Company Culture

Holacracy - How Zappos, Medium & Co. Flatten Their Hierarchy

Since Zappo’s CEO, Tony Hsieh, gave his employees an ultimatum to either conform or leave last March, management observers have been abuzz with talk about the previously obscure practice of Holacracy. This system that scraps the management hierarchy and reorganizes companies into a modern corporate democracy, has caused some concern. Could this be the start of a revolution against the management level? Meanwhile others have praised what they envision as a model for the future of organizational management. Despite conflicting views, the widespread hype created by Holacracy is an indication of the impact it will have on the traditional management-employee relationship.

WHAT IS HOLACRACY?

Holacracy is a self-management system developed by programmer Brian Robertson. His objective was to find a solution to what he saw as barriers to productivity, creativity and transparency. After first testing and refining the process in his own startup, he went on to create HolacracyOne, a consulting company that offers training for companies that want to implement the Holacracy system.

Holacracy is one of a wave of different attempts to rethink organizational management structures. Like other systems, its core principle is to do away with traditional top-down management and empower employees. What Holacracy offers is one of the most structured methods for achieving this goal and, unlike other systems, it does not promote a completely flat hierarchy, making it less radical than what skeptics might have you believe.

HOW DOES IT WORK?

First, all upper management titles are abolished and power is re-distributed through the replacement of job descriptions with roles. Each role has its own accountabilities and domain of competence. The domain defines the property of the role, or the areas over which the role holder has authority. This authority allows role holders to make swift decisions over questions concerning their domain.

Teams are organized into autonomous circles that have the authority to take decisions regarding everything from small departmental changes, to rapid iterations of the circle’s structure. Decisions are made at regular moderated meetings where all participants are given the opportunity to voice their tensions, or concerns, in a structured way.

The closest positions to a manager in Holacracy are Lead Links. One is appointed to each circle with the purpose of distributing roles, allocating resources, priorities, strategies and communicating the progress of the circle to the company. Unlike managers, Lead Links do not oversee how employees carry out their roles, they merely help facilitate employees’ ability to carry out their work and provide information to the supercircle. Employees within each circle also vote for a Rep Link who represents their interests at governance meetings. In this way employees have equal representation throughout the company.

Of course no corporate democracy could be complete without a Constitution – and Robertson has created one. The Holacracy constitution is a brick of a document that extensively details the rules, processes and key terms of the system. The Constitution is not only a guide, but also represents the first step on the road to corporate democracy with CEOs being required to literally sign away their authority. According to Robertson, this is not just a symbolic gesture, but also an important step formally binding all employees, and even the CEO, to a common set of clear and transparent rules.

BENEFITS OF HOLACRACY

The decision-making authority attached to each role means work is processed at a faster pace and employees are motivated through dedication and ownership of their role, rather than competition. Employees can also have multiple roles depending on their skills, meaning the talent potential of each employee can be fully utilized.

The processing of tensions through regular moderated meetings encourages all employees to voice their opinions, avoiding dominance over meetings by more extroverted personalities and ensuring the agenda is kept on track.

The election of representatives furthermore gives employees a greater hand in the decision-making process at all levels. The circle structure encourages rapid iterations allowing companies to test out new changes and evolve quickly.

Greater transparency is one of Holacracy’s foundational principles. The clear and visible rules expounded in the Holacracy Constitution serve to counter the ambiguity of traditional bureaucracy and eliminate dependency on office politics.

WHO IS PRACTICING HOLACRACY?

It’s no surprise that the first to begin instituting this system included more avant-garde tech companies, with Zappos being its most famous proponent. For a full list of companies practicing Holacracy see here. As no company has passed the five-year mark, it is still too early to fully assess the system’s merits and shortcomings in practice. However, analyzing current practitioners’ reasons for adopting Holacracy and progress can be helpful when deciding if this system is right for your company. How have these companies harnessed the benefits of Holacracy to boost productivity?

ZAPPOS

Company Size: Largest company to date (around 1,500 employees)

Date: Began implementing parts of the system in 2013 until decision to go all in was made in March 2015

Reasons for implementation: For Zappos the decision to switch to Holacracy was based on the company’s growth. As CEO Tony Hsieh explained, research has shown that productivity actually decreases as companies grow. Holacracy was seen as a way to counteract this trend by giving employees greater power and autonomy to self-direct their own work. Results: After a long transition process Hsieh decided it was time to seal the deal and issued his (in)famous – depending on what side you’re on – memo. Although 14% of employees left in response to Hsieh’s message, it has not shaken his faith in the system. In fact, his reaction to the exodus was to point to the fact that 86% choose to stay. His response is indicative of Holacracy’s alternative mentality towards employer-employee expectations. In this type of organization there are no managers in the traditional sense who will oversee work and keep up with workers’ progress, so employees really have to be driven and passionate about their work to survive in this kind of system. As he says in his memo, self-management is not for everyone, but with this move Zappos has made clear what they are looking for in an employee and what they are willing to provide. Something to bear in mind is the impact Holacracy will have on a company’s recruitment and hiring process, which will be explored further in a future post.

