The latest big idea in management deserves some scepticism

Date: 03-07-2014
Source: The Economist: Schumpeter
Subject: The holes in holacracy

EVERY so often a company emerges from the herd to be lauded as the embodiment of leading-edge management thinking. Think of Toyota and its lean manufacturing system, say, or GE and Six Sigma excellence. The latest candidate for apotheosis is Zappos, an online vendor of shoes and clothes (owned by Amazon), which believes that happy workers breed happy customers. Tony Hsieh, its boss, said last year that he will turn the firm into a “holacracy”, replacing its hierarchy with a more democratic system of overlapping, self-organising teams. Until Zappos embraced it, no big company had taken holacracy seriously. Indeed, not all of Zappos’ 1,500-strong workforce are convinced that it can work.

The idea was invented in 2007 by Brian Robertson, a software engineer then in his late twenties. Holacracy’s “constitution” is now on version 4.0, having been adjusted after feedback from the 200 or so mostly small firms that have adopted it. Mr Robertson was inspired in part by a description of holarchy in a 1967 book, “The Ghost in the Machine”, by Arthur Koestler, a Hungarian-British intellectual. Koestler argued that the brain is made up of holons that are autonomous and self-determining yet also fundamentally dependent on the brain as a whole. In a similar spirit, Mr Robertson says that the whole that is a firm should consist of overlapping “circles”, each a team of employees who have come together spontaneously around a specific task.

With about half of Zappos’ workforce trained and inducted into holacracy, there are now 180 circles, and when the roll-out is completed at the end of the year there will be around 400. Each employee will typically be in two or more circles. Their role, and the mission of a circle, can change frequently, to reflect the evolving needs of the firm. As part of the adoption process, the chief executive must give up his title, as Mr Hsieh has done, to become the “ratifier of the holacracy constitution” and “lead link” in an overarching “company-wide circle”—though in the event of deadlock over how to proceed, he will regain his powers as final arbiter.

Will conquering Zappos help holacracy thrive in the brutally competitive market for management ideas? There is good reason to be sceptical. “Nine-tenths of the approximately 100 branded management ideas I’ve studied lost their popularity within a decade or so,” wrote Julian Birkinshaw of London Business School in the May issue of the Harvard Business Review. Among the latest cast-offs, it seems, is Google’s much-admired “20% time”, in which workers got a day a week to work on their own projects; the company is reported to be quietly sidelining it.

Other, generally more timid, forms of democratic decision-making are being tried at long-established technology companies, whose bosses worry that their rigid hierarchies put them at a disadvantage to nimbler and less regimented young rivals. IBM is experimenting with “agile management”, in which self-governing teams have regular “scrums” to decide the next “sprint”, or stage, of the project. GE is rolling out FastWorks, a system inspired by Silicon Valley’s “lean startup” movement, itself inspired by agile management. Haier, a Chinese appliance-maker, last year split its workforce into 2,000 self-managed teams that perform many different roles.

Holacracy goes further in shaking up working practices than most of these approaches, but does that make sense? Past attempts to democratise decision-making have not been notably successful. Holacracy’s principles sound a lot like those of the Spaghetti Organisation, one of the forgotten fads chronicled by Mr Birkinshaw. A system to empower employees to create their own development projects, it was pioneered in the early 1990s by Oticon, a Danish hearing-aid maker. But it fell out of fashion when much of the innovation it produced proved wasteful and workers bemoaned the lack of understandable career paths.

Some management professors regard the whole idea of stripping away hierarchy as wishful thinking. In “You’re Still the Same: Why Theories of Power Hold Over Time and Across Contexts”, an article published last year, Jeffrey Pfeffer of Stanford University argues that “hierarchy is a fundamental principle of all organisational systems.” Fans of holacracy, such as Evan Williams, a founder of Twitter, respond that it is not so much about discarding hierarchy altogether as making it more fluid. This seems to work fine for the firms that have adopted it so far: relatively small, fast-growing ones, full of creative types who would shun a more conformist workplace. Even Mr Birkinshaw concedes that holacracy is a “good fit for Zappos, which has already shown a pronounced proclivity to go its own way.” However, he is less confident about its suitability for more conventional firms. For these, he says the main thing to remember with any new management fad is, “First, do no harm”.

There are no bosses here, because I say so
In the young and fast-growing companies that have adopted holacracy and other democratic forms of management, Mr Pfeffer notes a paradox: “These ideas tend to be introduced by benign-dictator CEOs who are the only thing stopping the firm reverting to a traditional hierarchy.” In contrast, in a long-established firm with many levels of hierarchy, the boss is more likely to be the biggest obstacle to adopting holacratic management. Having struggled his way up the greasy pole, he is unlikely to be inclined to follow Mr Hsieh of Zappos and relinquish his powers and title. At a recent conference session discussing holacracy, hosted by WPP, a giant marketing conglomerate, one of the topics was, “Should we depose Sir Martin Sorrell?”, a reference to the man who built and runs the group. One imagines WPP’s aspiring holarchists were simply being provocative. At any rate, the famously forceful Sir Martin remains very much in control—and his title is “group chief executive”, not “lead link”.


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