Holacracy: Core Concepts, Benefits and Limitations

Holacracy is a method of self-organization that was developed and trademarked by HolacracyOne.

It’s not perfect, but it can teach us a lot and help us improve.

The following article will:

1. describe the key concepts of Holacracy,
2. translate holacratic jargon into simple words,
3. explain how these key concepts work in the real world,
4. show you how Holacracy can benefit your organization,
5. identify the ingredients you need to succeed with Holacracy,
6. address the limitations that come from following a strict set of rules,
7. share ideas that can help your organization tailor Holacracy to its needs instead of forcing itself to fit Holacracy.

Part 1 – What is Holacracy? Purpose and Key Concepts

The inventors of Holacracy will tell you that it’s an operating system for organizations.

It might be more helpful to think of Holacracy as a game.

A game that modern organizations can play when they’re on a mission and want people who work there to be happier and more productive.

Since it’s a game, it has a rulebook.

That rulebook is called a constitution.

Every player, every member of the organization, has to play by the rules and follow the constitution. No exceptions.

Now, let’s have a look at that constitution.

What does it say?

How does it help organizations fulfill their mission?

How does it ensure that members of the organizations are happy and productive?

Make the Implicit Explicit

The observation: ambiguity hurts organizations.

Why?

Because ambiguity = misunderstandings = conflicts, costly mistakes or inaction = resentment = jaded people = no growth

The solution: encourage transparency and clarify who needs to do what.

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Related Holacracy vocabulary and practices below: purpose, circles, roles, domains and policies.

Give Authority to the People Who Do the Work

The observation: imposing decisions from the top down hurts organizations.

Why?

1. It deprives the organization of key operational insight that can only come from people who are close to the action,
2. Slows down the organization when the busy people at the top are too busy to find a solution, and
3. Creates resentment from people who feel like they’re simple cogs in a machine.

The solution: encourage dialogue and trust that people who are closer to the work will make the right call.

Related Holacracy vocabulary and practices below: integrative decision-making and tactical meetings.

Give People the Opportunity to Grow

The observation: stifling people’s eagerness to learn hurts organizations.

Why?

Because bored people = low energy people = slow moving organization = poor performance = dead organization.

The solution: make growth opportunities public to all and support people who want to try something new, even if they’re not an expert in that field (yet).

Related Holacracy vocabulary and practices below: energizing roles, governance meetings.

Trust That Things Will Work Out

If you’re high up in a pyramid, you might be panicking right now.

Assuming you haven’t stopped reading (well you haven’t, obviously ;) thank you!), you might be thinking Holacracy is nuts and that level of “letting go” can’t work because people are this and that or your industry is different or your organization is special.

Of course, each individual, every organization and every industry is different and special.

However, Holacracy is mature enough now that you can find organizations that have worked well with it at all stages of their development, in all industries, with all sorts of people across a variety of countries.

Let’s have a look at a few flagship Holacracies to reassure the sceptics.

Zappos – USA – Retail – 1,001-5,000 employees

A lot has been written about Zappos’ implementation of Holacracy.

Not everything went well from the start and many aspects of the implementation are still imperfect (more on that later).

Still, Holacracy gave Zappos a great place to start:

“There are a lot of companies self-managing in a lot of different ways, but most of them created and developed their own unique method and honed it over several years. So, why did we go with Holacracy? Aside from it arguably being the most publicly well-known, it is one of the only pre-built, out-of-the-box options that any organization can implement, regardless of size, sector, or industry. Holacracy immediately provided us with a set of rules and processes that everyone could see, with a lot of the nuances and checks-and-balances already figured out for us.”

Valve – USA – Computer Software – 201-500 employees

Valve’s tagline is “Boss-free since 1996”.

That hasn’t stopped them from growing and developing industry-defining products like Half-Life or Counter-Strike.

Working on business development for Valve since 2010, DJ Powers explained in an interview with the BBC that he thinks that self-management has created a community of respect and that “the best idea wins no matter who it comes from, whether they've been at Valve for a year or founded Valve.”

Tochka – Russia – Banking – 501-1,000 employees

We already know from the Zappos example that tech startups are not the only ones making Holacracy work.

Tochka shows us that Holacracy can provide structure for even the most complex and confidential industries.

And even when it seems like the worst time possible to make the transition!

