When Zappos' CEO Tony Hsieh started experimenting with the atypical holacracy management methodology back in 2013, he envisioned empowering his company by flattening the hierarchy and taking away job title-specific roles, so that people could work together in task-specific groups. Then just this March, he sent a memo to Zappos' 1,500 employees with an ultimatum: embrace holacracy or leave. By May, 14% of the company opted to resign. What was so radical about holacracy that made over 200 employees leave?

What is Holacracy?

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.

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.

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 individual 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?"

But while holacracy sounds like people can get up and work on any idea that hits them — a potentially chaotic way to run a business — there are actually transparent 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. While anyone in the company can propose an idea and make it happen, they must follow these rules before going at it.

Is Holacracy Actually Successful?

While it seems like a startling and interesting idea on paper, it's 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. But soon after, Oliver Compagne of HolocracyOne 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.

Further Reading on Holacracy:

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