Medium’s experiment with Holacracy failed. Long live the experiment!

In March 2016, Medium abandoned Holacracy. The carnivores of the business press, who had been circling the blog publishing company since it started using the management ‘operating system’ three years earlier, closed in for the kill. ‘Well, waddaya know?’ Paul Carr gloated in the tech journal Pando. ‘Medium drops Holacracy, because Holacracy is “time consuming and divisive”’. This misrepresents Andy Doyle’s claim in his announcement of Medium’s decision. Doyle’s actual point is that Holacracy was problematic ‘for larger initiatives, which require coordination across functions’. But why let the truth get in the way of a trouncing?

‘Not Everyone Wants to Be the Boss’, Justin Fox observes in a slightly more charitable, yet inaccurate, review in Bloomberg. Holacracy flattens organisations, getting rid of hierarchical power structures. It distributes power to individuals, who get to choose what projects they work on and are granted full authority to execute tasks as they see fit. If the task is too big for the individual to complete by themselves, the individual becomes the ‘Lead Link’ in a ‘Circle’ of employees that bands together to execute the task. A Lead Link is not a boss. The Lead Link heads a circle, but doesn’t manage it. Undeterred by this detail, Fox reflects that being the boss is a thankless task. Not everyone wants the responsibility. It can be comforting to have a manager perched one step above you on the corporate ladder. You can leave it up to them to be visionary and entrepreneurial. Plus, when you do a good job, they give you a pat on the head, to signal that you have made progress.

Journos will be journos. They are paid by click and competing against viral videos, so it is in their interest to scandalize and taunt, speaking to the prejudices of the mass market. When Medium abandoned Holacracy, the status quo rejoiced. The disruptor is dead. Order is restored. We can all sleep more soundly knowing that the organisational forms of the 19th century are alive and well, unchallenged by the pretensions of the ‘bossless organisation’.

Not so fast. Medium is not the only company experimenting with Holacracy. The operating system is currently used by about 70 companies around the world, including the online shoe retailer Zappos. Zappos CEO Tony Hsieh shifted the entire company to Holacracy in 2013. Hsieh’s view is that command and control structures are death. Self-organizing structures are not only more resilient, they become more innovative as they expand. Many of Hsieh’s employees failed to see the upside. Confronted with protracted resistance, Hsieh told employees to accept Holacracy or quit. In the end, 260 employees (roughly 18% of the company) accepted Hsieh’s redundancy offer and left. The majority of media coverage failed to note that Zappos’ standard annual turnover is around 20%. Plus it was a superb payout. Hsieh half jokingly suggests that, given the size of the redundancy package, ‘the headline really should be “82% of employees chose NOT to take the offer”’.

Zappos, admittedly, continues to struggle with Holacracy. The company was recently excised from Fortune Magazine’s list of the Top 100 Companies to Work For, after eight years on the list. This has fanned speculation that Zappos’ experiment with Holacracy is on the rocks. The point that goes unappreciated is that it is in the nature of experiments to fail. This, in a large part, is how we learn from them.

At Medium, the experiment in self-organisation continues. Medium has abandoned Holacracy, but it hasn’t abandoned its pursuit of a horizontal management system. According to Doyle, Medium’s problem with Holacracy was functional rather than philosophical. ‘Many of the principles we value most about Holacracy are already embedded in the organisation through how we approach our work, collaborate, and instigate change’, he claims. Medium is currently moving forward by articulating these principles and assembling a team ‘to translate [them] into a functional system’. The company remains committed to ‘pioneering new ways to operate’. Doyle puts this in perspective: ‘The management model that most companies employ was developed over a century ago. Information flows too quickly — and skills are too diverse — for it to remain effective in the future’. Realistically, any company concerned to be around in ten years time should be exploring new organizational operating systems. Technology and culture are evolving far too rapidly for companies to bank on maintaining their position without continuous self-reinvention.

This is the crux of the matter. Digital technologies make it absurdly easy to share information and coordinate collaborative work. While they do not drive (or ‘want’) openness and collaboration, these technologies makes self-organisation so simple, it is foolish not to explore it. At the same time, digital technologies promotes cultural changes that enable self-organization. People who are familiar with using digital technologies naturally slip into an open, collaborative mindset. Users of social media, for example, are accustomed to identifying conversations they can contribute to, and problems to which they can apply their talents and skills. Effectively, they are primed for self-management and collective self-organisation through their use of these tools.

