Leadership by Virtue: Does Holacracy Need Leadership?

Source: Posted on January 14, 2015 By Ted Bauer (thecontextofthings.com

BA 7910
November 7, 2015
Howard Eaton
Introduction:
The main objective of Holacracy is to distribute leadership and decision-making throughout an organization so that fewer decisions get bottlenecked with the boss, which, results in faster decisions, improved creativity and innovation, and improved productivity. Holacracy has become more popular in the last decade as younger and more visionary C-suite leaders balk at conventional, top-down organizational structures to seek out new “open” ways of working that are fast, agile, and that succeed by pursuing their purpose, not following a dated implicit organizational plan. "The industrial age operating system is no longer compatible," said Traci Fenton, the founder and CEO of WorldBlu, which preaches the Freedom at Work method used by hundreds of companies worldwide, including Zappos before it adopted Holacracy. "You have to move into the new age to realize we've outgrown the clothes." (Greenfield – HolaWhat? 2015)
When companies implement Holacracy, they learn to create new structures (circles) and ways of making decisions that empower the people who know the most about the type of work the organizations perform: the frontline (customer facing) workers. Some of the notable champions of Holacracy include Tony Hsieh, CEO of Zappos.com, Evan Williams, co-founder Medium, and David Allen, owner of the David Allen Companies and known for his revolutionary Getting Things Done (GTD) method. Holacracy has been most popular with smaller companies and startups, with Zappos.com (over 4,000 employees) being the largest company to implement the system so far. Although Zappos has had it’s challenges with fully adopting the system Mr. Hsieh recently reiterated his commitment to Holacracy by issuing an ultimatum to his team to “go all-in” on the new structure or take a three month severance package and leave the company. At least 200 employees have taken him up on that offer (Greenfield – Fast Company 2015). .
The foundation of Holacracy is its constitution, which lays out the guidelines (governance) for creating a system of self-organizing circles, which are organized hierarchically. This holarchy of circles determines how work gets done. Each circle is autonomous and self-reliant but also dependent on the greater whole to ensure alignment with the organizations broader mission. “Circles are assigned a clear purpose and accountabilities (expectations) around an operational need by its broader circle” (Wikipedia – Holacracy). Circles conduct governance meetings to assign roles to individuals and take responsibility for completing work within their domain of authority. Each member within the circle fulfills certain duties in order to work efficiently to complete specific activities within the circles accountability. Holacracy gives each role the power and authority to take any action necessary to complete the work of the role unless the action violates a governance policy.

