The Road to Holacracy

In 1960 South Korea’s GDP per capita was at the level of the poorest of African and Asian nations. Four decades later, Korea ranked high in the G-20 major economies. Many factors including a US-assisted education system and a carefully-planned  export-oriented economic strategy made this possible. By some accounts the influence of Peter Drucker also played a key role, as attested by the prominent Korean businessman who changed his first name to “Mr. Drucker.” Unlike General Motors in the US, South Korean businesses embraced Drucker’s concept of the self-governing organization.

Drucker proposed this concept in The Future of Industrial Man and further developed it in his 1946 Concept of the Corporation, which GM’s CEO Alfred Sloan, despite Drucker’s general praise of GM, saw as a betrayal. Sloan would hear nothing flattened hierarchies and decentralization.

Drucker was shocked by Sloan’s reaction to his book. With the emergence of large corporations, Drucker saw autonomous teams and empowered employees who would assume managerial responsibilities as the ultimate efficiency booster. He sought to establish trust and “create meaning” for employees, seeing this as key to what we now call “engagement.”

In the 1960’s, Douglas McGregor of MIT used the term, Theory Y, to label the contrarian notion that democracy in the work force encourages workers to approach tasks without direct supervision, again leading to fuller engagement and higher productivity.

Neither GM nor any other big US firm welcomed self-management for the rest of the 20th century. It’s ideals may have sounded overly socialistic to CEOs of the cold war era. A few consultancies promoted related concepts like shop-floor autonomy, skepticism of bureaucracy, and focus on intrinsic employee rewards in the 1980’s, e.g., Peters and Waterman’s In Search of Excellence. Later poor performance by firms celebrated in Excellence (e.g. Wang and NCR) may have further discredited concepts like worker autonomy.

Recently, Daniel Pink’s popular Drive argued that self-management and worker autonomy lead to a sense of purpose and engagement, which motivate more than rank in a hierarchy and higher wages. Despite the cases made by these champions of flatter organizations, the approach that helped Korea become an economic power got few followers in the west.

In 2014 Zappos adopted holacracy, an organizational structure promoted by Brian J. Robertson, which is often called a flat organization. Following a big increase in turnover rate at Zappos, many concluded that holacracy left workers confused and, with no ladder to climb, flatly unmotivated. Tony Hsieh, Zappos’s CEO, denies that holacracy was the cause. Hsieh implemented holacracy because in his view, self-managed structures promote innovation while hierarchies stifle it; large companies tend to stagnate.

There’s a great deal of confusion about holacracy, and whether it in fact can accurately be called a flat structure. A closer look at holacracy helps clear this up.

To begin, note that holacracy.org itself states that work “is more structured with Holacracy than [with] conventional management.” Holacracy does not advocate a flat structure or a simple democracy. Authority, instead of being delegated, is instead granted to roles, potentially ephemeral, which are tied to specific tasks.

Much of the confusion around holacracy likely stems from Robertson’s articulation of its purpose and usage. His 2015 book, Holacracy: The New Management System for a Rapidly Changing World, is wordy and abstruse to the point of self-obfuscation. Its use of metaphors drawn from biology and natural processes suggest an envy for scientific status. There’s plenty of theory, with little evidential support. Robertson never mentions Drucker’s work on self-governance or his concept of management by objective. He never references Theory Y or John Case’s open-book management concept, Evan’s lattice structure, or any other relevant precedent for holacracy. Nor does he address any pre-existing argument against holacracy, e.g., Contingency Theory. But, a weak book doesn’t mean a weak concept.

Holacracry.org’s statement of principles is crisp, and will surely appeal to anyone who has done time in the lower tiers of a corporate hierarchy. Its envisions a corporate republic, rather than a pure democracy. I.e., authority is distributed across teams, and decisions are made locally at the lowest level possible. More importantly, the governance is based on a constitution, through which holacracy aims to curb tyranny of the majority and factionalism, and to ensure that everyone is bound to the same rule set.

Unfortunately, Holacracy’s constitution is bloated, arcane, and far too brittle to support the weight of a large corporation. Several times longer than the US constitution and laden with idiosyncratic usage of common terms, it reads like a California tax code authored by L Ron Hubbard. It also seems to be the work of a single author rather than a constitutional congress. But again, a weak implementation does not impugn the underlying principles. Further, we cannot blame the concept for its mischaracterization by an unmindful tech press as being a flat and structureless process.

Holacracy is right about the perils of both flat structures (inability to allocate resources, solve disputes, and formation of factions) and the faults of silos (demotivation, principal-agent problem, and oppressive managers). But with a dense and rigid constitution and a purely inward focus (no attention to customers) it is a flawed version 1.0 product. It, or something like it – perhaps without the superfluous neologism – will be needed to handle imminent workforce changes. We are facing an engagement crisis, with 80% of the millennial workforce reporting a sense of disengagement and inability to exploit their skills at work. Millennials, says the Pew Research Center, resist paying dues, expect more autonomy while being comfortable in teams, resent taking orders, and expect to make an impact. With productivity tied to worker engagement, and millennial engagement hinging on autonomy, empowerment and trust, some of the silos need to come down. A constitutional system embodying self-governance seems like a good place to start.

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  1. #1 by Lin on May 31, 2016 - 4:52 pm

    I concur with your thought that a self-governing constitutional structure might be the key for millennial engagement. The millennial workforce will make up almost 75% of the total workforce by 2025. This means that traditional workforce engagement drivers will soon be outdated. We have to start looking at different drivers of engagement and its specific interpretation by the millennial workforce. For example, interpretation of professional development is gradually evolving. Climbing the corporate ladder and titles are no longer as important as it once was. Instead, more focus is placed on horizontal development. For this purpose, a Holacratic structure would be better suited.

    The basic concept of holacracy is great, but it has been plagued with misunderstandings. Hence, it is imperative that proponents of holacracy ensure that their organization truly understands its underlying principles and tailor it to match the organization’s needs and business environment. Holacracy requires at least one high profile success story soon. If not, it will become yet another misunderstood buzzword.

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