Holacracy Is Not What You Think

A Response to Steve Denning’s “Making Sense of Zappos and Holacracy”

Last week at Forbes.com, Steve Denning posted one of the best researched articles on Holacracy® over the past few weeks: Making Sense of Zappos and Holacracy. I strongly recommend the read; it clears up many misunderstandings about Holacracy. At the same time, I think his arguments are colored by a negative bias that reveals a misconception of what Holacracy fundamentally is. My colleague Brian Robertson and I, among others, have responded to Steve in the comments section, and thought it’d be interesting to compile those comments into one piece.

To best follow this article, it’s a good idea to read Steve Denning’s article first, although not essential. I’ll address his arguments point by point.

“Circles” are self-organized, not self-directed

Steve Denning: “Holacracy is hierarchy on steroids … Each higher circle tells its lower circle (or circles), what its purpose is and what is expected of it. It can do anything to the lower circle—change it, re-staff it, abolish it—if it doesn’t perform according to the higher circle’s expectations.”

This is true, except for some significant nuances. Yes, there is a hierarchy in Holacracy (rather, a “holarchy”, which is a type of hierarchy), and a circle can be modified by its broader circle, but only in specific ways. The broader circle does define the “Purpose” and “Accountabilities” (i.e., expectations) of the sub-circle, and can modify them as needed. But let’s look at how this happens:

  • The process of redefining the purpose and accountabilities of the sub-circle takes place in “governance meetings”, a specific type of meeting in Holacracy where everyone has a voice, including an elected representative from the sub-circle. This elected representative (“Rep Link”) can, like any other role in the broader circle, voice an objection to modifying the sub-circle. An objection must meet specific criteria to be valid, which is key to understanding how governance meetings work (more in this video).
  • The broader circle can modify the “Purpose” and “Accountabilities” of the sub-circle, but it cannot a) re-staff it, b) order it to organize itself differently, or c) add roles to it… In other words, it’s true that the sub-circle is not self-directed — we don’t want a team doing its own thing unrelated to the company’s purpose — but it is self-organized. The broader circle can redefine the boundaries of the sub-circle but cannot mess with its inner workings.
  • Last but not least, the holarchy is a holarchy of roles, not people. This changes everything. Even though you have a holarchy of roles, workers can energize several roles at different levels of the holarchy, even in different teams. So it’s hard to talk about a hierarchy of people — the notion of hierarchy itself is no longer very useful in describing this environment.

Managers or no managers?

Steve Denning: “The second misunderstanding in the media is the notion that in holacracy there are no managers. In a holacracy, there may be no one with the title of “manager”, but there are “roles” that are, in every respect except the title, “managers”.”

It really depends on how we define “manager”. A circle can use the governance meeting process to create any kind of role, including one that looks like a manager. Is that a good idea? Perhaps not most of the time, but in many cases, it makes sense to centralize authority over a specific operational area. For example, if the role “Website Manager” has a “domain” over “the company’s website”, that means no other role can impact the company’s website without Website Manager’s permission. So in a way, you could say that Website Manager is “the manager of the website”… And another role on the same team might have control over, say, the mailing list, so you could also say that role is “the manager of the mailing list”… But is that really meaningful?

Every role, by virtue of having a purpose and accountabilities, automatically gains the authority to make any decisions they deem useful to express that role’s purpose and those accountabilities, as long as they don’t violate another role’s explicitly defined domain. And no one can force the person filling a role to take on a project if the role-filler assesses it doesn’t fit within the role’s purpose/accountabilities.

Finally, any role can be modified by the circle in governance meetings, including the ‘Project Manager’ role. So overall, this environment looks pretty different from what a typical “manager” and “direct reports” look like.

The Holacracy Constitution: too complicated?

Steve Denning:In fact, to an outsider, it is a wonder that anyone in a holacracy ever masters these detailed procedures without the help of a resident lawyer, or that people ever have time to get anything done and deliver value to customers, given the time and effort needed to master and comply with these immensely complicated internal procedures.”

I completely understand why someone would think that! At first glance, the Holacracy Constitution can look intimidating. It’s important to understand that it’s not designed to be a learning tool. I would never recommend that someone tries to adopt Holacracy by reading the constitution cover to cover. It’s written as a reference tool for someone who already knows the game and needs to look up a rule. As with any new sport, you don’t completely learn it from reading the rules. You find someone who already knows how to play and can explain the basics, and then you start playing. You will learn by playing, through trial and error. After some time of practice, you know most of the rules, and you look them up when you’re not sure or in cases of disagreement.

Now, are these rules heavy? It depends compared to what. With Holacracy, all the rules for how the organization distributes power and authority are defined by this constitution or through processes it defines. So if anything, at least you get clarity. No more trying to figure out if you’re allowed to do this or that, or if it will upset someone else or whatnot. Compare that with all the implicit rules at play in conventional organizations, which would take close to 500 pages (try to document this!). By contrast, the Holacracy constitution is ~30 pages.

Holacracy doesn’t tell us how to do business

Steve Denning: “In holacracy, each circle must meet the purpose as defined by its higher circle. That purpose could be to delight customers or it could be to make as much money as possible by taking advantage of customers with “bad profits”: the Holacracy Constitution is silent on what the purpose is.”

