How Holacracy Is Killing Businesses

The (business) world is flat!

Choose holacracy. Choose a working environment with no hierarchies, no job titles and no bosses. Choose complete self-management: choose which projects you get involved in, and to what extent. Choose your own working hours and holidays. Choose whether to work from the office or from home or the pub.

That was the offer (read: ultimatum) given to employees by Zappos CEO Tony Hsieh in 2015. Around 200 people — 14% of their workforce — made another choice. They quit.

The holacracy constitution, a jargon-strewn document about as readable as the Klingon edition of Sein und Zeit, defines holacracy as a flat structure that does away with top-down management and puts the decision-making in the hands of autonomous circles populated by self-managed employees. Work is defined by roles rather than job descriptions; each employee has multiple roles.

It’s quickly obvious that holacracy won’t fit every situation, designed as it is around small-to-medium enterprises in a single office. It fares less well in a network of satellite offices and falls apart completely in a factory situation: imagine the guy who oversees the 5,000rpm steam turbine choosing to down tools and update the blog instead.

Even its supporters can become leery about having their roles rejigged on a weekly or sometimes daily basis. And its opponents might find their escape attempts hamstrung with titles such as “Finance Hero” or “Meme Librarian” looming large on their résumés.

But escape they do. Staff turnover at Zappos in the last year alone has been a whopping 29%. Uber and AirBnB have also had post-holacracy problems with staff retention. And the outlook isn’t great for those who stay.

It turns out that holacracy has limited contingencies for what happens if things start going south. Who makes the big decisions about cutting staffing, hours, or expenses? And things do go wrong. A struggling GitHub only just pulled out of a death spiral after jettisoning holacracy, which had already caused the acrimonious departure of top developer Julie Ann Horvath.

Drinking the holacracy Kool-Aid involves “repackaging” personal feelings or grudges and focussing on the processes rather than the politics. Which means that outright slackers — and every company has a few of those ­– can game the system, knowing that any criticism will be about shortfalls in the results rather than them personally, and that there’s no manager to fire them.

The opposite occurs when two or more alpha personalities inhabit the same circle. This can result in dominance battles or a clique taking control of the circle, causing resentment or deadlock. Deadlines get missed, and the work grinds to a halt. With nobody assuming overall responsibility, employees feel adrift, and the company can flounder, as happened to Oregon education company Treehouse.

Another factor nudging employees towards the eject lever is transparency. Making every aspect of your work visible to the entire company is baked into holacracy. In theory, this reduces confusion and aids clarity; in practice, it can have a negative impact on innovation with workers feeling their creativity stifled by omnipresent 360° scrutiny.

Some holacracies extend transparency to salaries, and a few even go as far as insisting that circle members review each other’s pay on a rolling basis: the equivalent of going through an annual review every month. Not great if the colleague who you’ve locked horns has the power to nobble your income.

Haemorrhaging staff becomes an even bigger problem when potential replacements are dissuaded before they’ve even joined. One applicant described the recruitment process for a London-based holacracy — rather than focussing on his abilities and experience, he endured an intrusive probing on his feelings about hypothetical situations.

This company measured potential candidates against Robert Kegan’s fantastically unrealistic Scale for Adult Development, to determine if they were amongst the estimated 1% of people are capable of their required level of accountability. He wasn’t. But what he saw of the organisation made him feel that he dodged a bullet. “It’s a cult. I can’t put it any plainer than that.”

Likening a business to a sect an accusation increasingly levelled at holacracies. Tony Hsieh openly admitted that he wanted Zappos to function as a cult, right down to the fluffy llamas.

Every cult needs its grimoire, and the Automatonicon of holacracy is called GTD — Getting Things Done. Written by David Allen, a minister in the Movement of Spiritual Inner Awareness (whose adherents include Ariana Huffington), this tome is eulogized by a holacracies such as GrantTree and TransferWise, and HolacracyOne founder Brian Robertson calls GTD his “spiritual practice”. MSIA is pronounced “messiah”, in case you were wondering.

Three years after adopting full-fat holacracy, Zappos has seen its scores on 83% of criteria plunge on Fortune’s Best Companies to Work For survey, and for the first time in eight years it’s dropped off the bottom of the list. They’re still persevering with it.

Conversely, Medium adopted holacracy for three damaging years, and then dumped it. Andy Doyle summed it up nicely: “For us, it was getting in the way of work.”

The holacracy model does resonate with some people, who view it as workplace heaven. But they’re in a dwindling minority; for most workers it’s more likely to resemble another less-than-ambrosial locale. That one that was organised into circles as well.

Do you want to be in a hierarchy, a higher plane of being, or just hired? Either way, come and say Hi.