Holacracy: Revolutionizing Organizational Dynamics

Holacracy Unpacked: Evaluating its Merits and Drawbacks

• What is Holacracy?
• Origin of Holacracy
• How Does Holacracy Work?
• Pros of Holacracy
• Cons of Holacracy
• 3 Elements of Holacracy 
• Examples of Holacracy
• Other Organizational Structures

What is Holacracy?

Lately, traditional hierarchical structures have been getting a lot of flak for being too inflexible and slow to make decisions. Holacracy, a management philosophy that spreads out power and decision-making across the company, is getting a lot of attention as a potential solution. For more on the ups and downs of this approach, check out this article.

Origin of Holacracy

Holacracy is a management system where power is shared among different groups of employees, rather than being concentrated in the hands of leaders or managers. In a holacratic system, decision-making and responsibility are shared among these circles, which makes the organization more flexible and autonomous.

The idea of “holarchy” was first introduced by Arthur Koestler in his book The Ghost in the Machine in 1967. This term is used to describe how holons—which are autonomous units that act independently but exist within a larger organization or system—connect with each other.

The idea of a “holarchy” helps us understand how different levels of an organization interact. It’s a complex hierarchy where each level has its own importance and autonomy, but it also depends on other levels for the overall functioning of the system.

Holacracy as a management concept was created by Brian Robertson in the late 2000s. An entrepreneur and global expert in management, Robertson founded HolacracyOne to create his holacratic management system as an alternative to traditional hierarchical structures, where power and decision-making are more evenly distributed throughout the organization. He wanted to create a more flexible and adaptable management model that could respond more effectively to changes and encourage innovation within companies.

Robertson felt that traditional hierarchical structures could stifle innovation, slow decision-making, and limit employees’ creative potential. As a manager, Robertson wanted to create a management model that was more democratic, flexible, and encouraged leadership development at all levels of the organization. These reasons and goals formed the basis for developing the holacratic management system.

How Does Holacracy Work?

Holacracy uses roles that can change and evolve instead of traditional positions and hierarchies. Each role is based on the skills of the person in it and what the company needs right now. Roles are aligned with the company’s goals and can include different functions and tasks. Plus, team members can be part of larger groups that act semi-independently.

This system has a specific governance process for creating and modifying roles, responsibilities, and policies within the organization. This process includes regular governance meetings where everyone can chip in with advice and suggestions for their colleagues. Once everyone’s had a chance to weigh in on the proposals, we make decisions collectively, taking into account how they’ll impact the organization’s goals and objectives.

Tactical meetings, or check-in meetings, are held to address current operational issues and make sure everyone’s on track with their work. At these meetings, role holders let others know how they’re doing, talk about any problems they’re having, and ask for help or advice from other team members. This helps the team work together more effectively and smoothly.

In holacracy, each role in a circle has clearly defined duties and expectations. These duties lay out exactly what each role is responsible for. When we’re assigning roles, we think about each person’s skills, interests, and capabilities. One person can do several roles at once. For instance, an SMM manager could also be a graphic designer if they have the right skills. This lets the company and employees use their full potential, even if they don’t have a particular skill in that area.

In a holacratic structure, the focus is on making decisions together. This means that power is shared among different roles, rather than concentrated in the hands of specific individuals, as in traditional management hierarchies. The people who know the most about the issue are the ones who make the decisions. The decision-making process is backed up by a set of rules and procedures to make sure everything is done in a fair and transparent way.

Holacracy is all about taking it one step at a time when it comes to growing your business. It’s all about trying new things, learning from what doesn’t work, and making things better. Regular meetings and processes give employees and teams a chance to suggest changes, try out new ideas, and make adjustments to boost efficiency and productivity.

Pros of Holacracy

Holacracy is a fresh way to run a company with some great perks. Here are six main pros:

Decentralization of Power

One of the best things about holacracy is that it decentralizes power. Holacracy lets people make decisions and take action at the level of their individual roles or circles. This makes it easier for the organization to respond to changing conditions and needs in a timely way. Decentralization gives employees more autonomy and responsibility, which can really boost their motivation, enthusiasm, and engagement.

Flexibility and Adaptability

Thanks to the way power and decision-making are distributed at the role level, the organization becomes more flexible and can respond to changes in external conditions, market requirements, or internal needs more quickly. Each role in holacracy has its own set of duties and powers, which means that decisions and actions can be made more quickly and in line with current tasks and goals. This makes the organization more efficient, more flexible, and able to implement new ideas and projects more quickly. This makes the organization more competitive and innovative.

Transparency and Clarity of Roles

In this system, each role has clearly defined duties, rights, and responsibilities, which helps to create a clear management structure and understanding of one’s place and contribution to the organization’s work. When it comes to power distribution and decision-making, transparency helps avoid misunderstandings, conflicts, and work duplication among employees. It also promotes more effective coordination of activities within the team or organization. When roles are clear, employees work more efficiently, develop their skills, and feel like they’re part of the company’s goals and values.