MEDIUM

Company size: Small (around 150 employees)

Date: Practicing Holacracy for about 2 years

Reasons: When creating Medium, Ev Williams and Jason Stirman had both experienced the pains of traditional management. For Williams, Holacracy presented a way to free up the time he spent giving approvals and making decisions as a manager and allowed him to get back to the creative work he was most passionate about. Stirman had been fed up with traditional management styles that favored withholding information and hierarchical relationships between manager and employee. He had already begun experimenting with alternative management methods at Twitter by connecting with his employees on a more personal, rather than employee-centric manner. Results: Medium found that people felt more connected to the company as they were given more decision-making power. For Naureen Manekia, Head of Human Resources at Medium, the two best things about Holacracy are the roles and meeting structures.

Holacracy allows companies to play to people’s strengths and this really helps with engagement from an HR perspective. If you’re doing things you love and care about you’re more likely to be productive and stay at your job. Roles are fluid based on what you’re interested in, what you’re good at and what the company needs. We also really like the meeting structures because it created more space for everybody to participate, even if people are shy, or might not think their issue is important enough.
— Naureen Manekia, Head of HR, Medium

The company has also used Holacracy’s structured but flexible system in their own way to solve new problems. For example, they found that one of the system’s shortcomings was the lack of a mechanism for giving praise or feedback to employees, a task traditionally carried out by managers. To solve this problem they utilized the system’s fast iteration process to simply create a new roles called “Group Leads” with the specific purpose of administering feedback to employees. The different ways companies can deal with this gap in employee praise and feedback will be dealt with more in depth in a forthcoming blog post.

BLINKIST

Company Size: Small (Under 50 employees)

Date: Operating on what they term “Holacracy Lite”

Reasons: Blinkist, a startup that creates digestible summaries of top non-fiction books for readers on the go, wanted to introduce an audio feature to their app, requiring new staff with different expertise. Holacracy seemed like an attractive solution as its role system allows for a more flexible talent based distribution of jobs. However, as a small company the costs of training sessions and losses incurred during transition were too high for the company to undertake. Instead they came up with a hybrid system they called “Holacracy Lite”. Results: By introducing aspects of Holacracy they were able to assign roles rather than job titles giving more fluidity to the domain their existing employees could oversee. This enabled them to roll out their new feature, which has now become its most popular. According to cofounder Niklas Jansen,

Our new organization is more results-oriented and we make better use of our talents and resources. Everyone knows what their responsibilities are and it helps to concentrate on areas that need work. As a result we get more work done. Additionally, you never feel like you’re on your own: in day-to-day work you align more with colleagues, working together on larger projects.
— Niklas Jansen, co-founder of Blinkist

Blinkist’s experience demonstrates that there is not a one size fits all approach to Holacracy and companies do not necessarily have to make a drastic switch to enjoy some of the benefits.

Holacracy creator Robertson estimates that 80% of companies continue to use the system after one year. Even Hsieh has admitted that the transition process can be challenging and will take time (he estimates it will take 3-5 years to fully implement Holacracy at Zappos). If your company is deciding to take the plunge there are a few things you should keep in mind.

With such a complex and detailed system the transition process involves a significant amount of time and training, cutting into the productivity of your company. The prices for training sessions offered by HolacracyOne are also quite steep, requiring a significant financial investment. This may be particularly difficult for smaller companies. As a result, some have begun devising alternative options adopting only certain aspects of Holacracy. Most important, you must be prepared to sustain employee losses. Not everyone will be on board, especially in the initial phase when there is uncertainty about the system, and resistance to the long hours it takes to understand and start using Holacracy. Finally, while it empowers employees with greater freedom to give their opinion and manage their own work, it is silent on HR practices requiring companies to develop their own methods that align with Holacracy’s principles.

One of the most difficult aspects of adopting Holacracy is that it does not just require an organizational change, it also requires a complete shift in company culture and mentality. With these points in mind switching to a Holacracy may seem daunting, and for some it might not be a good fit. But if your company can implement it successfully, the reward could be a company that can swiftly evolve and adapt, with employees who are committed and self motivated.