Holacracy
Holacracy is a system for constructing governance using hierarchically organized, interacting circles. The term is typically used to describe a flat organizational structure made up of self-sorting pods without strictly defined roles. Famous examples of companies operating on iterations of this model are Zappos, Valve, and Medium (which ultimately shut down the system).
Proponents of holacracy argue it can empower ambitious individuals who like taking on more than just the job they were assigned, allowing their roles within an organization to be expanded to match their enthusiasm while also giving them a greater sense of meaning in their work. Since holacracies are usually explored through famous case studies of their implementation, let’s take a glance at two.
Zappos:
- Holacracies are often implemented during times of rapid growth and expansion. Zappos went from 150 teams to 500 “circles” after transitioning.
- After implementing a holacracy, the average Zappos employee held 7.4 roles and 25 distinct responsibilities. This is relevant, as research shows each additional goal an employee takes on after the first few lowers productivity.
- Holacracies can rarely be managed directly due to their complicated nature. Company leaders typically use specially designed software to facilitate their function—like GlassFrog and holaSpirit.
- Zappos uses a system of badges so that others can identify colleagues’ skills and past work.
- At one point, Zappos experimented with taking the concept even further and giving employees “people points” which could be used to create an internal marketplace for roles, however this experiment was walked back.
Valve:
- Valve first introduced their version of a holacracy, called Flatland, in an effort to recruit and maintain higher quality talent, thinking it counterproductive to ask such types of talent to just sit at their desks and do as they are told.
- Valve is well known for an intentionally leaked humorous corporate manual that is worth checking out if only for the cartoons in it.
In The Pragmatist’s Guide to Relationships, we address how sometimes people venture into poly relationships, expecting a “relationship without rules” only to find that healthy poly relationships often feature an intricate web of protocols and strict rules almost unimaginable to someone who has only experienced traditional relationship structures. The same can be said for holacracies: While they may sound like anarchy to an outsider, they actually feature much stricter interaction protocols than a traditional company. For example, at Morning Star “colleague letters of understanding” are used to outline responsibilities, activities, and overall goals as well as metrics for measuring performance. All of these must be fastidiously maintained in a company-wide “living document.” Essentially, these letters of understanding allow an individual to signal to others what they plan on accomplishing in a given time—like staking out a domain of tasks.
The bureaucratic bloat that accompanies this complexity is so bad that companies develop things like AIs to mediate meetings—and even that often isn’t enough, with Medium leaving the holacracy model when the “tax” of managing all the additional rules and governance started to eat up all of its teams’ productivity. When strict rules start dictating how social interactions must be carried out, a governance structure becomes uniquely at risk of unchecked dominance hierarchies forming along social lines.
We cannot find a single example of an organization becoming successful while maintaining a holacratic format. We can only find already successful organizations stagnating into a state of holacracy under egomaniac CEOs more interested in experimenting with utopian work environments than advancing their fields.
Valve adopted a holacratic structure in 2012. They released their last great game, Portal 2, in 2011. Before 2012, Valve was known as being one of the most innovative companies in gaming, releasing titles like Half Life, Portal, and Team Fortress. Since switching to a holacratic model, Valve has accomplished almost nothing outside of a few glorified tech demos. Any gamer would tell you it is almost astounding how little they have accomplished.
Holacracy “works” at companies like Valve and Zappos because they basically have money printing machines attached to them that can afford to pay employees to spend huge portions of their time engaged in petty politicking and bureaucratizing.[[21]](#_ftn21) Things got so bad at Valve that one employee likened it to having a KGB network within the company in which some employees used an invisible whisper network to control its vast and broken bureaucracy. If anything, stagnation the previously-ultra-productive Valve experienced after adopting the holacracy model presents a perfect demonstration of this model’s failure.
Holacracy is the antithesis of a well-designed governance model.
One interesting model that shares some ideas with holacracy may work. Back when General Electric was seen as a successful, diversified conglomerate, it had a policy of rotating its senior managers across different divisions on a regular basis. It did this to reduce managers’ incentives to lobby for a lot of capital in any given division, prevent them from accumulating a great deal of specific expertise, and hamper the accumulation of political capital while reducing “castle-building” behavior.