For the past two years, Silicon Valley has been buzzing about a trendy, innovative system of management called Holacracy. Holacracy’s central tenet is that letting employees make their own decisions leads to better results. With high-profile acolytes like Zappos and Medium, Holacracy seemed like the future. But is it living up to the hype?
A compelling origin story
The mid-1990s was a watershed moment for the developed world. The internet had revolutionized people’s ability to choose what they consumed. The web gave us unfettered access to products previously curated by local shops. Online commerce took off. But this fast-paced economy was revealing something else as well: top-down decision-making could be achingly slow, especially in the face of exponentially increased competition. Put simply, digital innovation was ushering in an era of constant change. The old management model was struggling to keep up.
And so began the hunt for a new system, one that could cope with constant change and rapid innovation. Speed was the motivating principle behind one of the earliest of these new systems, known as Agile and originally designed to improve tech innovation. Developed in 1994 and then codified in A Manifesto for Agile Software Development, Agile promoted short, iterative spurts of work followed by evaluation and redefinition. It’s a system that works extremely well for product development. Despite its efficiency in delivering projects, however, it doesn’t work well for the day-to-day aspects of running a business.
Around the same time, Jon Husband described a system of organization he was calling Wirearchy, which proposed a different framework: “A dynamic two-way flow of power and authority based on knowledge, trust, credibility and a focus on results, enabled by interconnected people and technology.” By applying a set of criteria to every decision or interaction, Wirearchy was supposed to easily and efficiently evaluate which ideas were workable in any given situation and which were not. This provided a pointer, though no practical instructions, towards the trust and empowerment principles that led to the next step towards where we are today
While Wirearchy and Agile both showed promise, it was Ternary Software that was able to fit the puzzle pieces together. But while Wirearchy and Agile both showed promise in some areas, it was the creation of Ternary Software in 2001 that was able to fit the puzzle pieces together. Founded by Brian Robertson specifically to experiment with more democratic ways of managing organizations, Ternary Software eventually birthed modern Holacracy in 2007. Robertson’s new theory built off the writings of philosopher Ken Wilber, who was a devotee of self-organizing systems called “holons.” “Holarchies are a different way of structuring an entity,” Robertson told Quartz in 2014. “They’re the fundamental building block of reality. Holacracy is capturing a broader pattern. There’s nothing sacred about what we’re doing. I don’t feel like we’re inventing Holacracy. We’re capturing it concretely in a set of rules. Self-governance is how nature scales.”
Six years later, Holacracy was implemented by Amazon-owned online shoe seller Zappos, providing the theory with a surge of (mostly positive) publicity. In 2015, Brian Robertson published Holacracy: The New Management System for a Rapidly Changing World which only added to the excitement. The media was buzzing: Could Holacracy be the organizational system of the future?
A traditional business is managed like a pyramid. Decisions come from the top and trickle down, and the product or service is delivered to customers. In this method, innovation can sometimes be dampened by the constant need to seek approval from above. This push and pull can also slow down the ideation process and frustrate experimentation. It’s a control system that worked well for a century and a half during the age of industrial growth.
By contrast, Holacracy puts all operational decisions in the hands of the staff. Employees sit within self-organizing circles, much like departments. It’s a system similar to one implemented in the 1960s by Gerard Endenburg at his parents’ Dutch firm, which was in turn modeled on a school founded on Quaker principles. A traditional business is managed like a pyramid. Decisions come from the top and trickle down. Each circle has the freedom to make decisions within its sphere of responsibility, provided they don’t adversely affect other circles or the business. In theory, the circles interact with their peers via a set of formalized guidelines. The whole thing is governed by a detailed 30-page constitution written by Robertson.
Because there is this freedom to make decisions, Holacracy should make brainstorming solutions easier and provide a quick and efficient way to discuss, test, and implement new ideas. In theory, it is supposed to lead to a culture of continuous improvement.
There are cultural benefits, too. Everyone has a voice in every meeting, which means dominant personalities or cliques are undercut. Decision-making isn’t democratic, but it is collaborative and transparent; engagement in the process is high.
The biggest innovation of Holacracy may be the way it separates roles from people. For example, the role of “HR Manager” might, in a more traditional system, include responsibilities such as interviewing, managing headhunters, and resource planning. But if you separate the role from the responsibilities, it becomes just a description of things that need to be done. Now, two people with different skills can work together to fill the role perfectly. It also means that staff members should in theory enjoy their work, because they are only tasked with doing things they have the skills and aptitudes for.
(Still) a work in progress
As we’re beginning to see, however, the workplace is not always willing or able to make these types of transitions.
Zappos CEO Tony Hsieh has been very public about his company’s hiccups over the past three years. Clearly, the transition has been difficult at times, especially implementing the unwieldy meetings processes. Extensive external help has been required.
From a business perspective, Zappos is not exactly suffering. In February, Zappos announced that its goal was to increase operating profits for 2015 to $97 million—a jump from 2014, according to the Las Vegas Review-Journal. The biggest innovation of Holacracy may be the way it separates roles from people.
When Hsieh reorganized last year and offered generous packages for staff members who wanted to leave, around 18% did so. The change, which was (not surprisingly) picked apart by Silicon Valley observers, was analyzed in very different ways. Some viewed the turnover rate as an indicator that Zappos’ grand experiment was failing. Looked at another way, however, the fact that 82% of employees reaffirmed their engagement in the unique system is something to celebrate. According to Gallup, only 31.5% of US workers reported feeling engaged at work in 2014.
Still, whichever side of the Zappos debate you fall on, it’s clear that system of Holacracy itself is still a work in progress.
Firstly, there’s no obvious way to structure salary scales. The current alternative looks at a person’s contributions instead of more established and quantifiable metrics like how many people they manage. The traditional career ladder may be more attractive to, say, growing families with higher salary requirements, or to someone who prefers predictability.
Secondly, until there are more employers who employ Holacracy, there is no easy way for people to move around the job market.
These Catch-22s may yet prove the unravelling of the Holacracy movement. And while Zappos and others like Springest, ArcaTech Systems, and the David Allen Company say they have enjoyed success, others have failed to make it work. Medium recently dropped Holacracy on the basis of its overbearing bureaucracy.
As issues are surfaced and resolved, competitive innovation remains the greatest driver of change. Holacracy is just one way to achieve what author of Reinventing Organizations (2014) Frederic Laloux describes as the Teal organization: one in which decision-making power comes from the employees rather than from bosses, with a devolved structure. Whole Foods has adopted Teal without going down the Holacracy route, as has nursing organization Buurtzorg in the Netherlands, with 9,000 employees. Laloux’s view is that in many such organizations, the rate of progress and adaptability is reliant on a coaching approach, not a management approach. This development-oriented empowerment of employees removes middle management altogether. It could also offer a balance between the prescriptive nature of Holacracy and the holy grail of a fluid, scalable, happy—and of course prosperous—businesses.
As these issues are surfaced and resolved, competitive innovation remains the greatest driver of change. And we may be about to turn a corner. The digital revolution turned the traditional hierarchy of control on its head, and a thirst for workplace experimentations has shifted employee expectations. No longer are workers interested in a constricting, top-down mode of control—now we want empowerment and flexibility. The real future of work—whether that’s Holacracy or something else—is still a ways away. But even these early beta versions prove our ongoing search for an innovative management alternative is working.
Correction (May 18): An earlier version of this post incorrectly stated the name of the Frederic Laloux book, Reinventing Organizations.