Emerging of New Organization Structures: Holacracy as a Self-Managed Model

Introduction

The tendencies of the modern business world differ significantly from the trends that were used about two decades ago. The development of information technology and the overall orientation toward optimizing and modernizing business processes have accentuated the need for revising traditional organizational structures. The necessity to remain competitive in the industry made many companies evaluate their applied organizational structures in the context of implementing innovative information technologies to decide on the effectiveness of the followed strategies in addressing current norms and trends (Lee & Edmondson 2017).

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Thus, companies focus on overcoming the challenge of integrating information technologies into their operations at all levels, including the organizational structure. However, the shift to the active use of technologies for organizing working processes requires the adoption of a specific organizational structure. In this context, researchers focused on assessing the advantages and disadvantages of self-managed organizational models created to address the demand in the modern business world. Holacracy is one of such models that requires its further examination and analysis (Robertson 2015). The purpose of this paper is to analyze and explain the specifics of Holacracy with a focus on its role for organizations.

Historical Background Regarding the Types of Organizational Structures

The reference to technologies in all organizational processes requires the change of traditional types of structures in companies to new ones. In this context, it is important to discuss how this process was realized from a historical perspective. Thus, traditional types of organizational designs appeared when the first companies were established because of the necessity of arranging processes and relationships in firms, as well as roles of leaders and employees.

These structures included pre-bureaucratic, bureaucratic, and post-bureaucratic types developed in the 1920s-1980s, a functional one, a divisional one, and a matrix among the most popular types that became actively discussed in the 1990s (Wilkinson 2015).

The last three types are applied even today, when pre-bureaucratic, bureaucratic, and post-bureaucratic are mostly considered in a historical context. A functional structure is based on structuring roles depending on tasks and functions performed by people in a company. A divisional structure accentuates differences in divisions, departments, and product lines. A matrix structure is focused on both functions and product lines (Wilkinson 2015). Nevertheless, these structures are currently replaced with new ones that are more innovative and address the needs of a modern business environment.

New Organizational Structures

In comparison to the 1990s, the 2000s were associated with the transition of traditional organizational structures to new forms as a response to the spread of technologies in business. New structures became concentrated on the role of an independent employee as part of a network, a team, or a self-managed group (Figure 1). If functional, divisional, and matrix designs were based on uniting people and functions in a system to better control them, new variants of structures became focused on less control and coordination and more interaction (Trends in organizational structure n.d.).

A network structure is one of such emerging designs that is characterized by uniting several organizations for addressing the same purpose through a joint venture and other types of collaboration. A virtual organization is another type, for which virtual communication between team members is typical. The employees of a virtual organization can easily interact with each other using information technologies without contacts in the real world (Trends in organizational structure n.d.).

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New organization structures.
Figure 1: New organization structures.

The third type is a self-managed team that is characterized by uniting a group of people working on the same project, who do not require external supervision, and they realize decision-making without managers. The members of such teams take responsibility for their decisions, developing strategies to achieve goals, and assigning tasks to members. There are also learning organizations that are usually distinguished as a separate type of organizational design. Learning organizations put emphasis on employees’ learning and development through their experience and education. In these organizations, managers encourage and promote employees’ learning by setting thought-provoking tasks and complex goals (Wilkinson 2015).

Much attention is paid to the feedback from supervisors to stimulate employees’ further progress and their interest in the development of their skills and abilities. One more type is a self-organized system that is applied when teams are interested in achieving goals without focusing on the structure (Schwer & Hitz 2018). As a result, this system is viewed as highly flexible, and team members change the organization depending on the requirements of the environment in which they operate and goals they set to accomplish.

Characteristics of New Organizational Structures

The requirements of the modern business environment cause the formation of new organization structures that have certain characteristics. These features help to differentiate new models from previous traditional ones in terms of increasing flexibility and adaptability of new systems (Figure 2). The first important characteristic to discuss is remarkable employee involvement. In these new structures, the involvement of employees is strong because it reflects the level of employees’ personal responsibility for the tasks they complete and limited supervision and coordination (Schwer & Hitz 2018). As a result, employees better understand their role in achieving a company’s strategic goal, and the interests of all stakeholders become addressed.