Delegated Decision-Making

By letting people make decisions at their own level, the company can get more people involved in decision-making, which means better decisions. Each role in holacracy has the freedom to make decisions within its duties, which means they can respond to new issues faster, make changes and process improvements, and make sure employees are responsible for their work outcomes. Another great thing about distributed decision-making is that it helps employees develop leadership skills, encourages them to take the initiative, and gives them more independence in their work. Plus, it improves the quality of decisions because each participant brings a different perspective and experience to the table.

Encouraging Self-Organization

When employees are encouraged to take the lead, they feel more motivated and engaged. They take responsibility for their work and can actively shape the company’s future direction. This approach also helps create a more flexible and effective team, improves communication and interaction among employees, and contributes to a favorable and productive work environment.

Rapid Response to Changes

Each role in holacracy has the freedom to make decisions, which means they can respond more quickly to new challenges, emerging problems, or opportunities for development. Thanks to the transparent management structure and clear roles, employees can make decisions quickly in line with set goals and tasks without wasting time on lengthy hierarchical processes. This speeds up processes within the company, makes work more efficient, and helps the company compete better in the market.

These benefits make holacracy a great way to manage organizations, encourage development, innovation, and successful adaptation to modern challenges and opportunities.

Cons of Holacracy

While holacracy has a lot going for it, there are a few things to think about before you go all in. There are a few drawbacks to holacracy.

Implementation Complexity

Holacracy is a pretty big change for any company, and it requires a lot of work to make it happen. For holacracy to succeed, the company needs to create an environment where employees are ready for self-organization and equal responsibility. If there isn’t enough of an evolutionary culture, it can make it harder to implement holacracy.

Also, to get holacracy up and running, you’ve got to tweak existing business processes to fit the new management model. That can take a lot of time and effort, especially if the company isn’t ready for change.

Training and Support

It’s important that everyone in the company gets trained and supported to understand holacracy principles and processes. This might mean spending some time and money on training and educational programs to make sure that everyone understands and accepts the new system. If people don’t understand what’s going on, they’re going to be unhappy and reluctant to change. It’s important for employees to understand the company’s goals and how they fit into the new system.

One downside of holacracy is that it can lead to a loss of cohesion. This is because power and decision-making are decentralized at the individual role or circle level. This can lead to a loss of overall vision and strategic direction in the organization. Each role may focus on its tasks and goals, not always considering the company’s overall goals and values.

Because there’s no clear hierarchy or linear management, employees have to be pretty self-organized and responsible. If the company isn’t ready for this, it can mess with the company’s cohesion.

Lack of Role Clarity

Since roles can change and adapt, employees might get confused about what’s expected of them in a particular role. They might be doing a few different jobs at once, which can make it hard to know who’s responsible for what. Holacracy just helps you organize processes, but it doesn’t answer questions like “What exactly needs to be done?” and “What decisions to make?” This can make roles unclear.

Communication and Alignment Challenges

Because each role has its own duties and decision-making autonomy, it can be tough to get everyone on the same page or to make sure everyone’s actions line up. This can lead to conflicts, ineffective communication, and make it harder to achieve common goals and coordinate work within the organization. To get past these hurdles, it’s crucial to hone in on effective communication strategies, set up clear pathways for alignment and collaboration across roles, and foster an open and engaging environment to foster harmony and cohesion in the workplace.

Lack of Participation from Some Members

In holacracy, there can be times when some team members don’t put in enough effort or show enough interest in their work and decision-making. This can be caused by a number of different reasons, such as a lack of motivation, unclear roles or tasks, insufficient support from leadership, or a lack of understanding of the goals and significance of their contribution.

Implementing holacracy requires careful planning, training, and support to ensure a successful transition and maximize the benefits of this management system.

3 Elements of Holacracy

Holacracy is built on three main elements. Let’s take a closer look at each of these elements with an example from a fictional company, InnoTech, which develops digital products.

1. Circles

Holacracy uses a circular structure to form groups. Each circle has roles that work according to a specific set of rules, goals, and ways of achieving them. Even though different circles might have different roles and work on their own, there are two key elements that connect them all: the Lead Link and the Rep Link. Team members in these roles get together with other circle members at governance meetings to work out how to make sure everyone is on the same page and working towards the company’s goals.

In InnoTech, circles look like this:

Product Development Circle

• Focus: They’re working on new tech products.

• Members: We’ve got engineers, designers, and product specialists.

Marketing and Sales Circle

• Focus: Spreading the word about our products and getting new customers.

• Members: Marketers, sales pros, and PR managers.

