What is holacracy and could it work for your business? The pros and cons of self-management are examined in an article by Ethan Bernstein, John Bunch, Niko Canner and Michael Lee on Harvard Business Review.
Look beyond the hype and buzzwords surrounding holacracy to discover what makes a self-managed organisation and how the system actually operates – both on the ground and at a strategic level.
Holacracy is a self-management model in which decision-making power in an organisation is held by fluid teams, or “circles”, and is allocated to roles instead of individuals.
Businesses converting entirely to a self-organisation approach have faced problems. The largest to have fully embraced holacracy is online shoe and clothing retailer Zappos. When Zappos recently offered a severance package to anyone wishing to leave, 18% accepted it – with 6% citing holacracy as their reason for dissatisfaction.
Social media business Media has now dropped the idea of holacracy, having experienced difficulty in coordinating efforts on a large scale.
Use of self-management to decide, organisation-wide, what a business should do, who should do it and how they should be rewarded seems a difficult task. The authors therefore look for ways of blending some of its elements with more traditional approaches.
Reliability and adaptability
Reliability and adaptability are key characteristics of a successful business. It should be possible to rely on income generation, regulatory compliance, stability of employment and customer satisfaction, for example. At the same time, the organisation should have the flexibility to adapt to changing circumstances.
Although reliability and adaptability are both needed, often one will dominate – sometimes to the detriment of a company. Seeking reliability through excessive standardisation can lead to an inability to react to market changes. Conversely, an excessive focus on adaptation can cause an organisation to fragment and lose its power of scale.
For staff, reliability can mean stability, resource availability and clarity of objectives and responsibilities. Adaptability, on the other hand, frees them to make decisions in response to changes in conditions. In traditional management hierarchies, that freedom is hard to find.
Self-management offers a way of achieving the right balance between reliability and adaptability, removing the inflexible structures and complicated reporting relationships that restrict progress. Today there are many variations on the self-management theme, of which holacracy is perhaps the most topical.
Characteristics of self-managed organisations
The staff in a self-managed organisation share:
- Accountability for the work.
- Authority over how to meet goals.
- Discretion over use of resources.
- Ownership of work-related knowledge and information.
In addition to Zappos, businesses moving to models like this include tomato product manufacturer Morning Star, video game and platform developer Valve and multi-product maker W.L. Gore.
Three characteristics typical of their businesses are:
1) Teams are the structure. The teams – described as “circles” in holacracy – are the building blocks of the organisation. All individual roles are collectively defined and assigned within them. Compared to traditional departments and teams, circles are much more numerous. Teams can quickly appear and disappear as needs change.
2) Teams design and govern themselves. While avoiding traditional hierarchy, circles do sit within a larger structure – but one which they help to shape and refine. The organisation maintains a live document setting out its constitutional guidelines, covering things like how circles should be created, altered or removed, and how they should operate and interact with each other.
3) Leadership is contextual. Leadership is allocated to roles, rather than specific people. An employee can have many different roles and be on a number of teams, and his or her responsibilities constantly alter as the work evolves. The “lead link” in a circle has an important part to play in assigning roles and connecting with other circles.
The result is that the organisation responds to the needs of the work, not to a powerful manager’s dictates. Decisions are more likely to be taken by the person whose insight will ensure the best outcome, rather than by a manager who simply has that responsibility in his or her job description.
There are three main objectives:
- To design roles that match individuals’ capabilities with the organisation’s goals.
- To make decisions closer to the work.
- To respond to emerging needs in the market.
Instead of working to a fairly broad-based job description, with little chance of reshaping it or switching to something else, employees of self-managed organisations can hold a number of very specific roles. These can be moulded and changed to meet their own and the organisation’s needs.
In consultation with each other, responsibilities are assigned to those best equipped to handle them. As well as making the best of each person’s strengths, the team tries to ensure that no one is given a role which, although beneficial to himself or herself, might adversely affect the organisation.
There are clear benefits to this sort of role design. It gives employees a sense of moving forward – along with a feeling of being supported by their colleagues. It helps to shift obstacles to progress and make team members positive catalysts for each other.
The downside lies in the proliferation of roles and the related complexity. This can have three negative effects:
1) Fragmentation complicates the work. If an employee has too many goals to fulfil, some tasks may be performed less well. Managing priorities and coordinating across circles can be difficult.
2) Fair compensation is hard to calculate. With so many varied roles, it is very hard to compare what each employee is doing and set benchmarks for pay.
3) Recruitment is complex. The job advertised may soon change. Internally, the evolution of new roles, and the resulting movement of staff, creates extra administrative work.
In a traditional organisation structure, complex relationships, sign-off requirements and red tape cause difficulties and delays in making decisions. In a holacracy, it is easy to see who is responsible for a particular issue and to go directly to that person.
In practice, it may be hard to overcome the ingrained hierarchical attitudes which people have developed through their previous employment experience. Some may still try to impose their will on those they see as subordinate, while others may be shy about contradicting former managers.
A further problem arising from power sharing may be the sheer number of meetings needed to give everyone a fair say.
Response to market changes
The authors note that changes in response to perceived market developments often fail if they are based only upon the viewpoint of a senior leader. In a self-managed organisation, threats and opportunities are detected and acted upon by those on the ground – frequently to better effect.
There is a warning, however, that following customers too closely may sometimes take the company in a direction which proves unprofitable.
In pursuing the three objectives described above, it might be supposed that leaders become less necessary in a self-managed organisation. In fact, the number of leaders greatly increases. The nature of their leadership is different, however. A focus on supervising and directing is replaced by an emphasis on design, facilitation and coaching.
Self-management at the strategic level
To illustrate a typical strategic dilemma, readers are asked to consider how a company like PepsiCo might respond to customer demand in one area for a reduction in artificial sweeteners.
A self-managed company tends to adapt to that local demand. On a global scale, however, PepsiCo might have a higher strategic objective which conflicts with such a move. It may, for example, decide to ignore that local preference in favour of simplifying its global supply chain. Top-down decision-making businesses are better equipped to do this.
In a holacracy, any decision can be revisited at any time. A rigid strategic plan is replaced by rules of thumb which remain open to change. These identify which aims should take priority if a choice between them has to be made.
Bernstein et al advise that this would not work for some enterprises. A company like Sirius XM, which has invested heavily in a satellite radio infrastructure designed to give returns over the course of decades, needs to stick to a firm plan. For W.L. Gore, whose innovations can reach markets in diverse ways, direction from the top is less necessary.
Finding the right blend
Bernstein, Bunch, Canner and Lee conclude by discussing the need to reach an effective balance between self-management and the conventional model. Most businesses – and large corporations especially – should adopt elements of self-management but not embrace it wholesale.
To help determine where to apply it, they pose three questions:
- What needs to be reliable?
- What kinds of adaptation are important?
- What organisational forms will produce the right balance in this case?
If the ideal for a company in a particular market is to have a high level of adaptability, it makes sense to be entirely self-managed. If reliability is paramount, hierarchical management should dominate.
Today’s leaders must have the vision to recognise when and where self-management will work best. However, they must also know when hierarchy should be defended as the best way of achieving their organisation’s fundamental objectives.