The Key Agile Principles Behind Holacracy

February 13, 2014

Zappos triggered an uproar when it announced it was ditching traditional management hierarchy in exchange for self-organizing teams. In this week’s Labcast, Scrum co-creator Jeff Sutherland sounds off on holacracy and provides a basic anatomy lesson on the structure of truly agile organizations.

The Anatomy of an Agile Company: The Key Agile Principles Behind Holacracy
Holacracy — the buzzword has been swarming the web ever since Zappos announced it would be swapping management titles for a “self-governing” system. There seems to be two main reactions surrounding the shift — those who believe holacracy is the way of the future, and those who dismiss it as a passing fad.
But when you get down to the key concepts of holacracy — the emphasis on small self-organizing teams operating autonomously, for example — perhaps the system isn’t exactly the scary new revolution it’s being made out to be. In fact, it sounds an awful lot like agile development.
In this week’s Labcast, Dr. Jeff Sutherland, co-creator of Scrum, weighs in on holacracy and the future of management — drawing parallels between agile and holacracy, and explaining why your own body may be the perfect model for a truly agile, productive, and innovative organization. 

This Week’s Guest

Jeff Sutherland“There is this hierarchy, but it’s all one kind of interacting whole just like your body is. Your heart knows how to pump. You don’t tell your heart what to do or you’re going to get into trouble…You may give it some direction, but then it kind of does it by itself. That’s the holocracy in action. I think that’s what Zappos is trying to achieve.”

— Jeff Sutherland, Scrum Inc

Key Takeaways

  • Holacracy isn’t a new concept. In fact, it has a lot in common with Scrum. [2:25]
  • In Holacracy and Scrum, there is a hierarchy, but it’s a different kind. Think of it as the human body. [2:50] and [11:45]
  • Managers need to take more of a hands-off approach. The best are able to be a coach while also a member of the team. [6:30]
  • The architecture of Scrum is a lot like intelligent code. [12:55]
  • What’s the future of management? [16:10]

