When Zappos' CEO Tony Hsieh experimented with holacracy management methodology in 2013, he envisioned empowering his company by flattening the hierarchy and doing away with title-specific roles. People could work together in task-specific groups.

He even sent a memo to Zappos' 1,500 employees with an ultimatum: embrace holacracy or leave. In the next two months, 14% of the company opted to resign. What was so radical about holacracy that made over 200 employees leave?

The holacracy model is a great one for any company that wants to become more agile and adaptable. But the keyword is "adaptable."

What is holacracy?

So, what does holacracy mean? Holacracy is a trademarked concept that was developed by HolacracyOne to help organizations become self-managed and self-organized.

It is a predefined set of rules that can help shape the practice of self-organization by giving every employee (rather than just management) the power to innovate, make changes, and have a voice.

According to Holacracy.org, the method removes power from a traditional management hierarchy of formal titles and redistributes it across self-organizing teams that execute projects autonomously. There are clear-cut processes for how a team breaks work into manageable chunks and defines roles, responsibilities, and expectations.

Holacracy is an idea formalized by Brian Robertson, a former software developer who became an entrepreneur and eventually a management consultant. Holacracy takes a lot of its inspiration from Agile software development and Lean manufacturing.

Will Young, the director of Zappos Labs, explained the appeal of holacracy in a recent fireside chat at the Silicon Valley Innovation Center: "Holacracy gives people the chance to test out their ideas... even if another person in the company says it's an awful idea. And if others think it a terrible idea, there's a process to contest it."

How does holacracy work?

In traditional companies, a worker has a designated job title and fills one role, with his or her responsibilities rarely changing.

With holacracy, one team member can fill multiple roles, with responsibilities changing as work shifts or new projects come in.

Authority is distributed to self-organizing teams (called "circles") instead of relegated to individual managers.

Young says the central problem it tries to solve is, "How do you decentralize the decision-making so that your people can take an idea and run with it, and not have to fear for their jobs?"

While holacracy sounds like a great way to foster creativity and innovation, it could be a potentially chaotic way to run a business. There are rules in place that everyone is bound by, even the CEO. These rules govern how an idea is proposed, what gets worked on, and the process for governance and resource allocation.

To determine if holacracy would work in your company, consider its impact on employees. According to a study by Harvard Business Review, "people who work in organizations with self-governing structures are more committed and productive, show more initiative and creative thinking, stay longer at their jobs, have higher job satisfaction, take fewer family sick days, and are less likely to quit than those in traditional bureaucratic structures."

Haygroup’s research gives a clear idea of why this new approach seems to be so effective. When it comes to "what went wrong", they found that the most common answer was "poor managers," followed by "management made the wrong decisions,'' and "had too many rules."

What is a holacratic organizational structure?

Holacracy is an organizational structure designed to give everyone within the company greater power, freedom, and opportunity. It is not a particular place or a division in the traditional sense.

You do not become "more holacratic" as you progress through your company's hierarchy. Holacratic organizations can be all of one type (a single team or business unit) or multiple types. Here are some key features of a holacratic organizational structure.

Diverse in nature, size, and scope

A holacratic organizational structure can be small (a group of friends getting together to create something), large (many departments, business units, and teams forming a corporation), public (like government agencies and nonprofits), or private (like for-profit companies).

Disseminates authority to people doing the work

Leaders in holacratic organizations don't have the perks of the traditional corporate hierarchy. There are no individual offices, private lines, special parking spaces, or corner offices with big windows looking out over a landscape.

Leaders do not have full power over everyone, but only have authority in their defined areas of focus and accountability. They don't have specific titles and can be called anything, from CEO to project manager to party planner to troubleshooter. 

Purpose-driven guidebook

Holacracy is not human-centered; it is purpose-driven. It's a formalized set of structures, guidelines, and balances that allow every employee to spread out their influences, rather than just board members.

How are holacratic circles organized?

