IS HOLACRACY READY FOR COMPANIES? A historical approach

Not long ago, management systems began to be outdated. New forms of governance spread like a plague to compete with the global market. The most prominent management system was the holacracy, which promised to distribute authority and minimize the hierarchy.

However, is this system sustainable or even ready to apply? Do we really need to minimize hierarchy?

Let's have a historical approach to understand the origin of Holacracy;

-19th Century-

One of the most significant events of the 19th century would be the industrial revolution. Henry Ford, as some might call the father of the industrial revolution, brought the system of "Fordism".

Back then,

What was needed: Mass production

What was the problem: High cost

For sustainable mass production, there was one significant solution: Flexible System of Production (FSP) which was characterized by dramatic cost reductions. FSP worked because of the Total Quality Management (TQM) which provided strong consistency on the inventory control, and the leaderless workgroups which enabled faster product life cycles.

Leaderless workgroups, rather defined as automatization today were and still are an essential tool for mass production. Fordism evolved into FSP or FMS (Flexible Manufacturing Systems) to match the need of variable production, defined as “a computer-controlled configuration of semi-independent work stations and a material handling system designed to efficiently manufacture more than one part type at low to medium volume “ (àngel Piera Eroles M., et al, 2009). In its early days, these production lines, rather flexible or not, reflected the idea of waterfall project management.

In the following years, other production companies started using the waterfall project management system which was inherited from Fordism. Companies loved it. The waterfall method was linear, easy to understand, and could have been widely applied to meet the production and consumption needs. As I said. It was.

With the need for greater profitability or so-called accessibility, many production systems later realized that they need to cut the costs. When the people cost vs the efficiency situation forced companies to cut costs from human resources, organizations checked their production lines for optimization. One can argue that was the time when the need for Lean (Lean Management System) emerged.

At many times, improving a waterfall project needed an overhaul rather than small improvements. To save the waste in code, production, or material caused by the waterfall method was searched for, Lean’s definition popped up. Womack and Jones wrote an article about a case study that constitutes real cost savings in a lean program which analysis the cost of implementation and the reduction in cycle time as metrics and for the result, Boeing’s Lean team had a $1.7M total reduction in cost (Womack and Jones, 1996).

Even though it was proven that Lean had a significant effect on cost-saving, the need for adaptation to customer needs was still a need for most companies especially dealing with projects that had a success criterion valued by customers. While there was a need for customer satisfaction and human interactions rather than process and tools, a model called Agile found its place in project management. YAYY AGILEEEE!!!

-2001-

In 2001, a group of developers invented principles to improve the software development process while focusing on individuals and the corporate communication between the customers and the project contributors. They called it; Manifesto of Agile Software Development. The agile method is founded to help teams to respond to the unpredictability of software development processes.

Agile uses incremental, iterative work sequences, commonly known as a sprint. Although there were arguments about if Agile covers the needs of all kinds of projects, the principles have become popular among companies that are in a need of an adaptable project management structure.

Even though both Agile and Lean principles were focusing on ” Maximum ROI ”, Agile enabled real-time results for customers and created visibility of the outcomes.

To explain the relationship between Agile and Holacracy, I should explain why development projects do not work efficiently with Waterfall. At the beginning of each project, the waterfall method determines the requirements as it is written to a solid rock. Waterfall does not work for software projects. To convince you, I am gonna let the scholar talk;

“Software development is a highly complex field with countless variables impacting the system. All software systems are imperfect because they cannot be built with mathematical or physical certainty.” (Szalvay, 2004)

Still not believe me? More scholars, please!!!

”The empirical approach will be, If tasks are tightly coupled in a project in waterfall, then it is impossible to not talk about the additional costs when a deadline of a single task goal on the project could not be reached. Agile works with iterations that will have a cost-determination system while the project is ongoing (Shi, Chen, & Chen, 2011).

Ok, we believed that Agile is awesome but there is another problem. How can we manage the development teams efficiently?

