I wish them all the best in their endeavors. I also hope Zappos’ example can help to challenge some of the status quo thinking in management and organizational design today, and that can help open of a wave of new ideas and new practices.

5 Alina Vrabie January 15, 2014 at 4:52 pm

In theory, it sounds utopian. Many employees perceive their managers as people who don’t bring in any value. Unfortunately, it turns out to be true too often.
My personal opinion is that this doesn’t scale. And there is still someone with experience and initiative who will be driving the other employees, whether you call them managers or not. I do admire though Zappo’s goal to stay flexible as it grows.

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