(Re)defining Holacracy

There is no shortcut to organizational enlightenment, but some interesting approaches can be tried to shorten the way there.

Picture yourself knowing nothing about this strange new sport called “soccer”, and wanting to find out more about it, unfortunately only a few thousand people play it in the world and without any videos at your disposal or players to talk to, you’re left with what you can read about it and the opinions of some friends who have friends who have actually seen it play. Luckily someone hands you the Laws of The Game, 140 pages covering every detail about it. You decide to give the book a try, but after 20 minutes you quit reading and draw the most logical conclusion: “Soccer? I’d never spend any time playing something so complex and boring”

Replace “soccer” with “holacracy” and the “Laws of the Game” with the “Holacracy Constitution” in the previous paragraph and repeat the process: Congratulations! You have now reached web-level understanding of this new organization paradigm.

Don’t worry, it couldn’t be otherwise: out of 120 million traditionally managed organizations across the world only about 1000 are currently practicing holacracy. To make things even worst all public attention seems to be converging on only one of them: Zappos, at least since Tony Hsieh, the CEO, implemented a Big Bang approach to re-organizing his company a few years ago, by adopting holacracy, and making the company the biggest full scale adopter so far.

Luckily the world of holacracy is much bigger than Zappos, and it’s not limited to the US, in Europe alone hundreds of adoptions are taking place within organizations that are sometimes even bigger than Zappos (although they might not have adopted it on a full scale yet).

But why does holacracy exist?

We have been adopting the same basic principles for organizing work since the industrial revolution: the principles of the management hierarchy. The goal of holacracy is to give organizations a viable option to replace the management hierarchy entirely, to allow organizations to play a new game, and not only a new strategy inside an old game, by completely removing the concept of “subordination of people at work”

Ok then, but why should we abandon the management hierarchy in the first place ? What’s wrong with people depending on other people in org-charts? And if subordination is “the devil” why should we replace the hierarchy with holacracy and not something else?

Improving the way work is organized: a very hard task

If you fill a relevant position in a traditionally managed organization you have probably felt the urge to adjust its structure, practices, values, to move it towards an ideal target of effectiveness. You have most likely done so by redesigning the org-chart in a top-down fashion, or you have tried to become more agile, to focus on culture, to hire people that are aligned to what your company is. In spite of all efforts you have felt that in modern times everything moves faster and faster and competition is global, organization is not so much anymore about dividing work for others and giving orders to them. Organization is becoming an art of sensing and responding in a distributed fashion, an act of emulating living organisms in their fight for survival against pathogens, environmental risks and other organisms, by leveraging on collective intelligence more than military hierarchies.

If you have read the now uber-famous book “Reinventing Organizations” by Frederic Laloux, you know what this trend is about.

If companies mentioned in the book are taking that approach already, there must be an ideal organizational setup to your company as well, one that could enable you to reach that level of effectiveness and involvment, and there must be a path to reach it. The problem is: how should one go about finding it? Not all companies can rely on the geniuses of Ricardo Semler or Jos De Blok, to get to a “Teal level of organization” (the top maturity level conceptualized by Laloux in his book). And the book itself, although it is packed with interesting information, is a display of champions in the field, of “superstar soccer coaches” to go back to the intial metaphore. The “not so great ones”, those who have failed at re-organizing their teams, didn’t make it to the book, how can you make sure you don’t become one of them as soon as you start pointing your organization in that direction?

Laloux’s book is a display of champions in the field of organization design, it is an interview of “superstars soccer coaches”. The average ones, those who have failed at re-organizing their teams, didn’t make it to the book, how can you make sure you don’t become one of them?