The second feature associated with the first one is authority linked to capability. It means that the focus is not on authorities but on the goals an organization requires to reach (Postolov, Bardarova & Ristovska 2019). As a consequence, such employee empowerment and authority based on capability lead to identifying one more characteristic of a new organizational structure: limited coordination, regulations, and norms that makes a company rather organic in its nature and development.

Characteristics of new organizational structures.
Figure 2: Characteristics of new organizational structures.

From this perspective, it is possible to state that new organizations are quite decentralized as less attention is paid to the role of managers and their coordination of projects. The focus is on providing managerial feedback to active and empowered employees, who independently choose how to organize their work in order to achieve the set goals. Thus, decentralization is reported as one of the most important features of these new organizational designs (Wilkinson 2015).

Decentralization is possible depending on another feature of these structures which is a focus on teams that guarantee that they are self-managed and include only motivated employees. This approach is more cost-efficient and effective in comparison to models used in traditional systems (Kolbjørnsrud 2018). Furthermore, it is important to mention alliances as forms similar to teams when the key focus is on organizing networks of teams and collaboration to achieve the best result. Finally, in new organizations, leaders pay much attention to guaranteeing the mindfulness approach to analyzing environments and experiences in order to evaluate the results of work and provide necessary improvements.

The accentuation of these features typical of new organizational structures indicates that organizational designs have gone through a significant and complex transitional stage to develop new forms responding to current trends. If several decades ago the focus was on differences in organizing the centralized coordination and supervision of the work through building an effective hierarchical structure, today these approaches do not work because of reference to decentralization emphasizing the role of a team in the process (Trends in organizational structure n.d.).

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Modern organizations address the environmental challenges and specifics, according to which the dependence on strong management is less important nowadays than the dependence on effective and empowered teams and employees (Schwer & Hitz 2018). As a result, new organizational designs are characterized by higher employee involvement, faster decision making, and the more organic nature.

Holacracy as a New Self-Managed Model

The rejection of the principles of hierarchical structures in organizations has demonstrated the necessity of developing a new alternative system that is known today as Holacracy. In this section, it is important to discuss the definition of Holacracy, how it is different from traditional organizational designs, and what advantages and disadvantages are associated with this new way of organizing the work of employees in companies. The focus is also on the analysis of the benefits of Holacracy for the development of organizations in the context of innovation and quickly changing environments.

Definition of Holacracy

Holacracy is a new approach to running any organization that is based on the principle opposite to focusing on a hierarchy in a company. Thus, Holacracy is defined as a decentralized organizational structure, a social technology, where management is not powerful anymore, and individuals play multiple roles while completing their tasks, which is adoptable for agile organizations (Holacracy.org 2019; Kumar & Mukherjee, 2018; Robertson 2015). This framework was introduced in 2001-2007 by Brian Robertson, the head of Ternary Software.

The idea of Holacracy was developed by Robertson with reference to the principles of sociocracy. The name of this system is derived from the word “Holarchy” proposed by Arthur Koestler to describe holons which can function as both the parts and wholes (Gouveia 2016; Kumar & Mukherjee, 2018). It is necessary to state that Robertson defined Holacracy as a practice rather than a model because the major focus is on practical actions to achieve goals.

The idea was later developed in a framework, and Robertson opened HolacracyOne with Tom Thomison in order to promote these ideas in the business world with the help of proposing working tools and required coaching (Holacracy.org 2019; Robertson 2015). According to this model, a hierarchical approach was changed with a decentralized system based on accentuating decision-making, the role and contribution of self-managing teams.

It is possible to state that an organization following the principle of Holacracy refers to the work of teams that are known as “circles” in the context of this system (Figure 3). All employees that belong to circles perform multiple “roles,” not responsibilities or duties, during their daily activities, and leadership is also shared, indicating that there is no one leader in the team (Da Silva 2017). The absence of managers to control the work of team members does not affect the realization of tasks negatively because the focus is on “lead links” in circles to guarantee the completion of tasks and the cooperation between circles (Holacracy.org 2019).