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Part 2 – Explaining Holacratic Jargon With Simple Words

Holacracy is first and foremost a system that allows organizations to steer clear of pyramidal hierarchies and implement self-managed teams and individuals.

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As such, the first concepts you need to be familiar with are distributed authority, circles and roles.

Distributed Authority

In a Holacracy, authority and decision making are distributed among fluid “circles”.

What does that mean?

It means that people across the organization have the power to make decisions, even important ones: it’s not just a few individuals at the top of a pyramid that make decisions for the rest.

However, it is crucial to understand that the absence of a pyramid of hierarchies does not mean that there is no structure in a Holacracy.

On the contrary, holacracic organizations are very structured and formal.

Circles and roles are at the center of that structure.

Side note: in fact, Holacracy is so structured and formal that many organizations find it too constraining in the long run and decide to tweak it a little bit to better suit their needs. More on how you can do that in your own organization in part 7.

Energizing Roles

Holacracy doesn’t think in terms of fixed positions and job titles where one person is hired to fill one position with one job title.

Holacratic organizations have a multitude of roles that are organized in circles and all contribute to the organization’s purpose.

People are hired to bring energy to those roles. Holacracy calls that “energizing roles”.

In your role, everyone can make suggestions but no one can tell you how to do your job as long as you hold up your end of the bargain:

• your results are in line with the role’s “accountabilities”,
• your actions are in line with your role’s “purpose”,
• you are not impeding on another role’s “domain”.

When someone is assigned to a role, that person takes responsibility for that role.

“As a Partner assigned to a Role, you have the authority to execute any Next- Actions you reasonably believe are useful for enacting your Role’s Purpose or Accountabilities.”

What about taking decisions that may impact other people in the organization?

Integrative Decision-Making

One of the objectives of Holacracy is to speed up decision-making and give people who are closer to the problem more authority to experiment with what they think is the best solution.

How does Holacracy speed up decision-making?

1. By making it possible for any circle member to propose changes

2. By ensuring that other members can only object on the grounds that a change would negatively impact their own work

So you need to ask permission.

But getting that permission is straightforward.

During a governance or tactical meeting, you’ll propose a change and, as long as no one thinks it’s a horrible idea that is not safe enough to try, you’re good to go.

Governance Meetings

“Governance Meetings are focused on the structure of the Circle.”

For example, when someone has identified the need to create, remove or modify a role or policy, they create a tension that will be processed in the next governance meeting.

Tactical Meetings

“Tactical Meetings are focused on the operational work of the Circle. Their purpose is to triage issues that have come up during the week and remove obstacles so that the work can move forward.”

They take place at circle-level on a weekly basis.

This means that you know exactly:

• who to ask permission because each role’s domain is clearly defined,
• when to approach the subject (i.e. in the next tactical meeting),
• how to approach the subject (i.e. during the round of triage).

An individual doesn’t have to muster the courage to ask their boss if they can do something anymore. They discuss the item along every other tactical item in a weekly meeting designed with that type of integrative decision-making in mind.

Circles

Circles in Holacracy are basically the equivalent of teams in traditional organizations.

With a few key differences.

1/ In Holacracy, each circle has a clear purpose whereas traditional teams are often functional, focused on delivering tasks.

2/ In part because a new role doesn’t necessarily mean new hire, Holacratic circles evolve constantly whereas traditional teams tend to be fixed.

3/ Holacratic circles naturally include people with different sets of expertise whereas traditional teams are often one-dimensional.

4/ Circle lead links distribute their authority whereas traditional managers tend to call the shots and tell their team what to do and how to do it.

Circle Lead Links

In a Holacracy circle, the Circle Lead Link is “the role responsible for assigning other roles and allocating resources”.

If we take traditional organizations as a frame of reference, the lead link is similar to a department or team manager, it:

• allocates people to roles in the circle,
• can define an overall strategy and priorities for the circle,
• is responsible for all unassigned accountabilities in that circle.

However, Lead Link’s and traditional managers are different in two key aspects:

• Lead Links can’t tell people how to do their jobs,
• team members have a say in the Lead Link’s role, domain and accountabilities.

Processing Tensions

In Holacracy-speak, a “tension” is a gap between the current reality and the potential you sense for one of your roles.

Basically, a tension is an opportunity to improve.

