Holacracy after the hype: lessons for business

It has often been tough to separate Holacracy from its accompanying hype. The alternative management system, meant to distribute authority and unleash innovation, arrived abruptly in the public discourse when it was adopted by two companies famed for their futurist outlook and transparency.

Zappos, an online shoe and clothing retailer owned by Amazon, and Medium, a digital publishing platform, switched from a conventional management hierarchy to Holacracy. Initially at least, they struck public relations gold. The move generated a blizzard of headlines about doing away with managers, flattening hierarchies and tearing up job descriptions. The future of management had arrived, we were breathlessly told, and it was “radical”, “bold” and “revolutionary.”

So far, so hyped.

Within the space of a year both firms ran into serious difficulties with implementation. Medium was the first to cave, concluding that Holacracy asked more of the company than it was giving. In a style now known as the “confessional” blog post, Medium said a warm no thanks to a system they had found unworkable.

Zappos stayed the course but only after its CEO, Tony Hsieh, drew a much-publicized line in the sand — offering all employees the option to remain and buy into Holacracy or leave and accept a fat severance check.

The publicity pendulum now swung the other way with equal vigor. Holacracy was “utopian”, “impractical” and a “failure.” Nothing much to see here, most observers concluded, move along.

Is there an overlooked approach to Holacracy that lies between these extremes? Yes, because at almost every step Holacracy has been dogged by serious misconceptions.

First up is the ahistorical assertion that it is entirely new. In fact, Holacracy belongs firmly in the tradition of self-management that has been around since British coal miners adopted self-managing teams in the 1950s and sent productivity soaring.

When similar ideas jumped the track into other businesses they created their own jargon from “innovation task forces” in the U.S. to “participatory management” in Europe. They were adopted on both sides of the Atlantic with Volvo, in Sweden, and Fedex in the U.S. both enjoying notable productivity gains.

By the 1980s the management scholar Warren Bennis noted a broad shift towards what he called “adhocracy” — flexible, informal management structures. In all instances the goal was to free effective teams from management that slowed them down or dulled their adaptability.

Eventually what had been tried with teams was trialled with entire chunks of organizations.

In the Internet age we’ve had developments like the open-source movement, agile and scrum methodologies which have profoundly influenced how companies function. It’s more useful to see Holacracy as an iteration of these existing ideas rather than an entirely new “operating system” for organizations as it was proclaimed.

Secondly that it was democratic. Steve Denning, a consultant deals well with this misconception: “It’s not democratic; decisions are autocratic, with every employee holding a different authority to make certain decisions. So it’s not a big consensus system; it’s just more distributed.”

Holacracy was “birthed” in 2007 when Brian Robertson codified the management lessons he had learned as founder of a Pennsylvania software company. Drawing on the ideas of writer Arthur Koestler, whose 1967 ‘Ghost in the Machine’ introduced “holons” — units that are both autonomous and part of a whole.

Seeking to rectify what he saw as “messy power relationships in our organizations”, Robertson started to conceive of an “order without bosses.”

Fond of speaking in metaphors, Robertson compares his system to the natural order, saying nature’s way of scaling comes through distributing autonomy through every level. Holacracy, he explains, is a “distributed authority paradigm held in a rule system.”

Holacracy has become fraught with misconceptions that make it hard to separate the actual system from the imagined one.

In this new order organizations identify multiple nests of circles (teams) that contain sub-circles (smaller, more specific teams) and are all part of the General Company Circle (the organization as a whole). Getting all of this to work without a traditional boss setting tasks and telling everyone what to do is about getting the right set of rules, Robertson maintains.

“It’s not about throwing it out and going to chaos it’s about a better emerging order,” he says.

So far, so reasonable. Problems arise when the jargon intensifies. Holacracy, we’re told is a “social technology” akin to democracy, although not democratic. In one popular TEDx talk, he compared Holacracy to nature, democracy, constitutional monarchy and a brighter light bulb.

This brings us to one of the problems with Holacracy, which is the relentless ineloquence of its architect. His regular substitution of nouns for verbs — such as “obsoleting” — can be tiring. When the Financial Times reviewed his ‘Holacracy: The Revolutionary Management System that Abolishes Hierarchy’ they pointed out that the “book on alternative management system may be a setback for the cause.”

Putting aside the verbiage, there is a useful concession in the penultimate chapter of the book that Holacracy can be adopted piecemeal. The main reason for Robertson’s reluctance to mention this may be due in part to his business model being based on selling licenses for the comprehensive version.

Medium’s experience is revealing. Andy Doyle, their head of operations admitted that crude media coverage had largely confused what the system was: “Holacracy has become fraught with misconceptions that make it hard to separate the actual system from the imagined one.”

The system’s requirement that all every job require a fully-defined role and that every role required a comprehensive set of responsibilities became burdensome, he explains: “codifying responsibilities in explicit detail hindered a proactive attitude and sense of communal ownership.”

The end was nigh when Medium realized that Holacracy had “begun to exert a small but persistent tax on both our effectiveness, and our sense of connection to each other.”

Worst of all, for a system based on separating the professional development side of an organization from the getting work done side, Doyle writes that Holacracy was “getting in the way of the work.”

At Zappos meanwhile, 150 departmental units had evolved into 500 circles. And its 150 team leaders surged to 300 “lead links” — Holacracy’s closest equivalent to managers and the people who connect the circles to super circles.

Just as the “Zapponian” shoe-sellers were feeling the strain, the fearless CEO Hsieh threw more philosophy at them, this time in the form of colors. Frederic Laloux, a consultant whose 2014 book ‘Reinventing Organizations’ is proving influential, ascribes colors to companies according to their level of evolution. The next development stage, characterized by self-management, is teal.

“Teal is the goal; holacracy is the system,” cheered Hsieh.

Then came his ultimatum. Nearly three in ten of its employees opted for buyouts or left outright and Zappos dropped off Fortune’s List of Best Places to Work where it had been an evergreen presence.

When the Harvard Business Review got four writers, including John Bunch, a former poker player turned Zappos lead on Holacracy implementation, to evaluate the system they concluded that its suitability depended on organizations’ balance between reliability and adaptability. This is, of course, a scale not a binary question. So the answer can be partial Holacracy.

“We’d be surprised if more than 20% of the Global 1000 looked ‘teal’ in 2030, to use Frederic Laloux’s term for ‘whole,’ evolutionary, self-managing organizations. But we’d also be surprised if more than 20% didn’t significantly draw on some of the techniques within their corporate frameworks,” the quartet wrote.

It’s worth remembering what the original purpose of bureaucracy was meant to be. In the same way we now associate cubicles with conformity but their design was originally utopian; bureaucracy was conceived to liberate rather than shackle us. Bureaucracy was meant to end the tyranny of mercurial bosses by imposing a depersonalized, standardized structures and rules. An organizing principle that may be overdue “de-obsoletion,” as Robertson might put it.