The media has so far reacted with a mix of understandable skepticism and outright derision. “Mr. Hsieh’s hot hand appears to be at risk of going cold,” The New York Times reported in July. Employees at Zappos, the paper said, have met the development “with everything from cautious embrace to outright revulsion.” The tech site Pando was less measured: “Holacracy of Dunces,” a headline snorted that same month.
Holacracy’s implementation at Zappos, still in process, has undoubtedly caused problems (more on those later). But such reports risk missing the larger picture. However fraught it may be, Zappos’s experiment with holacracy is just the latest sign that information technology is allowing the emergence of a new form of organization.
For years, pockets of the U.S. military have been slowly taking decisions out of the hands of high-ranking commanders and entrusting them to teams of soldiers, who (armed with the concept of “commander’s intent”) are told what problems to solve—but not how to solve them. “The organization as a rigidly reductionist mechanical beast is an endangered species,” General Stanley McChrystal writes in his new book, Team of Teams. “The traditional heroic leader may not be far behind.” At the video-game maker Valve, new employees are told not to expect instructions, because even the managing director “isn’t your manager,” says the employee handbook. “You have the power to green-light projects. You have the power to ship products.” And so they do.
What’s enabling this shift, argues Thomas Malone, a professor at MIT’s Sloan School of Management, is simple: falling information costs. In his 2004 book, The Future of Work, Malone broke the history of organizations into three stages. In stage one, information is expensive to convey, so most decisions are made face-to-face in necessarily small firms. As communication costs begin to fall, Malone explained to me, we reach stage two, in which “it becomes economically feasible to send information to a single, central place for decisions to be made.” That is, the large, centralized hierarchy becomes possible. Then comes stage three: “As communication costs continue to fall, there comes a time when it’s economically feasible to bring information to all points, so in some sense, everyone can know everything.” In this third stage, the benefits of bigness can persist, but its traditional handmaiden, hierarchy, doesn’t have to. (Indeed, when the volume of information grows large enough, trying to direct its flow upward for evaluation can slow everything down.)
Malone points to the history of government. We lived most of our existence in small, fairly egalitarian bands of hunter-gatherers, until the advent of written language, which arose in tandem with record-keeping, taxation, and the founding of the first kingdoms, around 3000 B.C. Large-scale democracy did not appear until an equally momentous information technology, the printing press, enabled the “reading revolution” of the 18th century.