Companies Tend to Die, and Cities Don’t: The Holacracy Experiment
As technology and markets evolve at exponential speeds, companies face mounting pressure to adapt quickly. Rigid, hierarchical structures…
As technology and markets evolve at exponential speeds, companies face mounting pressure to adapt quickly. Rigid, hierarchical structures optimized for stability struggle in turbulent conditions that demand agility. Holacracy offers a radically reinvigorated operating model designed for rapid change by empowering employees through self-organization. Early pioneer Zappos provides an illuminating case study of the potential benefits and substantive challenges of implementing this avant-garde approach.
What is Holacracy?
Holacracy is an organizational design framework created by former software developer Brian Robertson. It aims to distribute authority, accelerate decision-making, and unlock innovation. Holacracy replaces the traditional hierarchical pyramid with a flexible structure composed of self-governing “circles.” As described by Robertson, a circle is a fluid team organized around a specific purpose. Circles can form sub-circles to break down broader goals into discrete, manageable chunks.
Individuals fill temporary roles within different circles depending on the needs of each project. Leadership automatically transfers between circle members rather than concentrating permanently at the top. Official job titles disappear altogether. This role-based structure frees team members to quickly shift priorities and resources based on real-time conditions without bureaucratic bottlenecks.
Circles synchronize through a highly structured meeting process outlined in Holacracy’s “constitution.” (philosophically like the Agile manifesto) The two key meetings focus on tactical day-to-day operations and broader governance policies. In governance meetings, circle members process “tensions” and ratify changes through structured rounds of proposals and amendments that update the policies and overall structure. Because circles have autonomy over their domains, updates cascade rapidly without senior management approval lags.
By elevating employees from “doers” to empowered decision-makers, Holacracy’s underlying aim is to unlock human potential and tap collective intelligence to navigate uncertainty. As Robertson states, “It distributes authority and makes the inherent structure explicit…so that people can take charge of their roles and coordinate effectively with others.” (Robertson 2015)
The Zappos Test Case
Online shoe and clothing retailer Zappos provides the highest-profile test case to date of Holacracy in action. Zappos, known for its quirky, employee-centric culture, adopted Holacracy in 2013 under the direction of then-CEO Tony Hsieh.
Tony explained the rationale behind his decision:
“We want Zappos to function more like a city and less like a top-down bureaucratic organization. When cities double in size, they become 15% more productive, but when companies double in size, productivity declines. Look at companies that existed 50 years ago in the Fortune 500 — most don’t exist today. Companies tend to die and cities don’t.” (Askin, Noah, et al. 2016)
By 2015, Hsieh had grown impatient with the gradual rollout. He decided to accelerate adoption by removing all manager roles and traditional hierarchy (almost overnight. 14% of employees opted to leave, with the turnover concentrated in critical areas like the tech team supporting Zappos’ complex platform migration to AWS.
The immediate upside was clear: Zappos employees gained autonomy over their work domains and the ability to reallocate resources rapidly. Software engineers, for example, could quickly shift priorities without layers of approval and reorient towards the most critical needs. Team members felt trusted and energized by the self-management model. As Hsieh stated, “Employees can freely move around different circles” according to their talents and interests rather than siloed job descriptions.
However, the transition also created significant growing pains. Eliminating personnel management support systems forced employees to fully self-manage core HR responsibilities like career development and compensation. The rigid meeting rituals required by Holacracy’s constitution frustrated some employees. Most significantly, the 14% talent exodus threatened to derail critical projects. While Hsieh stated that “the sky is not falling,” critics wondered whether the bold experiment would pay off.
Potential Benefits
Empowered Employees
Holacracy’s redistribution of authority to frontline circles empowers employees by giving them increased autonomy over their work domains. Eliminating permission-based dependencies enables faster execution. Workers gain the flexibility to focus their efforts on evolving priorities rather than rigid directives. Hsieh noted that at Zappos, the explicit circle structure brought the formal org chart, the informal influence chart, and the aspirational chart into closer alignment. Clarifying responsibilities empowered employees to take the initiative within their spheres rather than second-guess confidently.
Agility
The dynamic circle model facilitates real-time adaptation since resources can flow quickly to the highest-priority needs without bottlenecks. Leadership automatically diffuses to whoever holds the most relevant expertise or passion. Holacracy offers a formula for rapid decisions and seamless flexibility compared to lumbering matrix-style adjustments. Zappos demonstrated the ability to change course as market conditions dictated swiftly. Unshackled engineers and marketers could pivot on a dime to new initiatives without the lag of leadership decisions cascading down through layers of management.
Purpose-Driven
Aligning circle roles to specific purposes focuses effort on meaningful outcomes that transcend departmental silos. Rather than constraining thinking to narrow job descriptions, Holacracy provides space to pursue activities aligned with one’s talents and interests across multiple circles. Roles unchain team members from organizational boxes to address challenges holistically. Zappos gave people latitude to apply their skills to the broader organizational purpose.
Unlocks innovation
The autonomy and flexibility of Holacracy fosters innovation by removing constraining barriers that impede ideas. Eliminating redundant signoffs accelerates the ability to experiment. Circle members have the latitude to rapidly test novel concepts without working through lengthy approval chains. By distributing leadership, more people can pursue entrepreneurial initiatives. At Zappos, Hsieh noted how breaking down silos through circle structures helped generate creative new strategies.