When you sense a tension in one of your roles, it is your responsibility to “process” it.

What does that mean?

It means that it’s your job to raise the concern with the appropriate people and to offer solutions, at the next tactical or governance meeting.

Note that we have chosen to focus on what we feel are the most strategic concepts of Holacracy to get started. For a full glossary of holacratic terms, you can refer to Appendix A of the Holacracy Constitution

Part 3 – From Intellectual Concepts to Real Holacracy Practices

Ok, discussing concepts and words is all well and good.

How does a Holacracy actually work in practice?

How is it different from other organizations?

Jobs VS Roles

In their 2016 article exploring the “hype” around Holacracy, HBR explained that  “in a holacracy, instead of hiring a person to fill a pre-defined role (such as that outlined in a job description), people opt to take on one or more roles at any given time and have flexibility to move between teams and roles if they have skills or insights that would prove beneficial to the organization.”

Pieter Wijkstra, formerly of OrganizationBuilders, did a great job illustrating the difference between traditional jobs and holacratic roles in a series of YouTube videos contextualized below.

“In traditional organizations, each employee works within a single, broadly defined role, and it’s often difficult for people to sculpt or switch jobs.”

“In self-managing systems, individuals have portfolios of several very specific roles, which they craft and revise to address shifting organizational and individual needs.”

Pieter Wijkstra takes the example of Blinkist to illustrate what an holacratic organizational chart looks like and how it can evolve.

Planning VS Doing

Instead of making a yearly plan and sticking to it like a traditional organization, a Holacracy evolves continuously.

Regular meetings are great to check-in: what did we do? did it work? why not? what do we want to try next?

That may sound like a chaotic way of approaching business but it’s not.

Why?

Because the organization’s purpose is at the heart of every decision made.

There is no chaos when everyone in the organization knows exactly where they want to go and what falls into their sphere of influence.

In fact, it makes a lot more sense than trying to predict the future like most organizations do.

They call it forecasting but those of us who have worked in big corporations know how that little exercise works:

• look at numbers from the past,
• make up a number for the future based on a few assumptions, that may or may not happen,
• adjust the numbers to fit the expectations of the VP you fear the most.

There are two huge issues with that approach:

1/ it’s little more than guesswork.

2/ it’s incredibly limiting because, even if you aim for moonshots based on past numbers, you’re still working within the same paradigm. You’re discouraging innovative thinking.

Consensus VS Integrative Decision-Making

In a traditional organization, you need to get a bunch of approvals before you can do anything meaningful.

In order to get approvals, you often need to get a little bit political. You don’t necessarily need to become a full-blown politics monster but, at the very least, you need to find ways to fit in so that people like you and, by extension, approve your ideas.

With Holacracy, the decision-making process changes completely. You still have to present your ideas to the collective intelligence (there are other smart people you can learn from and that will be affected by your work after all!). However, they don’t have to approve every single thing you do. You are free to experiment as long as they’re not opposed to an idea, you can move forward.

It may seem like a small change but it’s actually a huge shift.

Why?

Because you’re taking responsibility for your actions.

When you ask someone to approve something, they share that responsibility. And because they share that responsibility, they’re a little bit more cautious about giving you the green light.

When you share your ideas with someone and give them the opportunity to raise concerns without asking them to share responsibility for your ideas, they’re much less likely to object and kill a project altogether.

They would only do that if they truly believe there’s a critical flaw in your proposal. Otherwise, they’d much rather get on with their work than start an argument with you!

Part 4 – How Holacracy Can Benefit Your Organization

Ok, we’re starting to see how Holacracy works at individual and team or circle level but how does it actually benefit your organization overall.

Pilot Your Organization with Purpose

Most organizations lack focus.

Small organizations try to do it all with a few people on a tight budget. Large organizations are so big they forgot why they got started in the first place.

One solution to this lack of focus is Simon Sinek’s famous Start with Why, i.e. a clear organizational purpose.

Holacracy places purpose at the center of the organization.

That purpose is constantly front and center in conversations, when you:

• create your organization,
• design a new circle,
• create a new role,
• make decisions.

In holacratic organizations, when someone asks you to do something, your first instinct is to evaluate that request against the organization’s purpose.

Side note: that’s partly why OKRs are such a popular practice among holacratic organizations.

