Is Holacracy Right for Your Business? Benefits and Drawbacks

What is holacracy?

The holacracy organizational structure aims to distribute power evenly, empowering independent teams to innovate and make decisions instead of relying on the classical hierarchy. That means each department self-governs and takes ownership of output rather than authority coming from the top down. Furthermore, the CEO is held to the same rules and standards as a junior employee under the holacratic system.

How does holacracy work?

Companies operating under a holacracy replace rigidity with flexibility to spread power evenly across the organization. The idea is to ensure employees with the most specialized and relevant knowledge have ownership over the processes and decisions they’re best placed to be in charge of.

Let’s delve deeper into the mechanics of a holacracy.

Roles instead of titles

Holacracies don’t have rigid job titles and job descriptions; they have clearly defined roles with specific purposes, domains and accountabilities. Each role has a set of responsibilities that one person takes charge of. An employee can own multiple roles, and each role has the potential to shift and grow depending on business goals. This can be particularly useful for start-ups and companies in the early stages of growth.

Circular organizational structure

The next element of a holacracy is its circular structure, which replaces the departmental structure of a traditional hierarchy. Each circle has set roles and accountabilities that enable it to fulfill its predefined purpose, such as a marketing circle, operations circle and customer support circle. They can make final decisions independently without the need for top-down approval.

Circles are semi-autonomous because small circles are often nested within larger circles. Nested circles focus on specific, granular tasks, while parent circles have overarching responsibilities, creating a framework that ensures the bigger picture and finest details are covered.

Tactical and governance meetings

Open and clear communication is paramount for the holacracy model, making regular meetings important.. There are two broad groups of meetings: governance and tactical. Governance meetings help clarify accountabilities and role assignments, smooth out conflicts and shape policy. On the other hand, tactical meetings focus on daily operations and address current obstacles to business goals, ensuring the whole team is moving in the desired direction.

Constitutional authority

While freedom and flexibility are the cornerstones of holacracy, there are still rules to follow. In fact, under a flat management system, each employee is more autonomous and independent, meaning there’s no room for being relaxed or complacent about policies or processes. Every individual worker must be a manager with a high level of commitment to enacting company culture and hitting targets.

As such, a constitution is a core element of a holacracy. It must outline exactly how the system works, acting as the highest authority in lieu of a traditional CEO or director. This drastically shifts the workplace power dynamic, as each and every worker, regardless of education, experience or ownership, is equally bound to the same set of rules. That means no more “one rule for them and another for us,” which is all too easy under a hierarchical structure, in which senior team members are often not held accountable.

Benefits of holacracy

Let’s explore the key benefits of operating under the holacracy operational structure.

1. Accountability

Instead of individuals having job titles with corresponding job descriptions, there are roles within the company. Each role is clearly defined with domains, purpose and accountability, leaving no room for ambiguity about who’s supposed to perform which tasks or how they should do it. Because employees know they’ll be held directly responsible for successes and setbacks, they’re more likely to engage fully and go the extra mile.

This high level of accountability has the potential to quash fault and blame culture and ensure every team member is aligned toward the same ultimate goals.

2. Adaptability

Centralized decision-making can lead to bottlenecks and missed opportunities due to the reliance on a few people to make decisions. In some cases, under a traditional hierarchy, you might have people who are more qualified to make certain decisions but never get the opportunity. This can be especially true when it comes to software development, marketing or finance. In many instances, decision-making in traditional hierarchies involves a lengthy approval chain.

Under the holacratic organizational model, individuals and circles can pivot instantly based on their expert knowledge, market conditions and real-time data. That means the company can be optimally agile, responsive and competitive because it’s able to adjust strategy without bureaucratic delays.

3. Role driven decision-making

Because decision-making is role-driven rather than person-driven, power and authority are evenly distributed. Whoever is closest to the process makes the final call, meaning outcomes are more timely and informed.

Empowering employees to make decisions about their areas of expertise fosters a culture of innovation and initiative instead of hindering it.

Potential drawbacks and considerations

The holacracy model has a ton of advantages, but that doesn’t mean it’s right for everyone. Below you’ll learn about the potential drawbacks of holacracies.

1. Extensive transition process

Implementing a holacracy requires a complete overhaul of your business model, which means a huge investment in process optimization and employee training. The hierarchical structure is deeply ingrained into the business world and can be difficult to move away from. It’s crucial that you involve employees at every step of the process and relentlessly support them throughout the transition.

2. Potential for decision paralysis

Making people responsible for duties that are beyond their scope can lead to decision paralysis. Changing your organizational structure requires extensive research, data analysis and internal communication to determine how roles are delegated. If you rush it, you could overload staff with responsibilities they’re not ready for and drastically slow down decision-making instead of speeding it up.

Critically, employees must feel empowered by the autonomy you’re giving them and actively want to embrace it. Many workers like having a manager to report to and wouldn’t feel comfortable taking ownership. Forcing them to be accountable when they don’t want to be is unlikely to have positive outcomes.

3. Doesn’t work for everyone

Just like traditional hierarchies, holacracies aren’t for every business. For example, a huge manufacturing firm that’s been in business for 100 years might not benefit in the same way as an e-commerce start-up. The more deeply ingrained hierarchies are embedded into your organizational structure, the harder it is to unravel them. What’s more, safety and regulatory demands might make a flat organizational structure impossible to maintain.