Brian Robertson, a software engineer, first introduced Holacracy in his firm Ternary Software. The world heard about it in a 2007 article.
"Holacracy is a complete, packaged system for self-management in organizations. Holacracy replaces the traditional management hierarchy with a new peer-to-peer “operating system” that increases transparency, accountability, and organizational agility. Through a transparent rule set and a tested meeting process, Holacracy allows businesses to distribute authority, empowering all employees to take a leadership role and make meaningful decisions" - Holacracy.org
Holacracy put a lot of emphasis on consensual, democratic decision-making and getting everyone’s opinion. Robertson managed to sell his product to CEOs around the world based on a promise to push humans to run like a computer.
According to a Quora topic, companies such as Zappos, Medium, AirBnB, Uber, Lending Club and other are already using the system
Brian’s book “Holacracy” was summarised in 4 minutes in this video:
However, one of the biggest misunderstandings about Holacracy is that it’s non-hierarchical.
In fact, Holacracy is strongly hierarchical. The Holacracy Constitution 4.0 talks about hierarchy in more detail than in any other traditional organisation before.
“Basically, in Holacracy, there is a hierarchy of circles, which are to be run according to detailed democratic procedures. At the same time, each circle operates within the hierarchy. Each higher circle tells its lower circle (or circles), what its purpose is and what is expected of it. It can do anything to the lower circle—change it, re-staff it, abolish it—if it doesn’t perform according to the higher circle’s expectations. The word “customer” or a reference to any feedback mechanism from the customer don’t appear even once in the Holacracy Constitution. The arrangements are purely inward-looking and vertical,” Steve Denning, Forbes.
“Zappos says goodbye to bosses”
In 2012, Zappos CEO Tony Hsieh introduced Holacracy to Zappos. The news that Zappos is going holacratic created total hysteria in the media.
But instead of making things better, Holacracy made things worse at Zappos. Dissatisfaction with Holacracy played a role in nearly a third of the company quitting in 2015, Quartz reports. In the same year, Zappos dropped off of Fortune’s ‘Best Companies to Work for list‘ for the first time in years.
Why Holacracy failed Zappos
One of the biggest complaints about Holacracy at Zappos was about the rigid meeting format.
Tactical meetings, as described by the Holacracy Constitution, tightly govern how and when employees can speak. These meetings are typically held once a week. They start with a check-in round and then go to checklists and metrics.
The Holacracy Constitution is very clear about ‘no discussion’ during the check-in and closing rounds.
In other words, no small talk is allowed.
Also, Zappos has been giving employees badges based on their skills and ‘people points.’ Employees use ‘people points’ to fill roles within the company. These points determine how an employee allocates their time. It also determines their salary.
Employees that have too many unallocated people points are sent to “The Beach,” where they either find new roles or are let go.
Years into Holacracy, Zappos employees are still unhappy about it (although Robertson says it takes five years for Holacracy to work). They are constantly overwhelmed with the feeling of instability and worrying about being sent to The Beach.
The irony of it all
While Holacracy attempts to eliminate human emotion, it also imposes layers and layers of bureaucracy.
Needless to say, this adds unnecessary psychological weight on employees.
In Holacracy, each circle must meet the needs defined by its higher circle. However, and this is the most dangerous part, the Holacracy Constitution is silent on what the purpose is.
That means that the purpose can be to make your customers happy or to only focus on the profit.
Why are CEOs introducing Holacracy?
If Zappos employees are unhappy (and other companies such as Medium are quitting on the system), why is Holacracy appealing to CEOs?
It seems that Holacracy reflects the broader Silicon Valley ethos or the constant search for the best confluence of human and technology.
“People become numbers, algorithms become the rules, and reality becomes what the data says,” he wrote, concluding that “empathy is not a buzzword but something to be practiced,” technology journalist and entrepreneur Om Malik said in his article ‘Silicon Valley has an empathy vacuum.’