Respond to Change Swiftly

Holacracy allows organizations to adapt quickly to market changes and / or different energies from the individuals who make up the organization.

For example, if a new hire turns out to be great at something they weren’t necessarily hired for, BOOM, a new role can be created at the next governance meeting, giving that person the room to grow and bring even more positive energy to the organization.

With weekly tactical meetings and regular governance meetings, holacratic organizations have the perfect structure and template for fast decision-making.

Tensions don’t have time to build up and corrective actions are implemented swiftly as long as it’s “safe enough to try” and “good enough to start”.

Build a Loyal Community

Holacracy gives a voice to everyone in meetings and trusts people to make the right call for their roles.

In addition, it has a built-in process to address tensions before they blow up.

Finally, it places purpose at the center of the organization.

These three core characteristics of Holacracy help employees and customers feel comfortable, understood and valued.

That’s a recipe for a loyal following.

Part 5 – What are the Limits of Holacracy

We’ve alluded to this right from the start: Holacracy is not perfect.

High-profile companies like GitHub, Medium and Buffer tried Holacracy for a while before coming to the conclusion that it’s not for them after all.

How come?

Let’s have a look at the most common criticisms directed at Holacracy.

Manufactured Complexity that Gets in the Way of What Matters

Holacracy is a framework that promotes agility.

Ironically, if you follow the Holacracy constitution to the letter, things can get pretty rigid pretty quick.

In Julia Culen’s experience, “Holacracy exclusively focuses on internal processes and keeps the organization busy with organizing itself. [...] Holacracy implementation used up all of our energy that we should have used to work on our actual pain points, such as lack of innovation, unclear strategy, critical market feedback and declining internal morale”

Cryptic Rules that Create the Illusion of Transparency and Autonomy

It’s great that not everyone has to consent to a proposal before you can move forward.

It’s also great that meeting templates exist to encourage discussion and help get things done.

However, daily or even weekly tactical meetings can get repetitive and feel like a waste of time after a while.

In theory, everyone knows when and how they can participate in the meeting.

In practice, employees who aren’t formally trained in Holacracy can find it hard to absorb the rules of engagement. And “if every circle has a monthly governance meeting, as is common in holacracies, and if employees are in 4.1 circles, on average, the meeting time adds up”.

In addition, just like in any workplace, big egos can make it pretty clear, pretty quickly that their opinion is more valuable than yours.

Even with a formal set of Holacracy rules to follow, it’s not uncommon for circle members to just give up and shut up about their tensions.

Forgetting about People’s Need for Empathy, Guidance and Validation

Holacracy is often criticized for focusing too much on processes and forgetting about people.

Sure, giving people autonomy is generally a good thing, but some people may feel completely abandoned and helpless if they don’t have a manager to speak to about responsibilities and progress.

In theory, you could ask Circle Lead Links to provide that support but that’s not what the Holacracy Constitution asks of them.

Like it or not, we humans often feel the need to be validated. By peers but also by our “superiors” in the workplace.

It may be silly, but it’s very much ingrained in a lot of us through the adult / child relationships we experienced in our formative years.

And isn’t that a good thing in many ways?

Didn’t grown ups teach us a lot when we were kids?

Does it not make sense to have managers who are more experienced than us guide us on our path to growth?

Gallup certainly seems to think so, taking Zappos and Google as examples of innovative companies who weren’t able to get rid of managers all together.

Promoting Multiple Roles Versus Focused Work

Being entrusted with big projects and having room for growth is great.

It can also be overwhelming.

On average, Holaspirit members – including but not limited to Holacracy practitioners – are assigned to 4.85 roles. At Zappos in 2016, each employee filled 7.4 roles.

That’s a lot of responsibility!

But is it a good thing for the organization and for the individuals who make up the organization?

The debate rages on.

Some will argue that the more roles and accountabilities you have, the less you can focus and deliver.

Instinctively, the notion that fewer priorities leads to better work makes a lot of sense.

On the other hand, working on multiple priorities at once may be what helps us grow, “connect the dots” and innovate.

As I said, the debate rages on.

Whatever side of the argument you land on, there are things you can do to implement and scale Holacracy successfully, helping your people grow without losing focus along the way.

Part 6 – Ingredients for a Successful Holacracy Implementation

Now that we’ve established that Holacracy is not a panacea, let’s figure out if it’s the right fit for your organization.