The key to holacracy is that it has no management functions and no human hierarchies.

Instead, it is a flat, purpose-driven structure where all people are equally available to serve the organization's purpose.

Circles are a goal-driven group of roles

Every organization can be structured into circles composed of roles that serve the company's purpose. Any group of people serving a common purpose is known as a circle — for example, each business unit or organizational silo within your company can become one.

Let’s take the case of an e-commerce store. If you have separate divisions for customer service, sales, finance, and marketing, those units would each be a separate circle with their own roles (for instance, the CFO and the Director of Marketing).

Each circle is autonomous

Holacratic organizations are a bit different from traditional businesses. These differences throw many people off at first, but holacracy is steadily gaining momentum.

Holacracies are entirely flat, with no managers or bosses. They have roles instead of positions, which means you can be on multiple teams at the same time. Different roles in different circles may or may not need to communicate with each other often, depending on their relationship. 

Greater innovation

Holacratic organizations are more agile, adaptable, and efficient. 

They have less hierarchy and politics and are designed to remove bureaucracy while creating opportunities for greater innovation within the organization. It’s a new way of structuring your business that lets companies operate at peak capacity with fewer people.

Enhanced sense of community

Holacracy feels like an enterprise version of self-organization, which is about giving the management of the organization back to the teams.

Holacratic rules and governance change when roles are combined, split, or changed. At least one "circle" (role) must exist for every unique purpose or organization, regardless of how small or insignificant it may seem.

What is Holacracy and Will it Work in My Company? 2

How holacracy applies to project management

Most companies have a project management office (PMO) and roles created to manage the actual work of projects.

The PMO in holacracy is called a 'project governance' role — think of it as an internal consultant who has no direct reports. They create and maintain the procedures for how projects will be done in the company. To do this, each business unit has its own set of rules customized for its needs.

Let's take a look at how holacracy concepts are applied to projects.

Enables faster and high-quality project deliveries

In holacracy, project management is not a role; it's a circle or purpose of its own.

Traditionally, projects are organized by hierarchy or matrix. Project managers create clear goals, scope, timeline, and strategy, but now they can do so without getting blocked or waiting for other people to finish their work. 

In the traditional hierarchical structure, projects often need approval from multiple layers of management before a decision can be made.

Empowers project staff

In holacracy, everyone has a purpose. The project manager is still responsible for creating a clear vision and strategy, but now they can delegate the execution to anyone in the circle.

The project manager doesn't have authority over the people working on the project. Instead, they use delegation and influence to motivate the team.

Because of self-management, people are responsible for their work and can make autonomous decisions about how to accomplish it. They don't have any managers who will tell them what to do or when to do it – everyone decides for themselves.

Eliminates unnecessary meetings to save time

Holacracy places a high value on people's time and energy by eliminating or reducing the most unnecessary meetings.

Some things are decided less often because they don't have to wait for approval from other roles/circles, such as approvals in traditional hierarchies.

As a project manager in holacracy, you'll spend less time on administrative work and more time defining goals, creating strategy, planning tasks, refining your approach as you go along, and so forth.

In many traditional structures or organizations, only managers have the power to make decisions about people and resources. However, in holacracy, the people who work on the projects are responsible for both. It's their job to fill their circles with other people and get resources from others if needed.

Criticisms of holacracy

While it seems like a startling and interesting idea on paper, holacracy is not without criticism. 

Steve Denning wrote an article for Forbes addressing several misunderstandings surrounding holacracy: primarily that it lacks a mechanism for incorporating external feedback from customers and stakeholders.

Soon after, Oliver Compagne of HolacracyOne refuted Denning's points with his Medium article, "Holacracy is Not What You Think." It's not a new idea either. 

Even as far back as 1999, Gabe Newell and the team at Valve Software were working in much the same way to produce their hit video game, Half-Life. In a recent interview in Forbes, Newell says this about hierarchical organizations:

"The simple answer is that hierarchy is good for repeatability and measurability, whereas self-organizing networks are better at invention."