Source: Holacracy.org
The new information economy demands ideation, creativity and innovation to stay nimble and competitive. Organizations are getting flatter and most managers don’t have time to hold workers hands. As a result, the relationship between manager and employee continues to shift where managers are changing their structures to give employees more autonomy to make decisions. CEOs that have adopted Holacracy relinquished all their power to be spread among differing ‘roles’ throughout the organization.
Holacracy is still a relatively new management approach. “Holacracy was invented by Brian Robertson, a 35-year-old former programmer with barely any management experience. He created Holacracy in 2007 because he had a "burning sense that there has to be a better way to work together," he said in an interview with Fast Company” (Greenfield – Fast Company 2015). Several companies around the world have adopted Holacracy in its infancy and in this paper I will attempt to answer questions about implementation, the prospects of Holacracy as a “long-term” strategy, what size/type of organizations might be the best fit and the major advantages and disadvantages of transitioning to a self-organizing organization.
Leadership by Virtue: Does Holacracy Need Leadership?
Oct. 2014 http://leadershipbyvirtue.blogspot.com/2014/10/does-holacracy-need-leadership.html Though it's been around for a decade, the Holacracy doesn't have much of a track record... it is pushed by tech companies like Tony Hsieh Zappos as ‘the hot management trend for 2014’.
A noun ‘-ocracy’ or ‘-cracy’ means a government / governance by a particular sort of people or according to a particular principle: democracy (by the people); meritocracy (by people with the most ability) and a ‘holo-’ is a prefix added to the start of a word meaning ‘whole’, ‘entire’. In the book The Ghost in the Machine Arthur Koestler argued that literally everything in our world, from chemistry to biology (atoms to molecules to cells to organisms), life forms, or even our cells that form an organ and organs form our body and society are nested hierarchies of entities, which, for lack of any existing word, he called ‘holons’.
In organization Holacracy is the concept of self-directed work teams. In business environment it is a rather new management practice that is floating around like ‘lean (manufacturing) organization’, ‘distributed authority’, ‘agile organization’, ‘Six Sigma excellence’ in times organizations need different structures and governance to get top competitive advantages. It differentiates from other practices by being perceived as (new) ‘open allocation’ management structures that (mostly) eliminate bosses.
Unfortunately, the notion that Holacracy is non-hierarchical proved as a nonsense. Brian Robertson (Ternary Software) introduced Holacracy to the world through a 2007 article as the idea how to put a lot of emphasis on consensual, democratic decision-making and getting everyone’s opinion. He defined it as a set of inward-looking hierarchical mechanisms that connect the teams or work circles. Then, a vertical hierarchy between those circles is still required within the organization. Instructions, information, decisions and guidance on how something has to be done should correspond to the purpose of doing business and is passed from above circle to the below one. Hence a hierarchy stands.
The notion “Holacracy has no managers” is another misinterpretation. It is true that in Holacracy there is a lack of titles but there are ‘roles’ that are, in every respect except the name, ‘managers’ or ‘leaders’. The explanation that any employee can take a special role for a special task and work on it until successful completion (or failure) is a dangerous simplification. The work in nowadays organizations is (mostly) done by a team or group or a circle and not (rarely) on single employee’s level. Therefore communication and coordination is a must. Each group, team or circle has a designated leader with the authority to appoint and make decisions within the circle... and people follow him. Obviously, leaders or managers are present.

“Ninety of approximately 100 branded management ideas I’ve studied so far have lost the popularity within a decade or so,” wrote Julian Birkinshaw of London Business School in the May issue of the Harvard Business Review. Where will the Holacracy be in a decade from now? Mr. Pfeffer notes a paradox: in small firms or startups where Holacracy is mostly implemented, the only thing stopping them to revert to a traditional hierarchy is the entrepreneur or benign-dictator CEO, whereas in a long-established company with many levels of hierarchy, the boss is the one to be the biggest obstacle to adopt Holacracy. Most probably we should wait some more time to tell the real impact and outcome of this new management tool.
With all of the above my questions about implementation of Holacracy are: “Do people self-regulate as well as the companies hope they do? Is there evidence that a holocracy can work in the long-run? What is the Rule of Individual Action and how does it relate to holocracy? Would holocracy work for any size company? What advantages/disadvantages do you see? Do the advantages outweigh the disadvantages? What other concerns can you think of?
Side 1:
(Pro Holacracy)
Holacracy is a platform that allows any organization to design itself around specific needs. It is a system of organizational governance in which authority and decision-making are distributed throughout a holarchy of self-organizing teams rather than vested in a management hierarchy (Wikipedia). A good sports analogy to explain this would be the Rider Cup Golf match where each player will fill roles as individual players and team players which shift throughout the weeklong tournament but are ultimately all working towards the overall mission of the team, to win the Rider Cup trophy. Holacracy has been more popular with small firms and startup companies. This distributive leadership system helps to foster healthier approaches to conflict and allow for more fluid movement between roles. Holacracy blows up the traditional model of how we work. The most notable US company to implement this new management approach is Zappos. CEO Tony Hsieh, while doing an interview with Quartz stated, “We want Zappos to function more like a city and less like a top-down bureaucratic organization, saying that when cities double in size they become 15% more productive, but when companies double in size, productivity declines” (Groth – Zappos 2015). Mr. Hsieh mentioned this while sharing his decision to replace their traditional management structure with the new Holacracy system. Reengineering Zappos has had its challenges but has also resulted in process gains for the first time in the organization. For example, at Zappos fourth-quarter all-hands meeting in November 2013, human resources head Hollie Delaney stood on stage next to Hsieh and tearly shared her experience using Holacracy. She shared that she had learned to relinquish power and as a result had experienced breakthroughs in her relationships with colleagues. Delaney told Quartz, that for the first time she and coworkers were able to “process tensions” in a healthy way. “People would always look at me: ‘Is it OK that I do this?” “Then all the sudden, I saw people break down, fear broken down.” (Groth – Zappos 2015).
The idea is one of “self-governance” rather than having a rigid chain of command. One of the core principals is that leadership is distributed into each role and people take personal accountability for their work. Each team member takes on an “entrepreneur-type” mindset and Holacracy empowers them to do so (Groth – Zappos 2015). Advocates of Holacracy have boasted about deeper employee engagement and self-regulation because of the distribution of power and territory. Most employees in successful self-organized companies are naturally and genuinely engaged in their work. Employees in companies that have adopted Holacracy have ‘real’ power and ‘clear’ territory which helps manage territorial disputes. Each staff member has a powerful voice and is organized into self-managed circles.

