holacracy

What Is Holacracy And Why It Matters In Business

A holacracy is a management strategy and an organizational structure where the power to make important decisions is distributed throughout an organization. It differs from conventional management hierarchies where power is in the hands of a select few. The core principle of a holacracy is self-organization where employees organize into several teams and then work in a self-directed fashion toward a common goal.

Understanding a holacracy

The core principle of a holacracy is self-organization. Instead of having employees waste time waiting for a boss to give them instructions, they organize into several teams and then work in a self-directed fashion toward a common goal.

Indeed, a holacracy empowers employees with responsibility. While they are required to complete their work in a satisfactory time-frame, how that work is completed is left to the teams themselves. This has several benefits for businesses and their employees, including transparency, employee engagement, agility, and better company culture.

Shoe company Zappos and its 1,500 employees are perhaps the most notable example of a company adopting the holacracy approach. 

Valve Corporation, a video game software company, is also an advocate. Employees there can work on whatever interests them, but they must take full ownership of the finished product – whatever the outcome.

Advantages and disadvantages of a holacracy structured businesses

Advantages

  • Purpose-driven. With the hierarchical management style removed, individual employees work toward the same goal which is soon reflected more broadly across the business.
  • Agile customer service. Zappos noted that as the company grew, they were unable to efficiently respond to customer queries because of a convoluted management structure. A holacracy allowed every employee to deliver exceptional customer service without the need to refer enquiries to more senior colleagues.
  • Sets clear expectations. Holacracies by their very nature set clear and transparent objectives, so every employee knows what is expected of them. This negates inefficiencies and the often hidden power struggles that exist in hierarchical organizations. 

Disadvantages

  • Difficult to implement in large organizations. Although the transformation of Zappos into a holacracy was a success story, examples of similar businesses doing the same are uncommon. In some cases, vast amounts of resources must be devoted to re-training. Some managerial styles also become entrenched in company culture and are hard to remove.
  • Lack of accountability. Loosely defined roles in a holacracy without distinct performance standards make it more difficult for HR departments to measure employee capability.
  • Lack of focus. The focus on teamwork can lead to confusion and a lack of focus. Decisions may be debated ad-nauseam, leading to inefficient work practices and the wrong decision being made. Furthermore, some employees have skillsets or personalities that are better suited to solo work.

Holacracy examples

Zappos and Valve are two of the most well-known examples of holacracies. With that in mind, let’s take a look at some others that may be less frequently mentioned.

Medium

Medium is an online platform for amateur and professional writers launched in 2021 by Twitter co-founder Evan Williams.

Williams adopted the holacracy model to realize several important benefits such as increased productivity, more dynamic roles, better employee relations, and more directed freedom. 

In 2016, however, Medium abandoned the approach after just four years. Company representative Andy Doyle noted that the move was not made because the idea of holacracy was invalid or ineffective.

According to Doyle, the company moved on as “many of the principles we value most about holacracy are already embedded in the organization through how we approach our work, collaborate, and instigate change. Beyond that, the system had begun to exert a small but persistent tax on both our effectiveness, and our sense of connection to each other.

In other words, Medium’s holacracy was getting in the way of work and was simply too problematic for initiatives that required substantial cross-functional coordination.

Moving forward, the company looked at ways to incorporate holacracy principles into its functional systems and horizontal management structure.

Blinkist

Book subscription company Blinkist claims it was interested in holacracy before the term was made fashionable.

Despite its obvious benefits, however, leaders at the company noted that the adoption curve was higher than some other approaches because of specific lingo employees needed to understand and embody.

There were also instances where terms were open to interpretation with no mutual understanding of how tasks should be approached or indeed who was responsible for performing them.

In response, Blinkist implemented a unique structure which it called Blinkracy – a scaled-back version of holacracy with a core focus on employee autonomy and even power distribution.

Over time, holacracy created an ideal company culture but Blinkist still felt there was too much structure to their operations.

The company believed aspects of the holacracy were too visible and that the best organizational systems tended to be those that were somewhat invisible.

Moving forward, Blinkist developed seven core values: champion self-empowerment, default to transparency, strive to learn and grow, communicate directly, support each other, leave egos behind, and embrace failure.