And, if it is, let’s discuss what you can do to avoid the pitfalls described above.

Are Certain Industries or Company Sizes More Suitable to Holacracy?

According to a 2016 article in HBR, yes, some industries are more suitable to Holacracy than others:

“Using self-management principles to design an entire organization makes sense [...] if the organization operates in a fast-changing environment in which the benefits of making quick adjustments far outweigh the costs, the wrong adjustments won’t be catastrophic, and the need for explicit controls isn’t significant. That’s why many start-ups are early adopters. [...] But in reliability-driven industries such as retail banking and defense contracting, hierarchical structures prevail, even if there is room for niche competitors (in banking, think of Umpqua, famous for having a phone in every branch that enables customers to ring the CEO’s office) or for certain units within the organization (such as the original Skunk Works at Lockheed Martin) to go against the traditional grain.”

We would agree that smaller organizations that operate in a fast-changing environment are ideal candidates for Holacracy. In our experience, however, all types of organizations can successfully implement Holacracy.

From the smallest non-profit to the big bank with over 2,000 employees, size and industry don’t matter. Holacracy can be a great framework to implement self-organization.

• Ulteria, French non-profit, 51-200 team members
• Tochka, Russian bank, 2,000 team members
• Enedis, French energy provider, small innovation team

Still, though we believe that all sizes of organizations from all industries and successfully implement Holacracy, we also think every single organization can fail in their implementation of Holacracy if they don’t approach the transformation process in the right way.

Employees VS Intrapreneurs: Hiring the Right People and Treating Them Well

On paper, self-management is great for everyone and Holacracy is a structured, reliable way of implementing it.

In reality, self-management is not for everyone and the solid framework provided by Holacracy won’t change that.

A lot of people prefer to work within a pyramidal structure. They like to have someone who tells them what to do, how to do it and when to do it. It’s reassuring and comforting. They know the rules and they know that, if they respect those rules, they’ll probably be ok. Unless the organization has to cut costs or goes under.

For people who have an entrepreneurial mindset, it’s easy to look down on those people but that would be a mistake.

Different people at different stages of their lives need different things. Organizations that transition to Holacracy sometimes forget that.

Before you decide to implement Holacracy in your organization, it’s absolutely critical that you understand the people who make up the organization.

What do they need?

Who would benefit from more autonomy?

Who might be scared? How could you reassure them? Would that be enough?

Is there a risk that you will lose great people?

Is that a risk you can live with because it feels like the right move in the long term?

How can you ensure that you treat everyone well?

If you haven’t taken the time to come up with a good answer to all of these questions, it’s probably too early for you to implement Holacracy in your organization.

If you need help coming up with answers to these questions, reaching out to people who have experience implementing Holacracy in particular or self-management in general is a great first step.

Leaders With a Vision Who Are Fully-Committed to the Change

Self-organization cannot work without the full support of the leadership team.

Holacracy is one way of implementing self-organization.

Therefore, you need the full support of the leadership team to successfully implement and scale Holacracy.

If the CEO or top management does not believe in self-organization, if they think team members can’t be trusted to thrive in a more autonomous and growth-oriented setting, then Holacracy can’t work.

In addition, self-organization cannot be implemented successfully if team members are not clear about the company’s vision.

A project needs direction. Team members who are expected to be autonomous in their roles need clarity. They need to know exactly what is expected of them and why it’s important.

Obvious by crucial side note: leaders must walk the talk. If there’s a discrepancy between what the leadership team says and how it behaves, team members won’t have the drive to deliver.

This is even more important in a time of crisis like the pandemic we’re experiencing now. When you hit a bump in the road, it’s tempting to go back to what you know.

However, companies like Visii that stay true to their beliefs will benefit in the long-term. Customers and team members will remember their honesty and humanity.

Communication and Training: a Continuous Effort

If you decide to implement Holacracy in your organization, be prepared for resistance.

Be patient with yourself, your people and the implementation process.

Transitioning to self-management is hard.  

It won’t happen overnight.

So what can you do to make that transition as smooth as possible?

Communicate, a lot, with everyone.

Answer all of the questions that come up as best you can.

If you don’t have the answer, say so and try to figure it out with your team.

The key here is to design a process that ensures you listen to what people have to say, take their feedback onboard and address their concerns.