Source: Holacracy.org

Power and direction can flow in any direction with a focus on maximizing efficiency and productivity. “When Endenburg Elektrotechniek, a Dutch engineering company lost more than one-third of its sales, its CEO saw no other option but to lay off 60 workers. The next day, an employee called a meeting in his unit circle to discuss an alternative to shift people into a ‘concentrated’ sales and marketing effort that delayed the layoff (Romme – HBR 2015). All available employees got a one-day crash course on customer acquisition and within several weeks, the effort generated enough new projects to make the layoffs unnecessary.” This example demonstrates how an employee ‘real’ power and authority can help develop alternative solutions outside the typical management decision tree.
Side 2:
(Against Holacracy)
Adopting Holacracy isn’t cheap or easy. The self-management system has it’s on set of rules, or constitution, and is very difficult to implement. HolacracyOne, the parent company of Holacracy, offering consulting services that cost from $50,000 to $500,000 depending on how long it takes the company to achieve self – sufficiency (Greenfield – Fast Company 2015). In the beginning, companies spend a lot of time creating their structures and not doing their work. All the confusing rules, terminology and the constitution tend to scare people. Completely restructuring a company from a convention structure to circles is one of the major reasons the transition is so difficult. Not everyone has the skillsets and confidence to work in a self-directed role and feel lost without having a manager provide direction.
Because of its complexity, Holacracy is not for everyone and most companies have lost key employees as a result. For example, during Zappos implementation, they lost 14% of their staff, which included their CIO, CTO and COO (McGregor – Wash. Post 2015). Not every employee is willing to make the transition because they can’t see any immediate value from the system and they loose the ability to share ideas and complete implicit tasks like planning the company parade, which they enjoyed. Additionally, when you allow a group of people to direct their own work activity, which might work for 1-2 out of 10 people, you run the risk that 8-9 will slack off because they’re not sure what to do next and humans are not really designed for a holacratic model. Holacracy is very dependent on people that are self-motivated and can act.
Additionally, most employees at companies that have adopted Holacracy criticize the system as being too rigid and dogmatic and a hindrance to getting work done. They complained that the structure of meetings can take hours because they are filled with protocols and don’t allow for small talk. This was a part of the “rough” adjustment phase for Medium early on when they implemented Holacracy. People got stressed about understanding the system and began neglecting their jobs. Medium CEO Ev Williams commented that, "Being bad at something is frustrating. To do that something else that we're good at actually, we have to do this thing we’re bad at. As a group, we’re going to do this awkward dance. It’s hard and messy and it causes stress, and you’re like, 'why are we doing this?'" (Greenfield – Fast Company 2015).
Lastly, many larger public traded organizations fail at attempts to introduce Holacracy because full adoption would require changes in corporate-governance systems and financial ownership. Often, C-suite and boardroom executives assume the change only affects operational and middle managers and their powers would remain in tact. “For example, Zappos now falls under Amazon’s ownership umbrella; will Amazon’s ownership ultimately work against Zappos’s experiment with holacracy? And what if Hsieh’s successor someday turns away from holacratic principles?” (Greenfield – Fast Company 2015)
Conclusion:
Holacracy’s biggest value is that it provides the framework for conflict resolution. Holacracy replaces the conventional structure with a ‘structuring’ process to resolve conflicts in a less-hierarchical, self-organized fashion. Many early adopters have not committed to Holacracy as a long-term solution in moving towards self-regulation but as a catalyst to break down the convention top-down management structure, which stifles decision-making, creativity and innovation.
Although most critics of Holacracy don’t see it as a viable solution for larger companies, the concepts of distributive leadership and self-regulation can help organizations move to a flatter, more agile organizational structure.
Self-regulation systems like Holacracy are great for start-up cultures with a small number of employees that are connected and passionate about their work. However, these types of systems alone don’t tend to work well in highly structured organizations with many complex layers, departments and goals. In reality, more and more companies are adopting a hybrid model, which allows some employees more freedom to self regulate and make decisions, while others operate under a traditional leadership structure.