It then built a set of value-based processes and principles and dropped the parts of holacracy it believed were causing a lack of clarity.

Holacracy was critical to the early success of Blinkist, helping it grow from a passionate team of 4 to 40 people with an enviable culture.

The company admitted that it could have stuck with the “traditional” holacracy indefinitely, devoting more time to implementation and working longer hours .

Ultimately, leaders recognized that the specific structures and processes of holacracy were more than the company needed at that point in its evolution and simply made it inefficient.

Key takeaways:

  • A holacracy is a non-hierarchical governance structure characterized by self-organized groups who hold an equal share of authority and voice.
  • A holacracy empowers employees to become more invested in their careers through open communication and flexible work practices. This strengthens company culture and allows a business to reach its goals. 
  • A holacracy creates a purposeful and agile workforce that understands what is expected from them. However, it will not be suited to large organizations with established cultures. The focus on teamwork and loosely defined roles can also lead to substandard employee performance.

Related Leadership Concepts

Micromanagement

micromanagement
Micromanagement is about tightly controlling or observing employees’ work. Although in some cases, this management style might be understood, especially for small-scale projects, generally speaking, micromanagement has a negative connotation mainly because it shows a lack of trust and freedom in the workplace, which leads to adverse outcomes.

Delegative Leadership

delegative-leadership
Developed by business consultants Kenneth Blanchard and Paul Hersey in the 1960s, delegative leadership is a leadership style where authority figures empower subordinates to exercise autonomy. For this reason, it is also called laissez-faire leadership. In some cases, this type of leadership can lead to increases in work quality and decision-making. In a few other cases, this type of leadership needs to be balanced out to prevent a lack of direction and cohesiveness of the team.

Agile Leadership

agile-leadership
Agile leadership is the embodiment of agile manifesto principles by a manager or management team. Agile leadership impacts two important levels of a business. The structural level defines the roles, responsibilities, and key performance indicators. The behavioral level describes the actions leaders exhibit to others based on agile principles. 

Active Listening

active-listening
Active listening is the process of listening attentively while someone speaks and displaying understanding through verbal and non-verbal techniques. Active listening is a fundamental part of good communication, fostering a positive connection and building trust between individuals.

Adaptive Leadership

adaptive-leadership
Adaptive leadership is a model used by leaders to help individuals adapt to complex or rapidly changing environments. Adaptive leadership is defined by three core components (precious or expendable, experimentation and smart risks, disciplined assessment). Growth occurs when an organization discards ineffective ways of operating. Then, active leaders implement new initiatives and monitor their impact.

RASCI Matrix

rasci-matrix
A RASCI matrix is used to assign and then display the various roles and responsibilities in a project, service, or process. It is sometimes called a RASCI Responsibility Matrix. The RASCI matrix is essentially a project management tool that provides important clarification for organizations involved in complex projects.

Flat Organizational Structure

flat-organizational-structure
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.

Tactical Management

tactical-management
Tactical management involves choosing an appropriate course of action to achieve a strategic plan or objective. Therefore, tactical management comprises the set of daily operations that support long strategy delivery. It may involve risk management, regular meetings, conflict resolution, and problem-solving.

High-Performance Management

high-performance-management
High-performance management involves the implementation of HR practices that are internally consistent and aligned with organizational strategy. Importantly, high-performance management is a continual process where several different but integrated activities create a performance management cycle. It is not a process that should be performed once a year and then hidden in a filing cabinet.

Scientific Management

scientific-management
Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.

Organizational Structure Case Studies

Airbnb Organizational Structure

airbnb-organizational-structure
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

ebay-organizational-structure
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

IBM Organizational Structure

ibm-organizational-structure
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

Sony Organizational Structure

sony-organizational-structure
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

google-organizational-structure
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

Tesla Organizational Structure

tesla-organizational-structure
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

McDonald’s Organizational Structure

mcdonald-organizational-structure
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

Walmart Organizational Structure

walmart-organizational-structure
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

Microsoft Organizational Structure

microsoft-organizational-structure
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

Read Next: Organizational Structure

Read Also: Business Model

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