To answer this question, Brian Robertso (he was one of the founders of the agile manifesto) left his job and started his own start-up software company called Ternary to answer the question: How to increase work efficiency?. While having ongoing investigations to find the answer to that particular question, the term Holacracy found its place in organizational agility and organizational design.

-After 2001 Till Now-

At the beginning of 2007, Robertson agreed on a partnership with Tom Thomison and shifted his company Ternary to HolacracyOne to consult companies that seek a more compelling management style.

Later on, HolacracyOne started to work as a consultant for companies. Roberston (2014) points out that after several years of Holacracy, the management system had its iterations, and with the integration of David Allen’s Getting Things Done method, the final version 4.1 became ready to do some action! Ok, Roberston didn't say exactly 'do some action' but you got the idea.

In 2015, when the Holacracy 4.0 released, Compagne released the patch notes of the new Holacracy constitution version 4.1. I got the following information from Compagne (2016) who is a partner at HolacracyOne:

Firstly, in the new version, HolacracyOne company changed the language. The main purpose of this was to create more simple instructions for the method and make it more accessible. Secondly, they changed the valid proposal change flow which allows the Facilitator to reject a proposal or enables the Core Circle Members to approve. Lastly, with the changes, the developer community was able to contribute by using GitHub.

HolacracyOne changed their self-development style from decentralizing to a more transparent feedback-oriented one.

First Case

The first company that shifted to a holacracy management style was Zapros. Zappos became the target of the media. Because more than 17% of employees decided to quit their jobs after the change (Kumar S & Mukherjee, 2018). Why? Let's hear the CEO of Zappos;

“It was just because they had wanted to go out and start their businesses. And now with a year's severance, for example, they had the funds to try it out. And they also knew that they could, 12 months later, come back to Zappos (Feloni, 2016).

Even though there is not even a single piece of proof for the explanations, based on the article at Quartz, 9% of the leaves have consisted of managers at Zappos (Groth, 2015). In Zappos insights blog, which is https://www.zapposinsights.com/about/holacracy It is stated that “When true self-management is happening, people understand exactly what is expected of them and then have the ability to do what they think is best to get that done.”

Second Case

Evan Williams can be the second case who didn't appreciate Holacracy. Medium officials announced in March that they will no longer use the Holacracy system they have used since 2012 (Reingold, 2016). The Chief Operating Officer of Medium later explained the reason for leaving the system. He said the system hinders the company's effectiveness and communication that happens between employees.

Does holacracy really the opposite of Hierarchy?

Some argue that holacracy has a hidden hierarchy with itself. Steve Blank, a Silicon Valley entrepreneur, argued that the system did not actually destroy the hierarchy, but only conceal it. Professor Cary Cooper of Manchester University said that it can be used in small companies, but it is still difficult to get rid of management positions (Voyles,2016).

Who let the scholars out!!

"Holacracy is good at conflict resolution but does not solve career advancement, compensation, recruitment problems, and Launch - traditional components of bureaucracy." (Ethan Berstein and others, 2016)

Holacracy has a similar structure with a peer-to-peer system, recruitment problems will be a critical problem related to trust issues which is a severe security gap within Holacracy.

In conclusion, still, there are two sides to Holacracy in organizations. Holacracy provides a free speak of mind environment for all titles within an organization. Therefore, creativity in the organization has the possibility to increase. Also, since roles are so clear, individuals can work separately without having a strong dependency on each other. Furthermore, as there is no manager, the process of approving a job disappears. Business is moving faster.

On the other hand. Holacracy is very difficult to adapt to the system. Now that no one is in position, those at lower levels in the current system may be happy, but managers are more likely to leave the company. According to those assumptions, the hiring process should be improved to reduce possible abusive behaviors.

Last words;

"Copy-paste isn’t a good approach, especially when you don’t understand what you’re copying."

Hugs,

Oyku