Two decades of lost productivity: why self-managed organisations rarely work

There are fewer successful self-managed organisations than the hype would have you think.

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Remember when self-managed organisations felt like the next big revolution—something that would propel us into a new era of productivity, creativity, and happier workplaces?

From the pioneering example of Zappos' Holacracy that shook the grounds of management in the early 2010s to the bold vision of autonomy outlined by Aaron Dignan in Brave New Work, the ambitious concept of self-managed organisations has been with us for almost two decades now. The promise: a workplace without bureaucratic overlords, where teams operate with autonomy, drive their own work forward, and most importantly thrive along the way.

As alluring as autonomy, self-management or agile structures may sound on paper, if we are being perfectly honest, the evidence that their promise has materialised at a large scale is still underwhelming. 

If you sift through the hype, the list of successful self-managed companies isn’t exactly very long. Sure, they do exist -in fact, Corporate Rebels has gathered an impressive and interesting roundup of over 50 self-managed companies that can serve as case studies. But they are not exactly blockbuster success stories. 

Instead, if we zoom in, we will see that some of the most advertised examples of autonomous management of the 2010s have quietly rolled back on their plans. Others have used the (admittedly exciting) self-management jargon as a PR-friendly way to slash costs in their operations. And then there are the examples of organisations that sought to follow self-management principles, only to create more byzantine structures, more inefficacy, and more frustrated employees along the way.

So why have fewer companies made self-management work than the buzz around it might suggest? Let’s find out by taking a look at four main points and areas that organisations should definitely consider before heading towards the coveted direction of self-management.

🥐Zappos: A Half-Baked Causation?

If you are looking for a poster child for autonomy and self-management principles, look no further than the case of Zappos. The American online shoe and clothing retailer based in Las Vegas, Nevada made global headlines when, in 2013, its ambitious and visionary CEO Tony Hsieh began upending its traditional management structure.

In lieu of a typical corporate structure with power concentrated at the top, the online shoe retailer adopted a decentralised system with “no job titles, no managers, no hierarchy”, a system dubbed “holacracy” from the Greek word holon, which means a whole that’s part of a greater whole.

In a fun and zany all-hands meeting that included, an employee climbing into a case filled with tarantulas to win a $250 gift card and a Lion King performance, Hsieh presented his radical “self-governing” operating system where there are no job titles and no manager. At the time Zappos had 1,500 employees, the largest company of that era to implement a self-management model, and therefore the press and the corporate world alike were quick to hail it as the next big thing in management and organisational design. 

But if we were to cast a revisionist, critical eye at the Zappos case study, there are three key reasons why it may not be the poster child we were led to believe.

First of all, there were the tensions of transitioning into an autonomous management style, that the press largely glossed over at the time. The truth is that holacracy is a radical departure from the modus operandi of most companies, and its adoption can be disorienting, even for people who already buy into the philosophy behind the idea. 

In March 2015, Hsieh gave employees an ultimatum to either fully commit to being a genuine participant in Zappos’s holacracy or leave. A considerable 18% -or almost one in five employees- took a generous buyout offer. Those employees cited frustration, ambiguity, and a lack of clarity around basic things like progression, compensation, and roles, despite the promises of autonomy and flexibility that they heard in transitionary meetings.

As one departing worker put it quite bluntly: "We attended trainings for shiny buzzwords but didn’t see any real difference in how things worked."

Secondly, there is the reality check that over the last few years, Zappos has been actually moving away from holacracy. Though it has retained its circular hierarchy, a key building block of its self-management approach, the company has started bringing back management as early as 2017, when it quietly started shifting its management strategy. What is more, Zappos executive John Bunch -one of the masterminds of the rollout of holacracy- explained that the company encountered “big challenges” in its business metrics and sought to redirect employees’ focus back to the customer (a frequent criticism of self-management is that it is too internally focused).

Even if we were to ignore these revisionist takes, there is a third reason to be sceptical about Zappos’ poster child status, namely the usual correlation-causation fallacy. Who is to say that the success Zappos achieved didn’t have more to do with company culture and the extreme clarity and vision of its founder than holacracy itself? A post-mortem deep-dive into the life and legacy of the famous CEO, who officially left Zappos in August of 2020 and died a few months later at the age of 46, certainly points in that direction.

In short, Zappos may still be a must-watch case study of self-management principles, but the takeaways from the implementation of holacracy are far less sacred than its supporters would have you believe. What is more, Zappos was definitely not a flagbearer for further change. Even when the pandemic made flexibility and autonomy frequent buzzwords in every boardroom, we saw a push toward more hierarchy as opposed to a boom of self-management models.

😶‍🌫️ The big misconceptions around self-management

Whenever a concept is attractive, it is almost destined to be surrounded by numerous misconceptions. Indeed, there is no shortage of myths surrounding self-managed organisations, and it’s probably these misconceptions that have often led to half-baked implementation in the first place. 

The most dangerous myth is that self-management somehow refers to anarchy. In reality, the exact opposite is true: self-management requires structure—and a lot of it.

Take the example of holacracy again: Zappos didn’t eliminate structure, but instead it created a system of nested circles. The General Company Circle at Zappos oversees 18 subcircles, and each subcircle contains several circles of its own. In fact, after the company implemented holacracy, 150 departmental units evolved into 500 circles - not exactly a flattening of structure that the term self-management may lead you to believe. This approach goes against the philosophy of many companies' pursuit of agility and autonomy, which focuses on purging bosses and eradicating all corporate structures (often as a way to slash a company’s operating costs).

