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All Hail the Holacracy

Apr 22, 2014

All Hail the Holacracy

In case you hadn’t heard, Holacracy is a thing.

Holacracy (capitalized because it’s trademarked, and there’s a company that goes along with it) is a management organization developed in 2007. Instead of using a hierarchy of managers—some of whom do nothing but manage other managers—Holocracy uses a series of “circles” devoted to a particular function. (Hmm. Sounds like Google Plus.) An individual employee may have multiple roles in several different circles, depending on what the employee wants to do, his/her skill set, and what needs to be done in the company. Within each circle, every employee gets an equal voice and all employees are expected to speak up when they have an idea or see a problem.

This isn’t the first time this sort of management structure has come around. Similar manager-less organizations—though Holacracy proponents say it’s not that they’re manager-less, it’s that everyone is a manager—have also been set up, with varying degrees of success. Sometimes they’re called “flat-lattice” organizations, or simply flat organizations.  Gore, the company that makes Gore-Tex, says it has been operating in a flat lattice model since its founding in 1958. Morning Star Company, a tomato processor in Woodland, California, has operated this way for years.

The subject is getting attention right now because a number of high-profile organizations, such as the publishing company Medium and the shoe company Zappos, have either switched to a Holacracy or started out as one in the first place. And let’s face it: Who doesn’t love the idea of getting rid of all the bosses? (Well, maybe not the bosses.)

But the system also has its critics. “At their best, such setups are viewed as a way to tap the full potential of talented and motivated employees,” writes Alison Griswold at Business Insider. “But at their worst, Holacracy systems have a troubled past: routinely failing after just a few months and driving top talent out the door.”

Proponents of the system cite several advantages:

Reduced overhead: Because there are no people who are simply managers, or managers of managers, company overhead is reduced. In fact, Morning Star says it pays its employees up to 15 percent more than the competition, and up to 35 percent more in benefits, because it doesn’t have to pay for managers.

Greater agility: In a time when companies are constantly being told to be more agile and flexible, companies that follow Holacracy principles say they can make decisions more quickly. Have a new project? Create a new circle or an “app.” “Just like you can install apps on your phone—and that’s what makes it so powerful—you can adopt organizational ‘apps’ with Holacracy,” writes Olivier Compagne.  Need equipment or training? Buy it. Need a new employee? Hire one.  To a certain extent, it’s not all that different from open source—you see a need, write a program, and submit it to the group.

Happier, more stable employees: Because people have more autonomy and can work on multiple projects at once, they’re more satisfied and stay longer. That is, if they can get past their experience in a hierarchical organization; some employees at flat lattice organizations leave relatively quickly.

Elimination of office politics: Because people don’t get promoted per se, typically don’t have titles, and so on, proponents say it essentially eliminates office politics, backstabbing, favoritism, and other office ills.

On the other hand, skeptics of the system also have their points:

It isn’t clear how well it scales: Zappos, at 1,500 employees, is considered to be the largest company following Holacracy principles, though Morning Star (which doesn’t use the term) has up to 2,400 employees during seasonal periods. Medium has approximately 50 employees. But how well would it work at a massive company such as GM?

Similar systems were tried in the 1980s with larger companies without much success, writes Harrison Monarth in Harvard Business Review. “The elimination of first-line supervisors at Shell Oil and other manufacturers of varying sizes stalled after only six months—and more rapidly at the even larger companies,” he writes. “Some staff walked out rather than lose a hard-won management title. Others simply couldn’t self-regulate.”

To some, it defies human nature: Skeptics say that people inherently look for status and hierarchy in groups of people, and that in an organization that supposedly doesn’t have them, they instead simply get pushed underground and made implicit rather than explicit. “The titles disappear, but human dynamics won’t,” Monarth writes.

The fact that some people leave organizations espousing these flat principles because they can’t deal with them is cited as evidence, and even supporters say that potential employees need to be a good cultural fit. This also leads to concern that such organizations would end up homogenous and could be difficult for women and minorities to enter.

It may have a different kind of overhead: There may not be managers, but if every time you do something you need to discuss it with half a dozen employees, is it really faster? Critics also point to the 30-page Holacracy Constitution as being overly procedure-heavy.

Inevitably, the first questions to crop up are “If there are no managers, how do you hire and fire? How do people get raises?” and the answers sometimes seem vague. In one case, the answer is literally “there’s an app for that,” or a procedure that the company created when it realized it was needed.

Questions Remain

It remains to be seen whether the system will be just another management fad, or will take hold in organizations. Certainly a lot of attention is focused on Zappos to see how well Holocracy works at that company. Also, supporters point out that companies can adopt some Holacracy principles without having to go all-in with the philosophy.

But that raises the ultimate issue: Are companies successful with a Holacracy model because of the model itself, or simply because the company itself is good? Zappos has been used as an example in management articles for years. “Zappos is an explicitly people and customer-focused company, and this wouldn't be the first unusual management technique instituted there,” notes Max Nisen in Business Insider. Morning Star and Gore have similarly been successful for years. One could make the perfectly valid argument that these companies would be successful regardless of the management style they used.

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Submitted by YouBrew on

I've only ever seen this organizational setup implemented at a small company (<50 employees). It happened at the end of a series of events where middle-managers were resisting some of the initiatives that were being driven by the executive team. As such, this change was viewed by many of the employees as a way to get rid of that resistance. Some of the former managers left as a result.
Over the last couple of years, there is still a feeling that no one can question or challenge the initiatives of the executive team, and that the employees had better toe the line and get the work done, or the executive team will have to take steps to 'fix the problem'. It hasn't increased accountability of one team member to another, as intended. It has simply highlighted a class distinction between the executives and the normal employees.

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