This is where holacracy tries to kick in by proposing its own approach to the problem, assuming there is no single way there, and we can only restrict the amount of mistakes we make trying. Holacracy in its more abstract form could be defined as a set of rules to help an organization reduce the number of places it has to search in order to find a better and more effective structure

holacracy in its most abstract definition is just a set of rules to help an organization reduce the number of places it has to search in order to find a better and more effective structure.

allow me to try to explain the concept with a graphical representation


Search spaces for organization improvement: Total cost includes the value of the time spent trying to improve

Holacracy is basically an organizational package with a message on it, that says: ”Don’t try to aim for level (Z) right away, take your organization from where it is now (A) to some intermediate point (B), which is the entrance to a safe playground where you’ll have more chances to get closer to level Z on your own”.

Why is that playground (blue area) considered by holacracy proponents to be smaller and safer with respect to the full range of all other alternative choices your organization could make tomorrow? There are mainly 3 reasons for that:

  1. Because it is constrained by a set of basic interaction rules (The Constitution) that have been created with the purpose of addressing the pitfalls of the management hierarchy (politics, unclear accountabilities, subordination of people,…)
  2. Because those rules evolve with the input of other organizations already living in that space (allowing you to exchange findings, practices, and to learn by proximity)
  3. Because, since your organization will also evolve its own structure based on those basic rules, you will be able to cut any other external dependency (no more consultants or organizational geniuses to be hired)

Holacracy tries to be an operating system on which you then build your own organization structure as if it was an application, by offering you some features of human interaction at work , that those who are still using older operating systems cannot have access to because these features would conflict with some pillars of the status quo and be rejected right away. It presents itself as an upgrade from the management hierarchy, that you can optionally “download” and install in your company ( it is open source after all) if you wish.

— From here to Teal — in two alternative ways…

In order to better show the different nature of the two search spaces an organization may navigate according to its initial choices, I will make use of a fantasy tale about two companies. Taken one by one all episodes mentioned in the narration are actual facts extracted from the history of real companies that have taken one of the two paths, but these two specific companies do not exist, it’s just a way to make this post less boring by restraining from filling it up with bullet lists ;-)

The story of BESTWAY

BESTWAY has tried re-organizing autonomously several times in the past but with little success, this time they have hired McMenzy, a consulting company with an extensive experience in org-design. The consultants are now in, and they have laid out a clear plan of action: they will start by assessing the current situation before suggesting what improvements should be made.

The assessment takes 3 months, it involves interviewing key people, analyzing processes and defining new KPIs. With all the information at their disposal the consultants are ready to help BESTWAY reorganize, after a couple of weeks of design they present an extensive optimization plan to the CEO of BESTWAY and a new org-chart, they are even willing to guarantee results provided the plan is followed to the letter.

The execution phase starts, it will take 6 months, some will be fired, some business units re-organized. Surprisingly, 3 months in the process, the CEO decides to stop the implementation. An independent internal survey reveals a complete detachment of employees most of which are now actively disengaged, the plan has completely subverted the power structure, imposed absurd saving targets, and old resentments have been amplified with people occupying positions they are not felt to deserve. While numbers do not reveal any problem yet, the CEO is afraid of the long term consequences of the plan, he knows he will loose some key people if the implementation continues.

Luckily, Jack Chan, an HR expert has recently joined the company, he has already outlined a strategy to improve organization effectiveness that follows a completely different philosophy, he’s determined in shaping a new company culture, based on values which in his ideas will need to also be reflected in a new compensation strategy that rewards collaboration more than anything else. In less than a year the efforts of Jack Chan have produced great results, so good that Jack has received an offer from a competitor that he cannot refuse, unfortunately with his departure most of the benefits of what he had put in place have been slowly vanishing, the fact that they had not really emerged from an inclusive process always tagged them as “Jack’s ideas” after all, and although most loved him and his passion, not everyone did, especially some managers that had felt threatened by the new way of doing.