How can you do that?

You could, for example, set up an anonymous chat where all team members can ask their questions and raise their concerns as they come up. Then, once a week, you could answer all of these questions publicly, to all of them.

Availability, clarity, transparency.

Whatever process you decide to put in place, best not start by sending a 4,570 word email like the one Tony Hsieh sent to Zappos employees when he first decided to implement Holacracy! (To his credit, Tony course-corrected fairly quickly, as we’ll see in Part 7)

Part 7 – Going Beyond Holacracy

Holacracy is full of great tools that can help you implement self-management and transparency in your organization.

If you don’t know where to start, the Holacracy framework will help you structure your thoughts and gain clarity on what you want for your organization and your teams.

However, it is also a set of rules that can harm your organization if you apply them blindly.

Don’t be afraid to challenge the rules and adapt Holacracy to suit your needs.

Here are three ways you could approach this:

1/ start by going all in, apply the Holacracy Constitution to the entire organization and, little by little, figure out which rules you could do without and which ones need adjusting (see the Zappos and Boldare examples below)

2/ start small, implement Holacracy in one or two teams and, little by little, scale Holacracy to include more teams in the organization (see the Novotel example below)

3/ pick and choose which parts of Holacracy you want to implement first and, little by little, deploy Holacracy in full (see the Athena example below)

The Zappos Example: Dialing Back After Going All-In

That’s what Zappos is doing: after implementing Holacracy in 2014, “Zappos is still using Holacracy and we currently have no plans to change that. However, Holacracy is built to focus on the work, rather than the people, while Zappos is *all* about the people. So, we've evolved how we use Holacracy to find ways to layer our culture, core values, and focus of people into the system in a way that works best for us”.

The Boldare Lesson: Stay True to You

Boldare does that too. When the company first implemented Holacracy, they embraced it fully and set aside rituals and routines that had been working for them. A few months down the line, they realized something was terribly wrong and they had forgotten about the people. So they regrouped and worked hard to get the best out of both worlds: the structure and clarity that comes with Holacracy and the human warmth and performance that comes from the people who work there.

The Novotel Lesson: Watch Your Holacracy Business Unit Over-Perform

In October 2017, Yan Laurent opened the Paris Coeur d’Orly Novotel with a holacratic approach to management.

A year later, they had exceeded budget forecasts by 1 million euros. Three years after opening, the hotel is still over-performing.

The Athena Approach: Implement Modules of Holacracy Gradually

The all-in approach to Holacracy can be overwhelming.

Instead of implementing Holacracy all at once, The Athena Group implemented Holacracy one step at a time.

Holacracy One coach Michael DeAngelo who helped The Athena Group implement Holacracy suggests the following approach: “Fix your biggest pain point first and use what you’re currently using for everything else until they become your biggest pain point.”

This modular approach to Holacracy implementation has three major benefits:

• you fix what needs to be fixed in priority,
• you don’t waste time “fixing” what doesn’t need to be fixed,
• team members and the organization as a whole don’t have to absorb all the rules of Holacracy all at once.

Key Takeaways

If you’re looking to implement self-management in your organization, Holacracy is one way to do it. It’s not the only way but it provides a clear structure and set of rules worth looking into.

Implementing and scaling self-organization takes time. It can only work if the leadership team is 100% committed to overcoming short-term difficulties for future gains.

Like other self-organization models, Holacracy gives a lot of flexibility and autonomy to employees. Self-starters and entrepreneurs usually love it but it can be unsettling for people who are used to traditional methods of management.

Training, support and communication are key to a successful implementation of self-organization in general and Holacracy in particular.

You don’t have to go all-in, all at once on Holacracy. You can experiment with Holacracy at team level or adopt a modular approach to implementation.

If you’re still not sure whether self-managed teams in general and Holacracy in particular are the right fit for your organization, you’ve got a few options:

1. forget about it,

2. do more research on organizations that make it work,

3. chat with a transformation coach who has experience implementing Holacracy or other forms of self-organization,

4. test it at team level before deploying at organizational level or start by implementing modules of Holacracy in sequence.

Need a tool to help you map out what needs to get done with people and projects? Schedule a demo of Holaspirit with our team to see if it's a fit!

Want to get expert insights on how to implement holacracy or another organizational model in your organization? Download our latest white paper on this topic 👇

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