Source: Linda Bernardi – Washington Post
The business climate is constantly shifting to a ‘flatter’ organizational model as more millennials enter the C-suite of traditional large organizations and launch startups. Millennials desire input in decisions that shape the organizational sooner versus later and want the freedom and flexibility to solve problems (get work done) without first seeking approval from their bosses. More and more, forward thinking organizations are adopting a hybrid operational model to prepare for the next wave of workers and leveraging advances in technology by shifting decision making down the hierarchy.
References:
Bernardi, L. (Wash. Post 2015) How to build a great company by blending bureaucracy and holacracy https://www.washingtonpost.com/news/innovations/wp/2015/09/03/how-to-build-a-great-company-by-blending-bureaucracy-and-holacracy/ McGregor, J. (Wash. Post 2015) At Zappos, 210 employees decided to leave rather than work with ‘no bosses.’ https://www.washingtonpost.com/news/on-leadership/wp/2015/05/08/at-zappos-210-employees-decide-to-leave-rather-than-work-with-no-bosses/ Five Misconceptions About Holacracy https://blog.holacracy.org/five-misconceptions-about-holacracy-da84d8ba15e1#.smdjw67p5 Is Holacracy Right for you? Here’s What You Need To Know http://www.forbes.com/sites/gregsatell/2015/10/25/is-holacracy-right-for-you-heres-what-you-need-to-know/ Groth, T. (2015) Holacracy at Zappos: It’s either the future of management or a social experiment gone awry http://qz.com/317918/holacracy-at-zappos-its-either-the-future-of-management-or-a-social-experiment-gone-awry/ Romme, G. (2015) The Big Misconceptions Holding Holacracy Back https://hbr.org/2015/09/the-big-misconceptions-holding-holacracy-back Greenfield, R. (Fast Company 2015) Holawhat? Meet the Alt-Management System Invented By A Programmer and Used by Zappos http://www.fastcompany.com/3044352/the-secrets-of-holacracy Denning, S. (2015) Is Holacracy Succeeding at Zappos? http://www.forbes.com/sites/stevedenning/2015/05/23/is-holacracy-succeeding-at-zappos/ External Links * Sarder TV Youtube (https://youtu.be/Rqa8nNvYzyQ) Can You Explain Holacracy? By David Allen, Author of Getting Things Done * Holacracy Wiki (https://en.wikipedia.org/wiki/Holacracy) * Holacracy website (http://www.holacracy.org)