The Board decides that the company needs to send a strong signal to the market and a radical move is made: a new CEO is hired: Elon Tusk. Elon is a brilliant individual, a serial startupper in his own right who’s looking for a new challenge. The severity of the situation has given Elon full power to act and he will start right away, he knows that holding absolute powers in his hands in the long term won’t serve the purpose of the company because it won’t leverage on the value of collective intelligence, something that’s become more and more important in a world that moves faster every day, but he also knows that in order to get there he will have to act like a benevolent dictator, at least in the beginning, he will therefore fire 30% of the managers, setup full transparency on wages and expenses, base career paths on meritocracy by peer evalutation, adopt a clear decision process which he has called “The Advice Process”, and ultimately raise the bar for the quality standards of new hires.

The story of ACME

Acme starts in the extact same conditions as BESTWAY, but has decided to take a different path. After attending an holacracy workshop, the CEO is committed to giving holacracy a try and he has made an internal announcement to all employees, a few external coaches will help smooth the transition. Many people are curious about a change that is marketed as bringing “fairness and transparency” to ACME but since day one skepticism and optimism coexist. On launch day the CEO ratifies the Constitution, he will cede his power to the rules of holacracy and from now on, on par with others, he will simply fill specific roles in which he will perform his work as anybody else, loosing his power to give orders, but not his power to lead and be an example to others.

A boost in productivity takes place in a few weeks after kick off, clarity rises as new streamlined meeting formats are adopted and work to be done is spelled in roles that are much less obscure than old job descriptions. Since traditional management titles do not exist at ACME anymore (if not for symbolic reasons when interacting with some clients), there’s no backfiring of old practices and power structures, nor old managers can try to pollute decisions with their personal needs for power and visibility, unfortunately for that same reason some valuable managers have decided to leave the company because they feel that they are not regarded as important as they were before.

After only 3 months, the initial enthusiasm has vanished and a new, previously inexperienced type of discomfort has caused a sudden decrease in productivity… It’s not so much about how holacracy works, it just seems to have negatively impacted the previous natural sense of how to fuel professional collaboration with human relationships, a key component of how work was taken care of before, suddenly everything feels mechanic, cold, and distant and there seems to be no place to connect from person to person, it’s all about roles, policies, domains… The coaches are telling the CEO that this is perfectly normal, but he’s worried nonetheless.

At 6 months into holacracy things are finally starting to improve at ACME, the dark period has brought light to some previously unaddressed issues that pertain to the cultural and interpersonal levels of interaction, the straightforwardness of holacracy and the transparency it brings to the table, have set up a space to shed light on some ancient company problems for the first time, without worrying about personal backlashes. Some sense that the constant overlap of work and feelings was preventing those problems from being addressed properly in the past. This new light has generated some important consequences: proper contexts have been created for people to interact at the “tribespace level”, specific coaching roles have been created to address personal issues as they arise and before they impact the quality of work, a new recruitment process has been put in place in order to guarantee from day one that each new employee is a good fit to the purpose of the company, ACME has entered its evolutionary safespace.

Freed from the bottlenecks of hierarchical decisions making ACME is experimenting a lot and fast, the organization adapts constantly to mutations in both market and internal needs, entire business unit are refactored, created and dismantled and this is not a trauma for anyone, because people fill several roles inside the company and are not confined in generic job descriptions that tight their careers to the destiny of specific parts of the company. The rules of holacracy, grounded in the Constitution that was signed on the first day of adoption, prevent the hierarchical antibodies from striking back, and whenever a strong personality comes along he/she can contribute to the company success without undermining the quality of relationships between colleagues, as personal matters in holacracy are completely separated from governance and operations, and no politics/screaming/cliques are needed to get your good ideas through. Best practices from the outside world are continuously integrated in the organization by creating dedicated roles to put them into practice, in several organization circles (that’s the name holacracy gives to teams) roles such as Scrum Master, and Product Owner had already acquired organizational evidence early on, now new tools and meeting formats are being experimented with and introduced into practice.

