Today’s workplace environment is changing at a rapid pace, a far cry from the cubicle and hierarchical structure of yesteryear. In order to yield a high rate of productivity,  companies are seeking ways to understand the needs of every employee.

Some companies have ditched traditional, bureaucratic management styles for a system called Holacracy. Holacracy scraps the management hierarchy policy and replaces it with a modern corporate democracy. But how are these companies faring? What are the pros and cons of this approach?

Let's start with some background on Holacracy. Brian Robertson developed the system to solve what he saw as barriers to productivity, creativity and transparency. He created HolacracyOne, a consulting company that offers training for companies that want to implement the system. Holacracy attempts to rethink organizational management structures. 

What Holacracy offers is a structured method for achieving this goal and — unlike other systems — it does not promote a completely flat hierarchy, making it less radical than what skeptics might have you believe. With this system, employees no longer take job titles, but inhabit roles that create autonomy over their work. 

Restructuring

Organizational theorist Elliot Jaques identifies three types of structures in a company. 

  • Formal Structure is an organization's charts and job descriptions. Formal structures are often out of date and/or irrelevant when it comes to providing clarity on where to focus or what to expect from others  
  • Extant Structure is an indication of the way things are done and what is actually operating
  • Requisite Structure is what the company aspires its structure to be

According to Holacracy's founder Brian Robertson, a tension gap exists between what it is and what could be. He believes that in a Holacracy focused organization, people refer to their and others’ job descriptions regularly, sometimes on a daily basis — because these descriptions contain relevant, accurate, and useful information on what to do and expect. As a result, three structures collapse and become one. 

Case In Point

Getting Things Done is an example of that phenomenon. David Allen, CEO of the company, reorganized it using Holacracy. The company was originally structured in traditional departments. According to David, 

“Over several months, it became clear that some natural value streams within the company were getting clogged up because of how they were structured. Work was not flowing. It was ping-ponging off the different departments. We restructured our organization into three value streams with a clear customer at the end of each. We now use the structure to help push work through the value streams to get to the customer with fewer handoffs and touch points. Before, we had questions on who has authority on the profit and loss; now it is crystal clear.” 

Precision Nutrition, a multidisciplinary team of coaches for companies, adopted Holacracy when the company was growing 50 percent every year. The company adopted Holacracy to provide leadership throughout the organization, not in the managerial sense, but to give people a say in the governance and strategic meetings. 

Phil Caravaggio, co-founder of the company, said that the hardest part was making the mental shift. Caravaggio said,Other people are going to have genuine authority. They will be the authority, not me, on X, Y or Z. I will be subservient to them in these various functions.” 

He added, “Just letting go of entire chunks of the organization and allowing other extremely capable people to take that on is the hardest thing to do. It sounds trivial because it’s something that I think you’d imagine every organization has to face as it grows. But in some organizations, they really don’t face it.”

An Incremental Approach

Not all companies jump wholesale into Holacracy adoption. Many implement the system piecemeal, in different aspects of daily work. 

Medium, the online-publishing startup led by Twitter co-founder Ev Williams, has been using Holacracy for two years now. One of the system’s shortcomings was the lack of a mechanism for giving praise or feedback to employees, a task traditionally carried out by managers. To solve this problem, it utilized the system’s fast iteration process to create new roles called “Group Leads,” with the specific purpose of administering feedback to employees. 

Some companies found that feedback between peers and upward feedback was more effective in boosting productivity, rather than annual performance reviews.

Blinkist, after adopting Holacracy, got rid of managers in the traditional sense of those who oversee and keep up with workers’ progress. "For example, instead of a manager giving feedback, the group gives feedback to every team member by raising tensions in a weekly tactical meetings” says Niklas Jansen, co-founder of the company. 

Holacracy Critics

Onboarding employees to a work culture when there is no hierarchy represents a challenge for any company. Zappos, famous for offering new employees money to leave the company, saw an incrementation of 1 to 14 percent of employees opting to leave when offered several months’ severance pay because they were not embracing the changes taking place. 

Steve Denning brought up a valid question in an article on Forbes, It would thus be interesting to know how many of the 14 percent who have just opted to leave Zappos have left, not because of the failure to embrace self-empowerment, but because they were concerned at the apparent complexity of the processes being introduced.” Employees have noted the rocky transition. “It is really painful and slow at first,” said Christa Foley, a 10-year Zappos employee, in an interview with the New York Times. 

As Laura Reston wrote in an article about Holacracy complications, the irony is that holacracy is supposed to be a great leveler, tearing down red tape and formal bureaucracy that supposedly stymie creativity. And yet to make it work, holacracists have to attend hours of regimented meetings conducted with a procedural formality that seems antithetical to the original intent.

In Zappos, critics to Holacracy are split between those who feel comfortable working under this style of management and others who criticize it for being too rigid and dogmatic. As Rachel Emma Silverman of the Wall Street Journal suggests, it might take “five extra hours of meetings a week as workers unshackled from their former bosses organize themselves into circles and learn the vocabulary of Holacracy.” 

Critiques are also based on the questions left unanswered. As Aimee Groth wrote in Quartz, “HolacracyOne provides a basic framework but has left big questions unanswered, like compensation and hiring/firing.” It becomes harder to calculate compensations in a team where people perform multiple roles at the same time and switch on a regular basis. Companies like Zappos have created a specific department to calculate compensations now that they operate under Holacracy rules.

Through Holacracy, employees are given the opportunity to be leaders in their own right. However, adopting this new structure can be a shock for many, especially employees coming from a bureaucratic background. The system doesn’t appear to offer a clear pathway for its adoption, making the latter even harder and improvised.