Is holacracy viable for your business?

Holacracy has been in the spotlight since January 2014, when Internet footwear retailer Zappos announced it was embracing the organizational structure that strips away conventional management pyramids and does away with rigid job titles. The buzz has intensified now that about one in seven Zappos employees have chosen buyouts over staying in the new holarchy.

Although the spike in interest is new, management experts say the basic concepts of holacracy go back nearly a century, to the rise of unions and the codification of employee engagement in the 1935 Wagner Act and the creation of the National Labor Relations Board.

“Holacracy is a nice, sexy, new way of describing shared leadership,” says Tom Kuczmarski, president of management consultancy Kuczmarski Innovation. “It’s the elimination of hierarchy that brings little or no value to an organization, and connecting people’s strengths with the performance metrics of a company.”

Just like the earth: not flat

Kuzmarski’s distinction is an important one. Casual descriptions position holacracy as a “flat” structure, but it does not bring the death of all hierarchy—just the hierarchy that adds no value.

Holacracy is best described in terms of circles of shared responsibility. Employees have roles within those circles, but those roles and the responsibilities they represent can shift or even vanish over time.

Circles have designated leaders, but in general their responsibility and authority is over the task at hand, not over individuals. And the circles themselves must answer to sponsoring circles, which could be thought of as being above the others in a traditional, hierarchical sense.

Meet the non-boss

Holacracy has been called everything from a radical experiment in enterprise structure to the end of the boss. Indeed, in an March 2015 internal memo from Zappos CEO Tony Hsieh, he tells his workers that “the full role of managers will no longer be necessary.”

(That same memo went on to explain that all Zappos employees had until the end of April to fully commit to Zappos, or hit the road—hence the 14 percent buyout rate.)

“The people most affected are first-line supervisors, because their jobs change from being a traditional supervisor to more of a coach, mentor, or trainer,” says M. Peter Scontrino, partner at management consultancy Scontrino-Powell. “And someone who is very autocratic will have a lot of trouble inside this kind of system, and might need to transition to another organization.”

Instead, an effective leader in a holacracy shifts the focus from corrective actions to discussions. Scontrino advises putting aside the easy crutch of focusing on mistakes, and substituting an arsenal of dozens of conversation starters that can improve performance. “Start with questions like, ‘What could I have done in the last week to help you in the project you’re working on?’” he says.

Floating between circles

Holacracy’s circles are at their best when they are self-managing, self-rewarding, and even self-flagellating. Instead of locking people into rigid job descriptions and reporting structures, the circle system offers room for exploration and development, either by bringing new capabilities to an existing circle, or transitioning into a new one.

This structure will be entirely familiar to knowledge-oriented, project-based organizations which structure teams along similarly flexible lines. It is somewhat more difficult to apply to work that is more rigidly rooted in process, such as rote manufacturing tasks.

“Holacracy can thrive in a project-based organization,” Scontrino says. “On the factory floor, you don’t have the same job-changing options because the skills requirements are different.”

That’s not to say manufacturers can’t benefit from self-governance principles. Scontrino worked with a metal producer which, faced with the need for a new $250,000 air compressor, turned the project over to a self-governing body of eight employees. The real problem was not that the plant lacked enough compressors, but that that the air from the existing units was not reaching the furnaces.

Because employees were closer to the true problem, they discovered that the air delivery hoses were in need of constant patching and repair. The employee team implemented a simple, low-cost solution: hose repair kits distributed liberally throughout the plant.

“Managers wouldn’t have found that solution. They would have found the best air compressor and bought it,” he says. “It’s a perfect example of how you can actually gain power by giving power away.”

The right fit?

Zappos was a venture-backed company when it established its reputation for managerial experimentation. Today, as an Amazon property, Zappos enjoys the support of a parent with virtually limitless investor patience.

For organizations without such deep pockets, a dramatic shift like Hsieh’s you’re-in-or-you’re-out ultimatum is a much bigger gamble. But management style is a disruptive influence on entire industries, making the shared-responsibility concepts behind holacracy too important to ignore.

“At some point, you lose your chance and it’s too late,” Kuczmarski says. “Small, entrepreneurial companies are figuring out how to apply values and shared-leadership constructs, and they are taking over.”

Jason Compton
Post by Jason Compton

Jason Compton is a writer with over 15 years of experience covering marketing, sales, and service. Based in Madison, WI, he is a regular contributor to Direct Marketing News, previously served as executive editor of CRM Magazine, and has been published in over 50 outlets.

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