Fad or Future: Should Your Growing Business Embrace Holacracy?

January 24, 2014

Companies like Zappos and Medium have adopted it, but what is holacracy, exactly? And is it right for your company?

Imagine walking in to work one day to discover that you no longer had a boss or manager to report to. Instead, you are your own boss, and self-organized teams — rather than a hierarchical squad of managers and executives — are responsible for influencing the company’s purpose and vision.
Sound a little far-fetched or utopic? At Zappos, a company that employs about 1,500 people, that management approach is reality and it’s got a name — “holacracy.”
In December, Quartz’s Aimee Groth first reported that the online retailer was transitioning to this relatively new organizational process, shunning traditional job titles and management hierarchy and embracing a self-governing system that changes how decisions are made and how power is distributed.
“We’re classically trained to think of ‘work’ in the traditional paradigm,” said Zappos’ John Bunch. “One of the core principles [of holacracy] is people taking accountability for their work. It’s not leaderless. There are certainly people who hold a bigger scope of purpose for the organization than others. What it does do is distribute leadership into each role. Everybody is expected to lead and be an entrepreneur in their own roles.”
Of course, holacracy isn’t exactly a new concept. Entrepreneur Brian Robertson first introduced holacrarcy in 2007 and Twitter founder Ev Williams has implemented it with his new company, Medium. However, Zappos is by far the biggest company to embrace it thus far, and that’s caused many to wonder whether holacracy will really work at scale.
The question, then, is whether or not this management style is right for your company? Do the pros outweigh the cons, and what kind of risk is involved with making a holacratic transition?

Dissecting the Principles of Holacracy

At a high level, holacracy is about authority.
In a holacratic environment, no one has the power to tell anyone else what to do, and there’s no organizational chart that dictates specific responsibilities for each role in the company.
Learn more about Holacracy here.
Instead, authority in a holacracy is distributed among all team members, and regular meetings are held to establish responsibilities and focus on the key issues impeding the company’s development. For a more detailed overview of how holacracy works, check out this chart on Holacracy.org.
At Zappos, the plan is to organize the company into about 400 different “circles” once the rollout is complete at the end of this year, and employees will serve a number of different roles within those circles over time. The goal, Bunch told Quartz, is to avoid the typical bureaucracy and politicking that often drags down growing organizations.
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How Holacracy Can Help Growing Organizations

“One of the core principles is people taking accountability for their work. It’s not leaderless….Everybody is expected to lead and be an entrepreneur in their own roles.”

— John Bunch, Zappos

While stripping a company of all management structure might sound like a perfect way to induce uncontrollable chaos, holacracy’s supporters suggest that it often has the opposite effect.
Bunch, who is co-leading Zappos’ holacratic transition, says that an organizational environment free of politics allows the business to efficiently evolve and respond to real-world conditions. A recent Texas A&M University study supports that assertion, finding that teams who managed themselves outperformed workers who were organized into traditional hierarchies.
Ultimately, there are three key arguments in favor of holacratic structure:

  • It gives everyone a voice, which often yields more ideas and more opportunity for innovation.
  • It brings clarity to the purpose of work and who is responsible for getting stuff done.
  • It’s a highly adjustable and adaptable business strategy, and allows for quicker corrections of imbalanced workloads or responsibilities.

“It’s far better to rely upon a broad base of individuals and leaders who share a common set of values and feel personal ownership for the overall success of the organization,” points out Terri Kelly, CEO W.L. Gore, in this post for the Harvard Business Review. “These responsible and empowered individuals will serve as much better watchdogs than any single, dominant leader or bureaucratic structure.”

Why Holacracy Might be a Very Bad Idea

Of course, there are plenty of potential pitfalls of a holacratic structure, as well.
Namely, without any one person truly in charge of the organization, how exactly will a growing company deal with some of the inevitable challenges of scale (i.e., firing employees, managing company underperformance, and seeking outside funding)?
As William Tincup points out in this post for Fistful of Talent, there are a few other potential issues with holacracy that might prevent it from being effective in larger organizations:

  • It isn’t for everyone: For employees to thrive in this environment, they need to be independent thinkers who are good self-managers. Unfortunately, it’s likely that you have a few people in your company right now who don’t fit that profile, and you may need to hire people down the line whose personalities and skills don’t align with this system.
  • It may make retaining talent difficult: In a flat structure, there are no promotions or incentives to climb the ladder. How will you retain your best employees if they’re offered raises and bigger titles elsewhere? 
  • The transition from hierarchic to holacratic can be difficult: Companies (and people) are used to functioning a certain way, and going flat can be disruptive if your team isn’t ready for the transition. It might work, but it might also be a total disaster. Can you afford to take that gamble?

Then, of course, there’s the possibility that the CEO might not be willing to surrender the authority and responsibility that he or she is used to having. “There’s still a need for what the CEO is doing as a spokesperson and champion of (the company’s) vision,” Robertson points out in this post for HolacracyOne, “but Holacracy fundamentally changes how CEOs influence others.”

One Holacracy Verdict: Proceed with Caution

While holacracy has been around for several years, there are several good reasons why no large corporation had implemented it until Zappos.
The reality is that it’s virtually impossible to determine with certainty whether Holacracy will work in your company until you try it. And while it might be a wildly successful transition that makes your company significantly more streamlined, innovative, and efficient, it could also send your company down a slippery slope you may never recover from.
What’s your opinion on holacracy? Have you implemented it in your organization, or are you convinced that it’s just another fad that will eventually flame out? Share your thoughts in the comments section below!
Image by Tech Cocktail

Content Marketer

Josh is a Content Marketer at <a href="http://www.getambassador.com/">Ambassador</a> which gives marketers the tools they need to grow customer relationships and drive revenue through word-of-mouth, referrals, and recommendations. Previously, he was an Account Executive at CBS, Inc.