Listen Here

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Announcer: This is Labcast, insights and ideas for the expansion-stage senior manager, hosted by OpenView Labs.
Jonathan: Hello everyone, and welcome to Labcast. This is your host, Jonathan Crowe. With us today we have Dr. Jeff Sutherland, a co-creator of the agile development framework Scrum. Jeff, thanks for coming back with us today.
Jeff: Yeah, great to be here again.
Jonathan: For many of our listeners, you’re familiar with Jeff and his work. But, for those who aren’t, Jeff is a pioneer in the world of software development. He served as a VP of engineering as well as a CTO or CEO of 11 software companies. He’s currently the chair of the Scrum Foundation and senior adviser and Agile coach for us here at OpenView. You can learn much more about Jeff and the transformative benefits of Scrum at
Jeff, I’m really excited to have you here today. There is a topic that’s been big in the news for the past couple of weeks. In fact, it’s really swarming around a new buzzword. That buzzword is holocracy.
So, as listeners I’m sure know, Zappos a few weeks ago made a big splash when it announced it’d be removing its management hierarchy and replacing it with this radical self-governing system. The response to this has been huge. A lot of people didn’t know what to think about it at first. It sounds like this big fundamental shift. It’s got a funny name.
There’ve been a lot of rumors and misinformation flying around. Is Zappos getting rid of all of their job titles? Is there going to be no organization whatsoever? Is this just going to be anarchy?
 People have kind of been tripping over themselves to respond to this and have been divided into these groups. Some people have been saying this is really the future of corporate America. Everybody’s got to get on board. This is a revolution.
 Other people are saying that this isn’t going to work at all. It’s just a big gimmick.
Jeff: Yeah.
Jonathan: It’s not going to be functional.
 Then, still others are pointing out that hey this actually isn’t an entirely new concept at all. People have been talking about this, experimenting with different forms of kind of removing that corporate hierarchy for a while now.
So, that’s kind of the reaction that I had when I was reading about this new system. It jumped out to me that organizing a company around these smaller self organizing teams and making those teams more autonomous sounds a lot like the principles that you talk so much about with Agile in Scrum.
Jeff: Yeah. Holocracy’s been around a long time. I mean for more than a decade I was a medical school professor doing research on biological systems and mathematically modeling them. What you see as soon as you try to mathematically model the human body is that it is a holocracy. In fact, there’s nobody really telling anybody what to do in there. In fact, if you, in your mind, start trying to tell your body what to do you’ll get high blood pressure. It screws things up.
Yet, there is a hierarchy of things. It’s really interesting. How does that work? There is a hierarchy, but there’s nobody telling anybody what to do. In the early days when we started Scrum, which was my way of responding to–I was brought from the medical school into a large bank running 150 banks. I was the vice president for advanced systems. Their huge project was always late. Everything the management was doing was making them later.
If they’re late let’s have more meetings. If they’re late let’s have more reporting. If they’re late let’s have more micromanagement running around checking up on everybody.
None of that works. It just makes it worse. With my medical school background I said hey, we need a team based process. We were working with Bell Labs at the time using their tools and technologies.
One of the first things I found out is Bell Labs had eliminated job titles. Every person was member of technical staff. They had done a huge amount of research showing that performance of teams was based on the way teams communicated, which is the first Agile principle. And, the thing that broke communication was specialized titles. So, they just got rid of them. There were none.
As we’re putting together Scrum, the first thing we did was get rid of the titles. Everybody is just a team member. Then, as we studied Professor Tanaka, the Japanese looking at Toyota, and how some of these lean companies work and how they use cross functional teams and manage the teams.
They had gotten rid of the manager. They said we no longer have the foreman at General Motors who tells people what to do. That slows things down. We’re going to have a team leader who’s a facilitative team leader. It sounds just like a ScrumMaster. He’s going to help the team, not tell them what to do.
Scrum evolved like that, these self organizing teams. What I tried to do initially is I wanted to get the teams focused on the backlog that was going to make the customers really happy. I wanted the product owner to own that.
What I found is there is a lot of engineering managers that do not know what is going to make the customer really, really happy. They just do not know that. We need to get the teams responding to the customer and the person that knows what the customer needs, not trying to please a manager who’s going to do a performance appraisal on them.
Jonathan: Right. That is a great example of how this concept of removing job titles, really bringing it back from having people reporting to the next level up, having things formed around a more autonomous team. I think Zappos is calling them circles. I think that we talked about last time you were here Spotify, and I think they call them squads or tribes.
Jeff: Yeah.
Jonathan: Having these smaller teams that are able to really function on their own and tackle these problems on their own without having a lot of outside dependencies, that’s really kind of a core concept.
Jeff: Yeah. In fact, in my own company what’s happened is as Scrum has started to emerge in companies we’ve found that the thing that causes it not to work the most is the management hierarchy not changing. We’re just going to set up this cross functional self organizing team over here and expect it to by magic work without any help from management.
Jonathan: Right.
Jeff: Help from management means managing helping the teams, not telling the teams what to do. They need to give challenging goals to the teams. The team needs goals. But, then they need to move back more like investors. Okay, what do you need from us to achieve that goal? How can we help you to achieve that goal?
As the manager in my company, I’m really a coach to the company. I’m a team member. I work on a team. If there’s a ScrumMaster needed I become a ScrumMaster for a while. If there’s a product, I help out with the product. I’m trying to figure out how to get this holocracy really working really well. 
Jonathan: That’s a fundamental shift in mindset of being a manager who is there not to be demanding results or even informing what those results exactly should be, but really just kind of being someone who’s helping and assisting. That’s something I imagine a big part of it then is helping to empower these teams to operate. You know, in a lot of ways this is a very big shift in the way teams are used to operating, individuals are used to operating within teams.
What are some examples that you’ve had of the transitions that you’ve seen? Are there any ones where you’ve seen where that transition hasn’t gone well? Do you have any tips that could help managers kind of adjust their mindsets to shift into this role of really being more kind of hands off investors and really empowering teams to be self governing and highly productive on their own?
Jeff: Right. In 1996 I became CTO of what is now GE Healthcare. We had lots of managers and hundreds of developers. I came in. I was hired in to introduce Scrum.
One of the first things I did is get all the managers together. I said okay, our job is to make this organization really work. To do it we’re going to have teams. That means if you’re a manager you’re probably a leader and that means you’re probably a leader of a team but you’re also probably on a team.
So, I’d like you as a management team to figure out what the teams are. And, at the end of the day we’re going to de-emphasize the management titles, because you’re going to be a ScrumMaster, a team member, maybe a Scrum of Scrums Master. Some of them were fairly senior vice presidents that may have had multiple Scrums of Scrums. There was a little bit of hierarchy there. But, again, you want this hierarchy like you have in a biological system, but you don’t want people telling people what to do. You want teams.
We were talking early. One of the things that affected Scrum was my work with iRobot. When iRobot started up they came to my company and wanted to rent space for their lab. So, I added some extra space. The robots were intelligent robots. They were multi-legged robots. They’d come running out of the lab into my office every day. They had heat seeking sensors. They’d try to hunt me down. 
Jonathan: That’s quite a way to start your day.
Jeff: You know, it was fascinating. Professor Rodney Brooks was co-founder, senior professor at MIT. One Friday I said hey Professor Brooks, explain how this robot works. It’s really interesting.
He said, well, let me just say before I explain the subsumption architecture on which this is based, we’ve spent 30 years at MIT trying to create an intelligent system. And, no matter how big a database or how big a computer we’ve created it’s been a total failure. So, he said I’m taking a totally different approach which is a holocracy approach that Zappos has taken.
We’re not going to have any hierarchy and central processor telling people what to do. The legs are going to know how to move. There’s a chip in the leg that knows how to move the leg. At another level there is a hierarchy, but the hierarchy is there’s a chip in the spine that can coordinate leg movements. So, the robot can stand up and it can walk, but it doesn’t know where to go. So, at another level we have a neural network chip in the head that is taking all these sensor readings.
There is no database, there’s only sensors, the real world, and based on what’s happening in the real world its algorithms cause it to seek goals and it will start coordinating the spine so that the robot runs around in the right way. If he bangs into things he knows not to do that. If he’s going to come to the edge of the stairs he knows not to fall down the stairs.
There is this hierarchy, but it’s all one kind of interacting whole just like your body is. Your heart knows how to pump. You don’t tell your heart what to do or you’re going to get into trouble. Your lungs know how to breathe. Your legs know how to run. You may give it some direction, but then it kind of does it by itself. That’s the holocracy in action. I think that’s what Zappos is trying to achieve.
Jonathan: Right, and I think that’s a really great illustrative way of explaining it, too. One question that comes up as we’re talking about this is it’s great you have these smaller teams that know their own function really well. They know how to do that. They don’t need someone telling them how to do it better. They’re iterating. They’re figuring it out. They can run at full speed.
What about making sure that there’s alignment across these teams? Is this where making sure that the organization has a good solid really clearly defined mission and some core values? Is that where that can come in, too?
Jeff: That’s important, but this is kind of… I mean we gave an agile architecture for us yesterday online. What we’re talking about is the architecture of the organization. It’s extremely important in  software, because the structure of the organization is reflected in the code. That’s a law called Conway’s law. One of the things we try to do with Scrum is get the organization organized in the way we’d like to see the code designed.
In good object oriented design there is no central point of control. That causes bottlenecks.
There’s really good communication, but there is information hiding. So, there’s just not chaos of communication. There’s carefully directed communication, and the components of the system know how to respond on their own. They’re supposed to be intelligent enough to know if they get this message then they know what to do.
You want to set up the organization just like that. Usually when I’m coaching companies I say okay, you managers are managers because you have some skills. You’re usually smarter than the average person. You usually have some specific skills, often technical skills in a software company. And, you wouldn’t have this job unless you had special talents.
The question is how can you use those special talents to leverage this company the most. If you ask a manager are you leveraging the company the most with your talents by doing performance appraisals, creating budgets, pushing paperwork, they’ll say no. In fact, the most senior vice president I had at what is now GE Healthcare after two weeks he had two or three Scrum of Scrums. He owned the Boston facility which was our largest facility.
Two weeks later after we kind of reorganized he said Jeff, now that I’m a leader of all these Scrum teams I have to spend a lot of time out there coaching and giving them some direction and guidance. He said I don’t have any more time any more to make up all these budgets and push all this paper around. My inbox on my desk is overflowing. What should I do?
I said to him well, when you were a manager and not a leader, who was leading the teams? He scratched his head. He said I guess nobody. So, I said thank God we finally have a leader, and let’s figure out how to get somebody to help you with the budget.
Jonathan: That’s great, that’s great. I guess my final question, then, talking about some of these principles. As I mentioned before at the beginning of the podcast, there has been a really strong reaction to this idea and a lot of resistance to it. Whether you’re calling it holocracy or whether it is this emphasis on having smaller self organized teams that can operate on their own, is this concept for everyone? Should everyone be implementing this?

