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.

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.

Connected Business Concepts

u-vs-m-form-organizational-structure
A U-form (unitary form) organizational structure describes a company managed as a single unit along functional lines such as marketing and finance. Conversely, an M-form (multidivisional) structure describes a company divided into multiple semi-autonomous units. Financial targets from a central authority control each unit.
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.
matrix-organizational-structure
A matrix organizational structure generally describes a business with multiple managerial accountability and responsibility. The main types of matrix structures comprise the strong matrix (authority lies with a project manager who has a senior role within the company), balanced matrix (it equally distributes power to both the project and functional manager), and weak matrix (where power lies with the functional manager completely).
sociocracy
Sociocracy is based on mid-nineteenth-century ideas around applied sociology. Initially, a sociocracy was defined as a government applying what it had learned from sociologists to create a society that benefitted everyone. As a result, societies could avoid autocratic rulers who would only act in their own best interests. Sociocracy therefore is a governance system that helps organizations self-govern based on values of equality.
t-shaped-skills
a T-shaped profile is a person that has a deep understanding and expertise in one or two areas and a broad knowledge of several other areas

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"