Today, holacracy is being used in a number of for-profit companies and non-profit organizations, including Medium and David Allen Company. Whether the system is a fad or a management system that is tailor-built for this age of collaboration remains to be seen.

In an ideal holacracy, teams feel like they are working for themselves, rather than for a company. It's not easy to master, but if your team is ready to play, you'll be more innovative and productive than other teams who are on the hierarchy path.

However, you may run into the following issues.

Lack of defined leadership

Absence of clear leadership can have a significant impact on an organization's revenue and profit goals. It may feel out of place for many people. They may not be able to come to a consensus to make robust and timely decisions. 

Since there is no defined leader, some team members will need to step up to lead and guide the team. If that doesn’t happen, the entire team risks becoming disorganized and ineffective.

Great leaders provide a clear direction for the future. Lack of leadership can cause lack of future vision in a team if there is no one to take charge.

Ownership issues

In holacracy, there is no blame game. Management and reporting lines are replaced by clear roles which do not carry any authority. Each person is responsible for their own work and goals that need to be achieved within certain time frames. 

With the roles and responsibilities so clear and well-defined, team members take ownership of positive results. 

However, team members may refuse to take any responsibility for failures or lack of results since they have not been entrusted with any formal authority.

Difficulty in implementation

Implementing holacracy can be challenging. Most people are used to functioning in a particular manner and implementing holacracy can be disruptive. If the entire team isn’t ready for this radical transition, the exercise may prove to be an experiment that does not work.

Historically, establishing a holacracy structure has been easier said than done for many companies. Like Zappos founder Tony Hsieh said, "the hardest part is getting your mind right."

Workers in a holacracy get paid for doing a great job, taking risks, being productive, and showing up to work on time. For holacracy to thrive, all your employees will need to be reasonably good self-managers and independent thinkers. 

Unfortunately, it's quite possible that your organization has a few employees who don’t fit that profile. In this case, you’ll have to let them go.

The company still has a clear structure and roles, but it's up to individuals to decide how they are going to achieve those. It might sound like a perfect solution to many contemporary management issues — but not everyone is willing to give up their power and play by the new rules.

Is holacracy right for my business?

Holacracy is very different from conventional management, and that's why it might not be right for every company.

It's important to remember that holacracy is a complete self-management system that turns existing organizational structures upside down.

So if your business is highly dependent on the current way of doing things (with managers pushing work onto others and waiting for results), it might not be a good fit.

Holacracy is great if:

  • You are looking to promote autonomy and innovation.
  • You want to change the way people work and get more out of them.
  • You need better decision-making and execution speed.
  • You have ambitious goals but lack the resources necessary to achieve them.
  • You want to bring everyone's talents and ideas to life.

As with any new approach, test it with a smaller team before deciding if the whole company should switch. Doing this gives you more freedom to adapt the system and address issues as they emerge.

Holacracy is a self-management system that allows all employees to participate in the company's growth and success, while at the same time retaining focus on their individual goals.

How Wrike can help in setting up holacracy in your organization

Holacracy might not be for everyone, but it's a great tool, especially in fast-paced, innovative, larger companies where everyone wants to achieve their goals as fast as possible.

That's why it seems like a better fit for larger organizations than small businesses — although some creativity and teamwork elements can still be applied, even if your company is not ready to switch to holacracy altogether.

There are plenty of success stories on companies that have implemented holacracy. As long as you are willing to share some responsibility with your employees (and let them decide how they achieve their goals), it can be a great way to give your business an edge.

With the increased pressure of tight deadlines and never-ending to-do lists, many companies are adopting Agile ways of working in order to become more proactive.

With dynamic project management software like Wrike, teams can easily organize work for maximum productivity while executing projects seamlessly. Start a free trial today and use the self-organization tips outlined above to create a holacratic environment for your company.