Still not sure if your company should adopt Holacracy?

holacracy cover

Fad or Future: Should Your Growing Business Embrace Holacracy

Jeff: Well, you know, at the end of the day it’s a very competitive environment out there. So, whatever you do has to really work. What we do need to know, a lot of people don’t know, there are multibillion dollar companies run with no management today. That gives them an agility and a speed which if they can manage that without going off the rails gives them a competitive advantage. That’s the challenge. What I would say is you really need leadership in those companies to keep them on track, but you don’t need a traditional manager telling people what to do.
You need a guide, a visionary. I don’t want to use Steve Jobs as an example, because he was too dictatorial many times. Not a perfect example, but he was a good example as a visionary for the company. The whole company would rally to that vision even without him running around telling them what to do. That’s what you really need from leadership.
I would say the future is to de-emphasize management and emphasize leadership within a company. The future is people who used to be managers, now they’re leaders, they’re coaches, they’re motivators. They’re not de-motivating people by telling them what to do every day, micromanaging them, running their performance appraisals – which they never like, and so forth. I think management has to change the way it thinks about business to really be successful in today’s… 
Jonathan: And I think it’s a really good point. If you look at just the results that you show with organizations that have adopted agile frameworks, have adopted Scrum. I think the results speak for themselves.
Jeff: Right.
Jonathan: Jeff, I really appreciate you taking the time, again. It’ll be great to have you back in the future. This is a really good topic. I really appreciate you taking the time. Again, for those who want to connect with Jeff and learn more about Scrum, you can do so by visiting
Jeff: Great to talk to you again.
Jonathan: Thanks everybody.
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Photo by: Jo Z-Winter Gone Back Into the 50s..Sunny!


<strong>Dr. Jeff Sutherland</strong> is the co-creator of Scrum and a leading expert on how the framework has evolved to meet the needs of today’s business. As the CEO of <a href="">Scrum Inc.</a> and the Senior Advisor and Agile Coach to OpenView Venture Partners, Jeff sets the vision for success with Scrum. He continues to share best practices with organizations around the globe and has written extensively on Scrum rules and methods. With a deep understanding of business process — gleaned from years as CTO/CEO of eleven different software companies — Jeff is able to describe the high level organizational benefits of Scrum and what it takes to create hyperproductive teams.