Holacracy: Self-Management & Self-Organization

Marypatton S. DavisMGMT-671: Total Leadership

Progressive Practices in Organizations5 April 2016

What is “Holacracy”?No Job Titles, No Managers, No HierarchyAccording to Holacracy.org, Holacracy is a comprehensive practice for structuring, governing, and running an organization. It replaces today’s top-down predict-and-control paradigm with a new way of achieving control by distributing power. It is a new “operating system” that instills rapid evolution in the core processes of an organization. Holacracy is a new way of running an organization that removes power from a management hierarchy and distributes it across clear roles, which can then be executed autonomously, without a micromanaging boss. The work is actually more structured than in a conventional company, just differently so. With Holacracy, there is a clear set of rules and processes for how a team breaks up its work, and defines its roles with clear responsibilities and expectations.1

-Created in 2007 by a software developer who claims it is now used by 300+ companies worldwide

1http://www.holacracy.org/how-it-works/

Holacracy at Zappos: Transitioning since 2013"Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15 percent. But when companies get bigger, innovation or productivity per employee generally goes down. So we're trying to figure out how to structure Zappos more like a city, and less like a bureaucratic corporation. In a city, people and businesses are self-organizing. We're trying to do the same thing by switching from a normal hierarchical structure to a system called Holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”1

-Tony Hsieh, CEO of Zappos1https://www.zapposinsights.com/about/holacracy

Benefits of Holacracy• Brings structure and discipline to a peer-to-

peer workplace• Flexible organizational structure with clear

roles and accountabilities• Efficient meeting formats geared toward

action and eliminating over-analysis• More autonomy to teams and individuals to

solve issues directly without bureaucracy1

• Unique decision-making process to continuously evolve the organization’s structure

• More innovative and entrepreneurial environment

• More effective problem solving• Improved advancement of company’s goals2

1http://www.businessinsider.com/how-zappos-self-management-system-holacracy-works-2015-62http://www.fastcompany.com/3024358/bottom-line/no-managers-required-how-zappos-ditched-the-old-corporate-structure-for-somethin

But is Holacracy working?Holacracy has some unintended negative consequences, including:

• Onboarding: Takes a long time to implement, especially in large companies, and can be complicated to explain to employees; lingo is also foreign and daunting.

• Salary: Difficult to determine compensation when employees are all seen as equals and positions/titles are unclear.

• Decision Making: Can create unnecessary and difficult decisions, given the removal of routine and hierarchy.

• Incentives: Some employees may not be incentivized to stay at a company without a ladder to climb.

1http://www.forbes.com/sites/annlatham/2016/01/17/why-pain-is-inevitable-for-zappos-and-holacracy/#6ee63d5b2422

Holacracy at Zappos: Three Years Later • Employees complain about the system, claiming it’s

confusing and poses more issues than solutions.• In 2015, Zappos had a 30% turnover rate, with 18%

of those employees taking “buyouts” to pursue their dreams (average severance was 5.5 months). Zappos defends this trend, saying they intentionally want to retain only those truly dedicated to the company and its mission.• “The Offer”: In an effort to weed out new hires

who aren’t excited about the job ahead, Zappos offers $2,000 in lieu of taking the job. The “buyout” was a new take on “the Offer” when Holacracy was rolled out.

• CEO Hsieh told employees they could either get on board with Holacracy, or take 3 months pay and leave1.

• It remains to be seen whether Holacracy will endure at Zappos as it still is receiving a lot of pushback and negative coverage.

1http://www.theatlantic.com/business/archive/2016/01/zappos-holacracy-hierarchy/424173/