After a couple of years ACME is completely transformed, a new company culture has been sculpted by the liberating rules imposed by holacracy, and holacracy itself has somehow fallen into the background, it’s still practiced but almost on a subconscious level, the company purpose is now very clearly defined and all colleagues works in unison with minimal need for alignment. But people at ACME don’t stand still, the organization has even created a team (or a Circle as they call it) that is devoted to “organization evolution experiments” and they are now testing their own beliefs against an even newer, alternative way of doing work together , it requires modifying some of the existing rules in the Holacracy Constitution, if the sand box test will confirm the benefits they might even go about creating a new model out of what they already have. The approach to the roll-out will be the usual, if it’s safe enough to try it will be tried. In order to further evolve ACME is also thinking about redefining the company legal structure aiming at a more diffused concept of ownership, “should we completely separate ownership from operations? or distribute property between all our employees?” that’s the main question and they are looking for an answer.


Two different ways to navigate the search spaces: ACME (in blue) BESTWAY (in orange)

If holacracy is this “Organizational Panacea”, why isn’t everyone doing it?

IT IS NOT! The advantages of holacracy are there and the increasing number of adoptions proves it, but they come at a cost, mostly an intellectual cost not all power holders are accepting to pay, (yes, a monetary cost of the implementation still exists, if you want external support)

Here’s how you pay that intellectual cost:

  1. The ratifier (be it a manager, if holacracy is applied to only a subset of the company, or the CEO), and ultimately all his colleagues, have to be willing to challenge some assumptions about organizing work and assigning power. Those assumptions have been taken for granted for decades, they emerge from practices that are 100 years old and are still taught at MBA courses.
  2. The organization has to stick with holacracy for at least a few months , keeping an open mind, regardlessly of the intermediate outcomes (luckily this can be done locally, in specific teams to begin with). It is unlikely that after the initial months point (B) in the chart will be reached, but the ratifier will be able to make informed decisions about staying on this path or trying a different one.
  3. The organization has to resist the temptation to modify/bend the rules of holacracy. The minute that happens , the safe evolutionary space is broken and the organization may fall back in the broader space. Nothing wrong with that, especially if holacracy has brought some new insights that might still help orient future decisions, but in order to bring those insights, in order to cause a valuable mindshift, holacracy must be executed exactly as it is at least until a decent amount of practice time has passed. Let’s be honest, even if you had the skills, would you modify and recompile the operating system of your own computer, or cellphone, with the purpose of improving the performance of its applications, or would you simply try a different operating system…?

Conclusion

You may be an extremely confident decision maker in a top management position with super clear ideas and intentions about what should be done to bring your organization to “Teal” or to any other status you have conceptualized yourself , all that while still running your daily business.

If that’s the case, forget about holacracy, you don’t need it.

But if you feel that the set of practices you are currently adopting cannot be further improved, and you are not really sure about what should be done to overcome their limitations, you should probably give holacracy at least a serious try, Why? Because other organizations have already done part of the “dirty work” for you, they have contributed evolving a coherent set of practices to run an organization and distribute power, independently of each specific leadership style and business domain.

As with other sports and games the rules of holacracy should not scare anyone, because the most frequently needed ones are very basic (even a child can play soccer without reading the FIFA rule book).

Think about it, how many rules do you follow in a traditional day of work without even realizing? Thousands! Most of them are implicit, unwritten, unconscious and sometimes they affect the way your organization makes decisions in a subtle but very malicious way (who should I ask for help?, Do I have the right to expect that he does that for me ….? What tone should I use in my email to…? How can I turn my problem into my boss’ problem so that I can get his attention?) holacracy aims at rendering those implicit rules useless and wash them out of your mind to give you back the joy of being a human at work but without having to rely on your feelings to get things done. If practiced correctly, the only rules you really need will stick, and also quickly fall to the back of your mind, just like the rules of soccer did when they were first explained to you as a kid, on the playground, but like those rules, this time, the rules of holacracy will be shared by the whole team and playing will be fun.

Thanks for reading!

Andrea Faré.

PS: the spark that made me want to write all this came from reading this blog post by Katrin Muff, on how adopting Holacracy has changed the organization culture at Business School Lausanne