Deleted my Tesla titles last week to see what would happen. I'm now the Nothing of Tesla. Seems fine so far.-- Elon Musk (@elonmusk) October 29, 2018
The idea of a flat organization with no hierarchy seems nice. Who wouldn't want to work in an environment where the only person you had to answer to was yourself. Imagine some of the benefits -- more flexibility, no micromanagement, and no more unnecessary decision trees!
There's one problem: When everyone is responsible, no one is responsible. That's the realization that many Zappos employees came to after CEO Tony Hsieh implemented a management structure called holacracy. It's the realization of Musk's tweet: no more titles and no more bosses. Everyone is responsible for themselves.
It didn't work so well. Roughly 18 percent of the company's staff took buyouts within a ten month period.
What the management team didn't account for was the amount of mass confusion such a structure would create. Although a boss-less world seems fantastic, the truth is, eliminating organizational structure is like thrusting your organization into the wild west.
From a people management standpoint, there are multiple areas where holacracy creates confusion. I'll focus on three:
1. Role clarity and managerial integrity
When everyone has the ability to direct their own work, there is sure to be redundancies and turbulence. You can try to eliminate duplicated effort and frustration by increasing communication, but in the end, individual priorities will always win out.
Job descriptions and hierarchy provide clarity. Without this structure, members of your organization will be disorganized, to say the least. High-performing companies have employees that understand their roles and the roles of others. They are aligned by common and consistent goals.
Another organization that tried the "no bosses" approach was Google. In 2002, it ran an uncontrolled experiment and removed all managers. It didn't go well. In the process of trying to prove managers weren't necessary, they actually proved the opposite.
Competent managers not only provided Googlers with needed direction and guidance, but also enhanced the overall performance of their teams.
2. Career progression
Flattening the organizational chart has been a common management practice for at least the last decade. With less "layers" comes better communication, more transparency, and greater agility. However, eliminating layers also eliminates the opportunity for progression.
When you level out a company, it's tough for employees to see a clear track for advancement -- and, it can be demotivating. Without a ladder to climb, many employees will choose to leave in search of greener pastures.
3. Internal equity
When determining employee compensation, most organizations take a look at external benchmarks and internal equity. Especially for large organizations, titles and responsibilities provide much-needed guidance to determine how much someone should be paid.
In the absence of structure, organizations run the risk of creating compensation inequity. You must pay employees fairly compared to coworkers. If not, you run the risk of legal implications and resentment within teams. It will be extremely difficult to achieve equitable pay when you can't determine someone's peer set.
The idea of a Utopian world without a pecking order seems nice, in theory. In reality, it would create unmanageable confusion, insecurity, and inefficiency. I'm all for democratizing organizations, but, within limits. Organizational hierarchies provide guidance, accountability, and efficient communication paths between employees.
A short while after Musk's initial tweet, he posted an update:
Legally required officers of a corporation are president, treasurer & secretary. Guess I have to keep 1st one or it will confuse the authorities.-- Elon Musk (@elonmusk) October 29, 2018