Time to depart from dated management hierarchies? Holacracy is a new model for innovative, democratic organizations. Could it be right for your business?
The traditional management hierarchy as we know it was developed during the Industrial Revolution. It was aimed to provide consistency of production and efficiency, and it viewed employees as parts of the machine.
Times change, and so do contemporary industries, requiring knowledge work and creative problem-solving. Yet, in management, the old pyramid structure is still used by default.
But there is an alternative. There is a system that recognizes individual talents and contributions, provides autonomy, and encourages an entrepreneurial mind-set. This system is called holacracy, and it has already been successfully tried out by many organizations throughout the world.
The term “holacracy” stands for a self-managed organizational structure that distributes decision-making authority among team members. This framework gives employees a high level of autonomy and lets them work in multiple roles at a time. This way, it encourages transparency and accountability, letting people use their expertise to the full.
The term was coined by Arthur Koestler in his 1967 book “The Ghost in the Machine”, as a combination of the Greek word “holon” (“whole”,) and “cracy”, a Greek suffix meaning “power, government.” This way, the term “holacracy” can be interpreted as organizations ruled by self-contained groups.
The concept of holacracy was later developed by Brian Robertson, a CEO of Ternary Software, in the early 2000-s. In 2007, together with Tom Thomison, he founded HolacracyOne and in 2010, published the Holacracy Constitution:
What holacracy gives you is a transparent set of rules – rules of the game for how to enact change… And those rules are held just like they are in a society – in a constitution… They’re transparent, they’re written down… and everyone is bound by the same rules. - Brian Robertson, the founder of Holacracy
Let’s briefly analyze the main points contained in the Holacracy Constitution:
In holacracy, there are no job descriptions – instead, there are roles. Roles include the purpose a person filling the role will pursue, domains (processes and assets the role controls), and accountabilities (the activities the role manages.)
Roles are created based on the needs of an organization. If a role is not needed anymore, a person filling it just takes on a new role. People typically hold multiple roles on various teams.
Roles make an organization responsive to the requirements of the business world. In contrast, the traditional approach, when the instructions are given “from above,” is pretty rigid and not always productive – the boss prescribes actions based on the job description and not on what can really produce the desired result.
The main role is the Lead Link. This role is responsible for assigning other roles and allocating resources. It’s similar to the role of a traditional manager, but the Lead Link is limited by the circle governance.
Unlike the hierarchical structure of the management pyramid, a holacratic one consists of autonomous self-managed teams called circles.
Circles are the main units of a holacratic structure, which make self-organization possible. This is a group of people who share the same responsibilities within a company. Each circle has a purpose that must align with the overall purpose of the company and contains different roles.
The number of circles is unlimited, and some circles can exist within bigger ones.
In a holacracy circle structure, the members of a circle can define, amend, and remove roles and policies. By negotiating with each other, they allocate duties to those who best fit in a certain role.
Everyone on the team has a right to voice. During meetings, everyone can add as many items to discuss as necessary. Everyone is supposed to share their current state, progress, and initiatives, and everyone is welcome to share reflections at the end of a meeting.
The Holacracy Constitution also contains a paragraph about “individual initiative” – the ability to act on your own will. However, there must be specific conditions that would allow a person to take individual initiative:
The framework provided by the Constitution is very flexible and can be used to build a customized system of operations and a governance structure suitable for a particular organization. The whole Constitution can be adopted by a company at once, or piece by piece.
The companies that practice holacracy can be found all over the world. These are organizations of different sizes that work in different industries, yet follow the same principles of distributed authority.
Here’s a list of some of the companies practicing a holacratic approach, provided by the Holacracy website:
We’ve analyzed some examples to see how holacracy works in action.
I think of my role as the architect of the greenhouse, and to help figure out the right conditions with the greenhouse to enable all the other plants to flourish and thrive. - Tony Hsieh, an ex-CEO of Zappos
Zappos is an online shoe and clothing store founded in 1999. In 2013-2014, Tony Hsieh, who was the company CEO at the time, began the transition to holacracy.
In the company, employees work in circles (1500 employees in 500 circles, as of 2017.) An employee might belong to different circles. The role of the Lead Link is to provide resources but not to dictate actions.
There are no job titles, but there are skills badges instead. Badges concern the skills and work done in a specific role. Compensation is tied to roles, but collecting more badges is equivalent to getting a higher paycheck.
Annual performance review system was eliminated – instead, the company adopted an approach of frequent feedback and collecting insights from peers.
Providing truly meaningful feedback is not a skill that many of us are taught. Some people are born with tact and grace, but for the rest of us, the uncomfortable conversations are, well…uncomfortable. To help with that, we are creating (or leveraging existing) training programs relating to emotional quotient, conflict resolution, and mentorship. - Darshan Bhatt, a developer at Zappos
Employees have goals – short-term 30-day challenges. A Goals Coach helps people set personal and professional goals, to encourage a holistic growth of employees.
The company encourages peer recognition. There is a set of 10 company values, and people get hired and fired based on whether they’re living the Zappos’ core values – and it doesn’t depend on their job performance.
The Coworker Bonus Program lets the employees recognize one of their peers, typing in their name, explaining why they selected them, and how that reason relates to the 10 values.
The purpose of the company is to “To Live and Deliver WOW.” Within the general company circle that holds this statement, there are subcircles and roles, whose purpose links to the company statement.
