Companies like Zappos are doing away with corporate hierarchy — here's how it's working out

Thomson Reuters

Over the past few years, a number of tech firms have taken a sledgehammer to the traditional corporate hierarchy.

Instead of bosses and managers, employees at these companies are expected to self-organize into teams and manage each other. Valve, GitHub, and Zappos are just a few of the companies that are experimenting with these alternatives.

But how are these experiments working out?

A few years ago, Zappos (an Amazon subsidiary that sells shoes) decided to adopt a “Holacracy” model of management. Rather than concentrate power with a few executives, employees in this model coalesce into teams with their own operational authority. While the result isn’t a “flat” organization in the mode of Valve, since some teams have power over others, Zappos nonetheless decided to emphasize “self-management, self-organization, and more efficient structures.”

Roughly 14 percent of Zappos employees opted to take buyouts after CEO Tony Hsieh issued the memo detailing the shift to Holacracy.

Rather than transition to an alternative system, GitHub decided to embrace a “flat” structure from its very beginning. According to a new article in Bloomberg, however, the company recently abandoned that system in favor of a more traditional management style.

Although a loose (or nonexistent) structure allows startups and midsize companies to maintain a freewheeling and (hopefully) productive atmosphere, larger firms require a more firmly defined chain of command when it comes to legal and regulatory matters. In theory, a flat structure may also impede engineering efforts, which often require a decision-maker to prioritize certain elements over others.

Fourteen years ago, Google experimented with a flat structure and came away with a renewed faith in hierarchy. “That experiment lasted only a few months,” as the Harvard Business Review put it a decade later. “They relented when too many people went directly to [Google CEO Larry Page] with questions about expense reports, interpersonal conflicts, and other nitty-gritty issues.” Although the company managed to grow without installing too many layers of management, at least some executives are necessary to make key decisions.

When Google set about creating an effective management structure, it did so in the most scientific way possible, surveying employees and emphasizing feedback. That helped managers actually align with the company’s culture.

For the Googles and GitHubs of the world, a dash of top-down management is obviously key. As for Zappos, Valve and their ilk, it remains to be seen whether alternative systems such as Holacracy or “flat” management can work in the long term, especially if their respective employee ranks continue to grow.

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