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A Vestige of the Industrial Revolution on the Way Out (or Not)

If and when it really goes mainstream, it will mean a sea-change for the way business is conducted in the U.S. (and around the world).

Most likely, Baby Boomers and Gen-X employees will have a harder time adjusting to it than Millennial members of the work force. It will also change the way HR staffers do their jobs, along with the management framework they help create for their organizations.

The innovation being hinted at above is the end of the hierarchical organization as we know it. Can it be that the top-down office and managerial structure so identified with corporate America for a century or more is actually coming to an end?

An Industrial Evolution

At least one recent major study of 7,000 companies conducted by consulting giant Deloitte would indicate that the traditional system of top-down management–if not dead altogether–is being re-evaluated by many organizations. Among larger firms surveyed (those with at least 50,000 employees), less than a quarter (24%) indicated they remain “functionally organized.”

As reported in a recent Bloomberg Business article, grouping jobs of similar functions together with a vertical pecking order of managers is a dying vestige bequeathed to modern society by the Industrial Revolution. That same system no doubt helped U.S. industry achieve economies of scale, boosted our manufacturing capabilities, and made America the world’s leading industrial power for 100 years.

But, following the golden age of the Post World War II era, U.S. hegemony as a manufacturing powerhouse started facing stiff competition from abroad–as has been amply documented and dissected in economics textbooks for decades. In the global, technology-driven economy of the 21st century, innovation looks very different–and so do the organizations that are driving it, inside and out. Now the conventional wisdom holds that organizations still vertically integrated are seen as stodgy, less innovative or adaptive, and perhaps more prone to conflict within their ranks.

From Bureaucracy to “Holacracy”

While many companies (92%, in the referenced Deloitte study) are contemplating organization redesign of one kind or another, some have already adopted a more radical approach to traditional top-down management. As described in great detail in an article last year in Fast Company, a concept known as Holacracy has been catching fire in certain corporate circles.

While it may sound like some type of governing system, Holacracy is an alternative organizational structure that favors concentric “circles” of job functions, responsibilities and forums of communication. It’s been embraced by such diverse entities as the alternative-publishing outfit Medium, productivity consultants David Allen Company and, perhaps most notably, the on-line shoe retailer Zappos with its unabashedly innovative CEO, Tony Hsieh.

The creator of the Holacracy concept is 35-year-old programmer Brian Robertson, who helps organizations migrate to his non-hierarchical organizational model. The way that younger captains of industry and innovators like Hsieh, Robertson and others see it, what’s valued today are creativity, collaboration and ideas–not so much task-oriented jobs and the system of accountability engendered by the Industrial Revolution/manufacturing economy of yesteryear.

Managers and CEOS across industry lines (as documented in a study published last year by U.K.-based consultants Wolf Ollins) are realigning their reporting relationships to give their employees more autonomy.

Too Flat, Too Soon?

As the Fast Company article discusses, while Holacracy may be turning traditional corporate structure on its head, it’s not without growing pains. For many employees who have been in the working world a long time, giving up their management titles and spheres of influence represents a significant upheaval. Even the early adopters of the system, like Medium, have reported transitional periods that were less than smooth sailing.

Still, some companies are taking the concept even further. Entertainment software and video-game developer Valve is a notably “flat” organization with no leaders or managers at all.

Brian Robertson insists Holacracy is not about going totally flat; it’s more about tearing down the top-down hierarchy approach. Even Zappos and Tony Hsieh have acknowledged that the system of “self-management and self-organization” that Hsieh espouses may not be for everyone. And that’s why the CEO has offered his employees a three-month buyout package (including some COBRA benefits) for those who don’t see the Holacracy structure as the “right fit” for them.

As a recent article in The Atlantic relates, a healthy proportion of his workforce is taking him up on his offer. Last year, Zappos saw 30% turnover, a full 10 percentage points over its usual rate of attrition. 

Hsieh’s culture of collaboration, with no titles or bosses, has resulted in no small degree of confusion about the best way to get the job done in some areas of the firm. Employees in the payroll function, as an example, had some difficulty determining salary levels for staffers once their managerial titles were removed.

Then there’s the risk that flattening out a hierarchical structure removes workers’ incentive to advance. We may discover down the road that human beings really do want some type of pecking order, even if it’s not the traditional one. A system like proponents of Holacracy advocate may or may not be the wave of the future–particularly for smaller technology firms.

For now, what’s clear is that even if vertical integration is not completely on the way out, it’s being questioned and re-evaluated. And that’s a trend that’s probably long overdue.

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