Holacracy: The Scientology of Organisational Management

In 2013, before the whole Zappos organisational restructuring buzz, I came across the term Holacracy through Holacracy.org while doing some organisational research.

What is Holacracy?

Holacracy essentially is a self-management heterarchical organisational structure – along the lines of a boss-less society completely removed from a traditional top-down model of management.

Brian Robertson, a former software developer and entrepreneur turned management guru, pioneered the concept of holacracy. Essentially, the idea came from his experience in software engineering from the 90s where there were groups of engineers directing projects together without a lead engineer.

Holacracy, in application replaces the traditional pyramid hierarchy and eliminates the need for managers who are replaced by ‘lead links’, responsible for assigning roles to designated circles.

The key difference between the traditional manager and lead link is that the latter are not there to manage individuals but instead represent the circle overall.

Distributed authority also means the role of hiring and terminating staff, approving expenditures and other operational matters are determined by a committee, much like political representatives of a democracy.

In effect this self-management model draws some congruencies with what is termed in traditional organisational theory a fishnet structure which pulls in expertise where needed, also heterarchical but with the informal, adaptive structure of an adhocracy.

With both fishnet and holacracy being grounded from IT (similar to the tree model for virtual networks and nodes in Web 2.0 like forums, wikis, blogs and similar systems), the advantages for both holacracy and fishnet structures are that they are highly dynamic and adaptable by nature.

Both structures, however, struggle with collective decision making, despite holacracy being grounded on a collective consensus amongst the circle for decisions. The downside being this can often be a long tenuous process (as all members get a say before the decision can be made) and decisions can be inconsistent due to changing group dynamics in larger organisations.

The Zappos Holacracy Fiasco

This surprised me especially when the whole Zappos feed started hitting the headlines a couple of months ago. How would holacracy apply to an organisation of Zappos size?

Founder and traditionally CEO of Zappos, Tony Hsieh started the move to holacracy from a simple idea of operating his company as if it were a city.

Hsieh studied urban development and took note from Harvard professor Edward Glaeser’s “Triumph of the City” which was grounded on the theory that when a population doubles in a city, innovation and productivity increases per capita by 15%, yet the opposite happens in a company.

With this philosophy in mind, Hsieh set out to reinvent his organisation to resemble that of a city and found if ‘holacracy’ was applied to the organisational structure that the employee-centric culture could be exemplified.

Hsieh took on board Robertson, to facilitate the transition. By May 2015, however, only 86% of the company was on board the transition and the remaining 14% were given an ultimatum including a severance package of three months pay to leave the company or stay with the firm and get on board the new organisational structure.

The Backlash So Far

Though still far from mainstream, Holacracy has made huge strides in the past two years since the topic fell into my radar. Twitter co-founder Evan Williams’ blogging platform Medium jumped on board the holacracy train and so did cash automation technology company Arca.

Though I can see how it would still work for small enterprises, startups and pure play services with a small number of high level expertise, there are some red flags for Zappos in the long run, especially in the enterprise manufacturing game of Zappos size.

Some benefits? It facilitates innovation and creativity and can lead to a more efficient and productive company, in theory.

Yet there are definitely some unanswered struggles with the self-management concept.

  • How do we game the system? ‘Lead links’ in essence resemble apex management and ‘representative links’ resemble that of middle management. As one former employee stated it would be easy to ‘game’ the system to essentially create a layer of management.
  • Who makes the decisions? There is less control over decision-making and coordination and these require more time to implement. In turn the lack of responsibility within the organisation, translates to poorer customer-focus, as there is no body to escalate complaints to.
  • What of territorial disputes and conflicting job roles? As people are naturally territorial, self-management may lead to lack of boundaries between divisions and job roles. Double management may inadvertently occur where two employees take on the same role or job due to lack of designation. As jobs get more complex, more misunderstandings may arise between conflicting roles.
  • Short term empowerment and long term employee disengagement. Not everyone has an entrepreneurial spirit to self-manage and some more than others need the structure of consistent direction which is so deeply engrained in traditional workplace culture.
  • What about career aspirations? It’s still not that staff take employee equity and can truly take ownership of tasks as part owners of the firm. And thus, long-term performance may struggle to maintain standards.
A Breeding Ground For Snakes In Suits

In theory, the proposition remains that a firm’s organisational structure and business strategy needs to align for the firm to yield superior performance. For firms such as Zappos, where there is a focus on driving business innovation and creativity, the holacracy structure does lend to the quirky cultural orientation of the firm, which could in theory lead to a high-performing business. Being more adaptive to change and able to change as the internal environment is the driving force of the organisation, this makes Zappos more resilient to market disruptions.

Typically though, ‘inside-out’ organisations leverage core competencies within the organisation through managers who are designated to seek out high-performing talent and leverage ‘capability teams’ or performance circles (the whole circle phenomena of holacracy is an age old organisational concept).

Yet the problem with a decentralized holacracy stands out. Formal meetings, governance and tactical meetings, are in place to streamline decision making processes, but there is still little emphasis in holacratic firms on benchmarking to monitor performance standards. There’s also no longer career progression and job titles in place to fuel competitive streaks.

Especially where hiring and firing staff is no longer subject to standard HR policies, but rather more likened to a popularity contest amongst peers, will long run performance suffer as a result?

Will pay structures also be a popularity contest and not based on performance?

Assuming there are still incentive mechanisms in place to meet KPIs, doesn’t this organisational structure truly facilitate opportunists and Snakes in Suits where there is no grounding from management? (Yes, I know we’ve touched base on Snakes in Suits last month which is why I’m still bent on HR this month.)

Maybe leaning on the sceptical side, but it’s a disfunctional and risky move for an enterprise level organisation of Zappos’ size.

Robertson and Frederic Laloux (author of ‘Reinventing Organizations‘) discuss some of the above critiques in the video below. But it really seems to me they are still beating around the bush in addressing some of the flaws of holacracy.

Why Zappos didn’t opt in for a safer option with more traditional and proven to work structures such as adhocracy or fishnet structures bypasses me.

Will Zappos move to holacracy be a flunk or will they manage to embody a ‘free’ society in the workplace?

Would love to hear your comments.

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Hoi Sze Lam

Hoi Sze Lam is an autodidact of all things digital marketing, and is a privacy advocate with a keen interest in cyber affairs. Given the time she reads, breathes and follows good food, wood fires, travel and technology from down under.

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