Cultural change is both a condition and an enabler of technological change. Where we find the latter, we always find the former.

These technological and cultural developments are enabling the emergence of horizontal organisations. Medium and Zappos’ experiments are simply the tip of the transitional iceberg. A 2015 Deloitte survey of more than 7000 companies revealed that the majority of companies are moving away from top down, command and control structures towards flexible structures based in teams. Only 38% of companies surveyed retain a traditional structure. Of these companies, 92% cite organisational redesign as ‘the top priority’.

The organisations of the future are being invented today. They are densely connected, human-centered, agile, and intrinsically innovative. The question for business leaders is not if they should shift to a more flexible, self-organizing structure, but how. Medium and Zappos’ experiments with Holacracy offer insight into how not to go about implementing a new organisational structure. What might be a more suitable approach?

If Holacratic companies have drawn negative attention from the media, it is because of the way they have gone about implementing the system. There is a manifest incongruity in a top-down solution to bureaucratic management. Gary Hamel and Michele Zanini make this point in a recent article in the HBR. ‘In our view, there is something inherently contradictory about using authoritarian means to implement a management model aimed at enhancing self determination’, they claim. So what is the alternative? Hamel and Zanini propose a bottom up strategy, taking their cue from hacker culture.

In recent years, organisations as diverse as Ford, Netflix, and Google have used hackathons to invent new products and solve thorny operational problems. … In a hackathon, teams compete to come up with novel solutions and the most promising are then fast tracked to implementation. How might such an approach be used to defeat bureaucracy?

The answer is: through culture hacking. Hamel and Zanini don’t use this term, but it is clearly what they have in mind:

Imagine an online, company wide conversation where superfluous and counter-productive management practices are discussed and alternatives proposed. The output of such a conversation wouldn’t be a single, elaborate plan for uprooting bureaucracy, but a portfolio of risk bounded experiments designed to test the feasibility of post bureaucratic management practices.
For example, a hack might propose that frontline teams be given the right to interview and select new hires — a task hitherto performed by department heads or HR staff. Such an idea could be quickly tested in a small corner of large organisation. Within a month or two one would know: can we do this efficiently? Can the legal risks be mitigated? Does this produce better hiring decisions? Does it boost team morale?
Now imagine a large organisation running dozens of such experiments concurrently. Some hacks would fail, but the best of the rest would be replicated by units eager to reduce the costs of bureaucratic drag.

From a strategic point of view, culture hacking makes sense. Rather than try to implement systems change from above, a culture hacking strategy enlists the changemakers and intrapreneurs in the organisation, inviting them to participate in a process of collaborative innovation. Instead of implementing change in a single stroke, a culture hacking strategy makes space for employees to collaboratively hack the existing management culture, experimenting with new approaches, developing prototypes, running tests and trials, iterating the designs, and learning from results.

This strategy makes sense from a cultural point of view as well. The idea of a self-managing, organisational operating system didn’t spring out of nowhere. It reflects the way that hackers have organised their collaborative work for decades. The Linux development model is a kind of primitive organisational operating system. Hackathons recreate this primitive system, seeking to establish the open, collaborative environments of online software hacking communities in meatspace. What we are seeing now is the same socio-cultural norms being driven into business organisations. Digital technologies are enabling the shift to self-managing organisations. But software hacking communities provide a cultural reference point for the transformation, and so it makes sense for the transformation to proceed with a hacker sensibility.

In an earlier post, I discussed how the methodological apparatus of startup culture — comprised of design thinking, agile development, and lean method — bears the hallmarks of the hacker way. The point here is not that startup entrepreneurs are hackers. The point, instead, is that there is an increasing overlap between these communities on account of how entrepreneurs have adopted the experimental mindsets and methods of hacking. Startup entrepreneurs may or may not subscribe to the core elements of hacker ideology, but they have embraced key practical elements of the hacker way.

Something similar is happening in large business organisations. It is unfolding in the way we imagine the operation of the organisation itself. It is playing out on the ground, however, through a host of hacker initiatives, as design replaces control, agility trumps process, and fast, customer-focused experiments replaces inefficient business planning. There is so much happening in this space, it is understandable that people would look at the big picture, and reflect on the organisational operating systems that are being trialed and tested. But God is in the details. The most powerful companies to emerge out of this period of transition will be companies that attend to how they implement organisational change. They will be companies that hack their way to structural innovation. Long may the experiments continue.