Finance and Administration Circle

• Focus: Handling the company’s money, keeping track of the books, and managing the office.
• Members: We’ve got financial analysts, accountants, and administrators.
  

2. Distributed Authority  

In holacracy, decisions are made by everyone in the company, so each employee has the freedom to make their own choices and take responsibility for their actions. This approach makes management more flexible and adaptive, which encourages innovation and creativity. It makes sure that everyone knows what’s going on, which is great for getting work done and developing the company.

For instance, InnoTech is planning to launch a new product that combines technologies from various fields, including electronics, biotechnology, and information technology. To make sure the product launch goes well, the marketing, production planning, and budgeting have to be in sync. The leaders of the Product Development, Marketing and Sales, and Finance and Administration circles decided to have a quick meeting to discuss and agree on the launch strategy.

At the meeting, folks vote on a few questions:

• Marketing Strategy: What’s the plan for product marketing? You’ve got a few options here, including traditional marketing, social media, online advertising, and so on.

• Production Planning: What’s the production schedule for the product launch? You’ve got a few different options here, like mass release, limited release, or a gradual launch.

• Budgeting: What’s the budget for the product launch? You’ve got a few different options here, including a fixed budget, a flexible budget, and a performance-based budget.

The votes will decide the product launch strategy.

3. Role Flexibility  

In holacracy, role flexibility is really important. Each role is clearly defined with its duties, authorities, and goals, but it can change and adapt according to the organization’s needs. This flexibility lets employees organize their work, create teams and workgroups that can form and disband quickly based on tasks and projects, ensuring maximum efficiency and adaptability.

InnoTech is launching a project to create a smart home device that integrates smart home functions, security systems, and energy saving. The device will be an innovative solution that lets users control lighting, heating, security, and other systems in the home through a mobile app. One of the engineers from the Product Development team is taking on the role of designer for the project. 

Their job is to:

• UI Design: We’re creating a user-friendly and intuitive interface for the mobile app to control the smart device.

• Device Design: We’re creating an aesthetically pleasing and functional design for the device, taking ergonomics, aesthetics, and user convenience into account.

• Material and Color Selection: Figuring out the best materials for the device case and the color scheme that matches the brand and what users want.

These three elements—circles, distributed authority, and role flexibility—are the heart of the holacratic management system. They make it flexible, transparent, and easy to distribute power and responsibility within the organization.

Examples of Holacracy

Holacracy has caught the attention of lots of companies in different industries.

HolacracyOne is a big player in the world of holacracy and offers consulting services to other organizations looking to implement this management system. HolacracyOne was set up in 2007 by Brian Robertson and Tom Thomison. They created the first version of the Holacracy Constitution in 2009. HolacracyOne’s Holacracy Constitution has five modules: organizational structure, interaction rules, tactical meetings, authority distribution, and the decentralized management process.

One of the best-known examples of holacracy is Zappos, which adopted this system in 2013 with support from HolacracyOne. Not long after, 18% of their 1,500 employees left, and some of them said that the transition to holacracy was a reason for them to go. They say they’ve always used a hybrid model that works for them, even though they’ve stepped back from the traditional version of holacracy.

Medium, Airbnb, and GitHub are other companies that have incorporated holacracy into their organizational structure with the help of HolacracyOne.

Other Organizational Structures

There are lots of different organizational structures that companies can use, in addition to holacracy. Here are a few examples:

Functional Structure

This is one of the most common forms of organization. It’s based on dividing the organization into departments or functional units based on their specialization (e.g., marketing, production, finance). The main things to look out for are dividing the company into departments, having a clear hierarchy, focusing resources on specific goals, and keeping communication to a minimum.

Divisional Structure

This structure divides the company into different divisions based on products, markets, or geographic areas. The main things to look out for are dividing the company up by products or regions, letting each division be pretty autonomous, results-based management, and putting the customer first.

Matrix Structure

This structure combines the best of both functional and divisional aspects, allowing organizations to merge the two models for effective operation. This structure has a few key features, including dual reporting lines, functional specialization, project orientation, and flexibility. However, just like the divisional structure, the matrix structure can be pretty complex to manage.

Network Structure

In this structure, the company works with external partners, suppliers, contractors, and others to achieve its goals. It’s flexible, you can access specialised resources and skills, it expands your resources, and it’s creative. But there’s also more risk because you’re depending on external partners.

Line-and-Staff Structure

This classic setup is all about clear lines of authority, with each employee reporting to one direct supervisor. This structure has a clear hierarchy, a simple and transparent structure, uniform decision-making, management efficiency, and limited flexibility and communication.

Every organizational structure has its own set of features, advantages, and disadvantages. The best structure for your business depends on your company goals and the external conditions you’re facing. It’s important to choose the right organizational structure for your business. It affects everything from management to communication to employee satisfaction.