Holacracy… enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do. - Anthony Hsieh, an ex-CEO of Zappos
In the company, decision-making authority is decentralized – all employees are free to make decisions within their roles. Leadership is contextual. Employees can get into leading positions without having to take on disciplinary responsibilities.
There is a hierarchy, but it’s not traditional: the organizational structure is based not on people but on roles and circles.
You need to be highly self-organized which means you have to take ownership of your personal path within the company. You also need to be very flexible and happy to deal with changes in your work environment… you will often have to apply the pull-principle if you need to acquire some information. - Susanne E. Kopp, a project manager and holacracy ambassador at Mercedes-Benz.io
Valsplat is an organization that conducts market research and designs digital solutions to improve online services for customers. Nils van den Broek, one of the founders of the company, says that holacracy helped the company become stronger: everyone is empowered to raise concerns and make changes.
Before the implementation of holacracy, the company consisted of four teams. The holacratic system of self-organization let the employees redesign their structure, and it happened organically.
Thanks to holacracy, as Broek explains, people don’t do what’s expected from them – they do what’s best for their company.
For years we’ve been telling people to “just figure it out,” and “make your own decisions,” but we now realize it’s not easy to do that without some sort of system in place. Now I’m seeing people step up and take initiatives… We are now able to use the collective power of individual talents and initiatives. - Nils van den Broek
So how the holacracy framework can be beneficial for your organization?
A classical hierarchical system requires employees to present the result of their work to those higher in status. In contrast to this, a holacratic system shifts the focus from the presentation to the result itself. It reduces the degree of tension and lets people direct their energy in the right place.
In a holacratic system, every person is focused on a specific purpose. This encourages employees to strive for productivity and look for strategies that would bring the results needed for the overall company goal. This gives people the freedom to make experiments, which leads to innovation.
A holacratic organizational structure is ruled through decentralized management. It means that communication and cooperation play a crucially important role. Only by working as a team, a group can achieve good results. Self-managed teams develop a sense of community and inspire them to build a positive and healthy work environment.
Holacracy is about making small changes every day, in response to the requirements of the constantly changing environment. People within the circles make improvements as problems arise, right in the middle of the work process. This makes holacracy a much more flexible system, as compared to traditional management that typically resorts to large-scale restructuring.
Clarity and transparency are fundamentally important in a holacracy. Everything is openly discussed and agreed upon. Everyone has access to information. Not only does it allow for healthier work relationships, but it also boosts productivity as people clearly see where they’re at and how they personally can contribute.
Self-management requires a higher level of accountability for your actions. You will be responsible for your own decisions, which affect not only you but the entire team - and maybe the entire organization. There are no bosses you can put the blame on. Employees report to each other, and their decisions and actions directly influence their reliability as team members.
When employees have a right to participate in the decision-making process, it positively affects organizational behavior and their readiness to be engaged. The ability to discuss issues and be sure that your voice will be heard inspires more commitment to the organization’s growth.
The absence of many bureaucratic layers brings employees closer to the customers. Since team members can make decisions autonomously, the chances are that these decisions will take into the account the needs of the customers. This way, those needs will be satisfied sooner.
In a holacracy system, employees are free to choose the tasks to carry out. This means they can try themselves in some new positions, revealing new talents.
Holacracy may seem a very attractive concept, for a good reason. Yet, everything comes at a cost. The versatility of roles and self-management lead to complexity that might be hard to overcome.
So what are the challenges of holacracy?
Having to handle too many tasks at the same time, people disperse their energy and perform less well on each goal. For example, at Zappos, an individual, on average, fills 7.4 roles, each of which contains 3.47 responsibilities. As a result, an individual has to deal with more than 25 responsibilities. This sounds overwhelming.
Burdened with things to take care of, people lose focus. It may be hard to prioritize and communicate within a circle to fix all the issues.
When one individual has too many roles, it becomes challenging to figure out the fair compensation. For example, if a person develops software, works on a marketing strategy, plans events, creates trainings, and functions as a circle lead, it’s not that easy to understand how much the person needs to be paid.
New employees are hired to fill in specific needs – yet, they acquire new roles very quickly. And since the number of roles is often huge, it may be hard to decide who will be a good fit for a certain role. In 2015, Zappos’s 1,500 employees received 17,624 assignments, which made for 11.7 assignment for an employee. To keep track of the roles, the company developed software, which allowed people to apply for a role and potentially be assigned to it.
Hiring into so many roles is challenging even with a software – let alone without it, when all the responsibility falls on the circle lead.
In a holacratic system, every person has an opportunity to exercise power. However, this is not always the case. Some people still have more power than others –for example, those who used to be the bosses in their old organizations. Besides, for some people, it may be simply hard to accept the new system of self-management – they will need time to unlearn the old habits.
There are some indicators showing that your company is ready for holacracy:
Before you can actually implement holacracy into your organization, you need to do the pre-launch steps. This is a kind of preparation you need to do to make sure the implementation process goes smoothly:
After the preparation, you can actually start to implement Holacracy:
The rules of holacracy make sense, so do not rewrite them. Follow what’s written in the Constitution. Be ready it may take up to one year to build holacracy in your company.
For Holacracy to work successfully, you should pay attention to some things:
With the traditional systems of management deeply seated in our minds, the holacracy framework may seem unusual and confusing. Yet, it does fit into the paradigm of modern business, meeting the requirements of agility and adaptability. It helps unveil talents and potential. Implemented correctly, holacracy may help the company become more innovative and achieve great results.
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