Develops Maturity
Depositing full responsibility onto self-organized circles requires greater maturity, dedication, and discipline from team members. Employees must find intrinsic motivation rather than rely on extrinsic oversight and incentives. Holacracy selects for commitment by removing the option to coast along the path of least resistance when blocked. Zappos’ offer for employees to leave if they weren’t committed to self-management forced individuals to reflect deeply on cultural alignment over complacency.
Potential Drawbacks
No Safety Net
Removing management in Holacracy also eliminates personnel support systems for critical HR needs. Employees must fully self-manage responsibilities like career development, compensation benchmarking, and conflict resolution. They transferred these duties to individuals while simultaneously handling increasing workload risk overload. At Zappos, employees had to fill gaps left by stripping out managers independently.
Coordination Troubles
While circles have flexibility over their domains, loose coupling between circles may pose integration and alignment challenges. Empowered circles oriented towards agility sometimes clashed with the overall business strategy. Smooth coordination relies heavily on the interplay between circle roles. However, vague expectations combined with limited leadership can muddy priorities. At Zappos, tensions emerged between self-directed product teams and centralized strategy.
Complex Governance
The intricate rituals and procedures required in Holacracy’s constitution impose steep learning curves and ongoing administrative burdens. Employees wrestled to internalize the elaborate decision-making formats and cadences. The never-ending cycle of tactical and governance meetings consumes precious time and energy. At Zappos, employees found the convoluted meeting rituals distracted from productive work.
Loose Controls
Absent traditional oversight structures, quality, and standards can degrade without the counterbalance of accountability. Peer feedback offers one control mechanism, but circles may hesitate to critique members they work with closely. At Zappos, roles like software engineering likely required supplementing peer feedback with more rigorous technical design reviews to uphold quality.
Lack of Support
Employees who rely on structure, guidance, and mentorship may flounder in the autonomous Holacracy model. Despite the idea of empowerment, individuals lacking self-direction may feel inhibited and unsure of where to focus without explicit direction. Zappos addressed this by offering severance for employees who recognized a misfit. However, the 14% turnover was still a painful setback.
The Crucial Role of Culture
Holacracy’s radical overhaul of the status quo depends heavily on a supportive culture that provides the foundation. Robertson, author of “The New Management System for a Rapidly Changing World,” acknowledges that Holacracy works best “in a purpose-driven culture with high-trust relationships.” Zappos exemplified such an environment with its close-knit, community-focused norms. While Holacracy reshaped the operating structure, Zappos maintained the distinctive cultural pillars that define its essence.
Hsieh introduced Holacracy to help Zappos function more like a dynamic city able to persist for centuries than a bureaucracy likely to die: his signature quirkiness and progressive outlook primed employees for significant change. The ten core values that shaped the Zappos culture highlighted creativity, openness, a spirit of service, and embracing innovation.
Ultimately, the degree of receptivity at Zappos determined the achievable pace of change. An incremental approach integrating lessons may have smoothed the transition. However, Hsieh prioritized urgency, which pushed the boundaries of cultural elasticity. The turmoil highlighted the precarious balance between progress and stability.
A Decade Later, Doubts Loom Over Holacracy’s Staying Power
Over a decade after Zappos’ bold adoption of Holacracy, uncertainty clouds its viability as a sustainable organizational model. While early results showed promising gains in innovation and productivity, long-term scalability remains in question.
The sudden death of Tony Hsieh in 2020 deprived Holacracy of its most visible visionary and advocate. Having spearheaded the rollout of self-management at Zappos, Hsieh provided the leadership commitment crucial for pushing through massive change. With Amazon exerting more significant influence since acquiring Zappos in 2009, skepticism surrounds Holacracy’s future, given Amazon’s reputation for centralized control.
Fundamental issues plague Holacracy’s capacity to continue thriving as organizations grow. The minimal structures prioritizing agility over alignment may falter in coordinating large global workforces. The elaborate meeting rituals can become unworkable burdens at scale. Evidence already suggests circles devolve into bureaucratic personalities, negating the benefits of fluidity.
Most worryingly, few examples exist of Holacracy sustaining for the long haul. An approach hailed as the next evolution in management may prove to be a fad unable to move beyond small-scale application. Until Holacracy demonstrates the ability to scale successfully for years, not just quarters, across large enterprises, executives rightfully question investing in such disruption.
While agility remains imperative in chaotic times, Holacracy in its current form faces hurdles to becoming a broadly applicable paradigm shift. However, its core concepts may evolve into complementary enhancements integrated within fundamentally stable hierarchies. Only the coming decade will reveal whether Holacracy revolutionizes organizational design or falls short of transforming management into decentralized, self-organizing governance systems.
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References:
Groth, Aimee. “Internal Memo: Zappos Is Offering Severance to Employees Who Aren’t All in with Holacracy.” Quartz, 26 Mar. 2015, qz.com/370616/internal-memo-zappos-is-offering-severance-to-employees-who-arent-all-in-with-holacracy
Hsieh, Tony, performer. Tony Hsieh Tells How Zappos Runs Without Bosses. Interview by Sara Jane Berman. The Wall Street Journal, 26 Oct. 2015, www.wsj.com/articles/tony-hsieh-tells-how-zappos-runs-without-bosses-1445850002
Askin, Noah, et al. “Tony Hsieh at Zappos: Structure, Culture and Change.” INSEAD Case Studies, INSEAD, 2018, cases.insead.edu/tony-hsieh-at-zappos-structure-culture-and-change
Robertson, Brian J. Holacracy: The New Management System for a Rapidly Changing World. Henry Holt and Co., 2015, p. 18