Then there’s also the myth that self-management naturally means no more hierarchy.  Instead, in a self-managed organisation, roles are carefully defined, redefined, and redistributed as needs evolve. The change has to do with who has the authority: instead of individuals, it is the roles that hold power, and they can be reshuffled based on the organisation’s needs. But leadership and hierarchy do exist, and they are actually vital if an organisation wants to avoid chaos and convolution.

So self-managed organisations are not about tearing down hierarchy; they are about redistributing it in ways that hopefully make sense for the company. When organisations rush into self-management without fully understanding these dynamics, they often end up with more confusion than clarity.

If you are looking for examples of such misconceptions catching on, look no further than the extreme fad created by Spotify, whose corporate blog post about the success of its experiment with agility led to a massive wave of attention, imitation and blind adoption. This led to the famous talk by Marcin Floryan, chapter lead at Spotify, at Spark the Change London 2016, with the apt title: there is no Spotify model. 

Floryan argued that people were wrong to look at the Spotify article about its experimentation with squads and tribes as an example to replicate. The hype, he said, led to a halo effect bias, where people look at something which is successful and expect to be successful when they do the same in their company.

Turns out this is not the most useful way to look at the Spotify model, as autonomy will be futile if it doesn’t come with a lot of work on alignment, purpose, trust, culture and -you guessed it- structure.

🫛Teams, pods, and other building blocks

We have already established that if there’s one thing that can make or break a self-managed organisation, it’s team structure. But forget departments or divisions; in self-managed companies, the basic building block of corporate structure is the team. A cooking analogy may be helpful in understanding the mentality shift: if a regular company’s structure is chopped in cubes, a self-managed organisation is diced much more finely, almost to the point of a mince.

Circles, pods, cabals—they have gained different names in different organisations, but what is common is that the teams are the units responsible for defining roles, assigning tasks, and holding accountability.

Additionally, what many organisations end up missing in their experiments with autonomy, is that these self-managing teams don’t operate in a vacuum - far from it. They’re nested within a larger structure, and they need clear guidelines to interact, grow, and dissolve as necessary depending on the organisation’s needs. 

For example, at Morning Star, one of the most well-known self-managed companies, employees achieve this through a system of "colleague letters of understanding" which set responsibilities, activities, and goals. These agreements are reviewed and updated regularly, and they serve as a critical framework for maintaining accountability. In other self-managed organisations, it is enterprise software such as GlassFrog or holaSpirit that is typically used to codify the purpose, accountability, and decision rights of every different circle and role. But to guarantee a basic functionality, radical transparency is also required: the information has to be accessible to anyone and everyone in the organisation.

Without a clear process, transparency, and the right technology to support it, self-management risks becoming a convoluted mess. Teams may find themselves with ill-defined roles, a lack of direction, and an endless cycle of meetings with little tangible output. And the fine mince of a company will end up adding no flavour, and no productivity in the company’s recipe.

🪖Size and urgency can make all the difference

There is another empirical observation when it comes to the success of self-managed organisations. It turns out that size might matter, and the same is true about a sense of urgency about the organisation’s operation.

To understand why, it is worth travelling back to 2016, when after a brief period of experimenting with autonomy, Medium decided to abandon its journey with self-management. The press then covered the development by focusing on the divisiveness and the time-consuming, complex work that needed to be done to ensure that holacracy would work. But the company’s Head of Operations, Andy Doyle, made a different claim in his announcement about Medium’s decision to move away from autonomous management. His point? “Holacracy is problematic for larger initiatives, which require coordination across different functions”. 

“Holacracy requires a deep commitment to record-keeping and governance. Every job to be done requires a role, and every role requires a set of responsibilities”, writes Doyle in his announcement. “While this provides helpful transparency, it takes time and discussion. More importantly, we found that the act of codifying responsibilities in explicit detail hindered a proactive attitude and sense of communal ownership”.

The takeaway from Medium’s experimentation with autonomy may be that unless a company is in a state of crisis or pushing towards a singular, urgent goal, self-management risks creating more silos, more bureaucracy, and—ironically—less productivity. 

This is something that intuitively makes sense: when on war mode, teams can be adaptive and align with their organisation’s evolving goals, but when the size and scope of an organisation grows then the alignment of the teams becomes diluted, and chaos ensues.

🏰Conclusion: self-management requires work

The idea of self-managed organisations is appealing for all the right reasons. In theory, it promises agility, autonomy, and a greater sense of purpose for employees. Don’t get us wrong, it has often proved that it can work wonders.

But honesty requires us to admit that, for many companies that embrace it without the work and changes that should come with it, the reality has been quite different. 

If you’re going to dive into self-management, it is important to do it with eyes wide open, and with a lot of homework. It’s not a cost-cutting measure, not a buzzword, and it’s certainly not a one-size-fits-all solution. Successful self-management takes strong leadership, clear processes, an overwhelming amount of structure and a deep understanding of what works and what doesn’t. Otherwise, if you are simply chasing a fad you may risk losing not just the hierarchy, but also the productivity that you set out to enhance in the first place.

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Thank you for reading this week’s Uncensored, the first one of our series looking beyond the autonomy hype. Stay tuned for our next article which will examine some of the biggest success stories of self-managed organisations.