It’s true that there is no specific “value system” embedded in the Holacracy constitution. It is “value neutral” and doesn’t prescribe a purpose. It doesn’t tell us what business we should run, it doesn’t try to define a “good” vs. a “bad” purpose. If it did, I believe it would undermine the whole enterprise, as we all have different definitions of what’s good, bad, valuable, not valuable… Holacracy is a tool; up to us to use it for whatever purpose we choose.

That said, the Holacracy constitution says a few things about the organization’s “purpose” and how to express it:

  • My colleague Brian Robertson points out that “an organization’s Purpose is defined in the Holacracy Constitution as “the deepest creative potential the Organization is best-suited to sustainably express in the world” (Section 5.2.4), and I’d argue that profits or financial results of any sort does not meet that definition at all (profit is just a metric, not a purpose).”
  • According to the Holacracy Constitution, even though you can do anything you deem useful to express your role’s purpose, you may NOT cause an “impact within a Domain … owned by another sovereign entity” (article 1.3). In other words, you can’t violate another sovereign entity’s integrity or property — inside or outside the organization. This is common sense, but it also has deep implications.

Does Holacracy care for the customer?

Steve Denning: “In holacracy, the only explicit feedback mechanisms alluded to in the Holacracy Constitution are vertical. There are no explicit feedback mechanisms from the customer i.e. the people for whom the work is being done.”

What you call the customer here is the “Purpose” for most organizations. If an organization is to have any exchange with the world, it has to be of service in some way to someone. If it doesn’t, it will likely die. So, whoever the company is serving are its customers, and that’s part of its purpose. The purpose doesn’t only show up at the top; every single role in the organization has a purpose. So I think the opposite of Steve Denning’s argument is true: Holacracy is VERY externally focused. If you look closely at the constitution, all the mechanisms in Holacracy are anchored in expressing the company’s purpose, and rapidly sensing and processing when any of its parts could better express that purpose.

That said, it’s true that Holacracy doesn’t prescribe specific patterns for how to best organize. It doesn’t prescribe “Scrum” or “Lean Startup”, for example. But you can use Holacracy’s mechanisms to put these methods into place — better yet, once they’re in place, you can use Holacracy to evolve and fine-tune them to your local context. It makes agile methods themselves more agile, if you will. For example, at HolacracyOne, we have a circle in charge of developing our software tool, GlassFrog, and its organization is very much inspired by Scrum.

Holacracy is like an operating system for your organization. It makes it agile, rapidly responsive to feedback, and aligned to its purpose. Once Holacracy is in place, you can start playing with it by installing what we like to call organizational “apps”. Just like you can install apps on your phone — and that’s what makes it so powerful — you can adopt organizational “apps” with Holacracy. For instance, at HolacracyOne, we have adopted a new “app” to deal with firing, hiring, and regulate our partnership. This is kind of new territory, and it’s one of Holacracy’s most exciting features for me, as it allows for all sorts of experiments.

Holacracy is not a democracy

Steve Denning: “Holacracy, a management practice developed by the entrepreneur, Brian Robertson, in his firm Ternary Software and introduced to the world in a 2007 article, puts a lot of emphasis on consensual, democratic decision-making and getting everyone’s opinion. At the same time, holacracy is explicitly and strongly hierarchical.”

Brian Robertson: “I would not describe Holacracy as a “democratic” system, nor one organized around consensual democratic values. And it definitely doesn’t seek to gain the personal consent of the workers for the organization’s decisions. Personally I wouldn’t want to work in an environment that did, nor see a business I had a key stake in run that way, though I know some people do want that above other goals I may hold more dearly, and for those folks Holacracy may not be the right tool.

To expand a little further, even in Holacracy’s highly integrative governance meetings, decisions are not at all about seeking personal consent of the people involved. Many of the rules of the governance meeting process are there specifically to ensure the focus is only on what’s needed for the organization to express its purpose (i.e. serve its customers), given the concrete needs of its roles (not personal opinions, desires, or anything else). Seeking people’s consent or reaching consensus is not the required threshold for decisions to be made in a Holacracy governance meeting, and the rules of the game will prevent much of that from entering the picture at all, or quickly discard it when it does.

Holacracy’s governance process gives everyone a space to improve the organization’s authority and expectation structure for the benefit of the organization, but not for their own personal benefit.

Beyond that, the vast majority of specific business decisions made in a Holacracy-powered company are made autocratically, by someone in a clear role with the clear authority to do so (and clear expectations that go along with that authority). However, this autocratic authority and associated expectations are granted and continually evolved via a very different mechanism than the management hierarchy we’re used to. There’s also no “manager” or “CEO” who has the power to trump an autocratic decision made by another duly-empowered role, or direct them on what to decide. So in this sense, I think it can be misleading to claim either “Holacracy is flat” or “Holacracy is hierarchical”; the hierarchy that Holacracy uses is not one of people directing other people, but one of organizational functions defining boundaries around sub-functions; and once defined, the exercise of power has little to do with the structural holarchy one way or another.”

I hope this contribution helps you better understand Holacracy. It’s a rich system from a different paradigm, which makes it difficult to convey quickly through easily digestible concepts. I also hope these explanations come across as I intend them; as clarifications to otherwise really well researched arguments and critiques. I wouldn’t have been able to convey the subtle distinctions developed in this article if it weren’t for the support of Steve Denning’s article. So again, a big thank you, Mr Denning.