However, there are also circles that represent leaders in a company: an “anchor circle” represents the board members and the “general company circle” represents executives (Robertson 2015). These organizations are highly flexible, which means that team members know their roles but can change them easily, which also contributes to achieving their goals and meeting stakeholders’ expectations.

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Holacracy circle model
Figure 3: Holacracy circle model (Da Silva 2017).

Specific Features of Holacracy

Holacracy as a self-managed model is characterized by certain features that were also mentioned during the discussion of the definition of the term. They include a flexible organizational structure, the provision of autonomy to teams and individuals, a new decision-making process, a new meeting format, the absence of depending on bureaucracy, the absence of a typical hierarchy (Robertson 2015).

Flexibility in an organizational structure means that members of circles are assigned with the tasks to perform or roles within these circles depending on the needs for the project realization, but these roles can be easily changed (Bernstein et al. 2016). Furthermore, schedules and the organization of working on tasks are also flexible.

The principle of autonomy is also important for the model as members of circles resolve problems and issues independently. This principle can work effectively because those people, who are responsible for taking certain roles, are also accountable for decision-making because instructions and resolutions do not come from the top of the organization (Velinov, Vassilev & Denisov 2018). Those employees who are assigned to perform certain roles are also accountable and have authority for making decisions related to their task. Additionally, a specific feature of Holacracy is a unique format of meetings, the purpose of which is to ensure acting rather than analyze achievements (Bernstein et al. 2016).

The focus is often on revising the structure of a circle to achieve goals (governance meetings) and on overcoming possible barriers and helping circle members communicate with each in a convenient format to synchronize actions (tactical meetings) (Figure 4). These features of Holacracy contribute to distinguishing this approach among other models referring to the ruling principles and practical realizations of the system.

Holacracy work process
Figure 4: Holacracy work process (Gouveia 2016, p. 17).

Still, one more important feature of Holacracy that requires a detailed discussion is minimal bureaucracy observed in circles’ activities. In the context of this model, bureaucracy is eliminated to its possible maximum in order to guarantee all circle members are equally accountable for their decisions and actions, without receiving strict coordination from managers. According to Bernstein et al. (2016, p. 9), “The circles don’t just manage themselves; within those guidelines, they also design and govern themselves.” As a result, another important characteristic of Holacracy is the absence of a typical hierarchy.

It is important to note that traditional hierarchies represent several layers of the personnel who have different extents of power and abilities to make decisions and determine or coordinate the work of others. The CEO and upper management are usually responsible in front of the board of directors for strategies guiding the work of companies, and they have material interests in promoting their firms (Livijn 2019). Directions for the development of products, services, and activities are provided to middle management and then supervisors, who monitor the work of the staff (Velinov & Denisov 2017). In this pyramid, ordinary employees usually do not have opportunities to influence strategic processes in the company and participate in decision making.

Holacracy is based on an opposite principle when all employees in an organization have powers to make decisions and take the full responsibility for the tasks they complete according to the assigned roles. As a result, executives, upper-level, and middle-level managers are absent in this model. The key focus is not on layers of control and supervision but on circles, including super-circles containing several sub-circles for completing a certain strategy and sub-circles for completing separate functions within this strategy (Robertson 2015). In sub-circles, individuals perform roles to work on function-related tasks, and they are fully accountable for results without having any supervision. The discussed differences between Holacracy and Hierarchy are illustrated with the help of Figure 5.

Holacracy versus hierarchy
Figure 5: Holacracy versus hierarchy (Gouveia 2016, p. 15).

In addition, Holacracy as a system has its own constitution, and today, the latest version is Holacracy Constitution 4.1. The first version of this guide was developed by Robertson in order to declare the key principles and the core practices associated with this innovative structure (Holacracy.org 2019). This document available on the official website Holacracy.org provides a list of principles of the model, the description of tools, and the explanation of mechanisms to use in order to make the system working.

From this perspective, “the constitution doesn’t say how people should do their tasks. It explains in a broad-brush way how circles should form and operate: how they should identify and assign roles, what boundaries the roles should have, and how the circles should interact” (Bernstein et al. 2016, p. 9). Referring to this constitution, all employees know what is expected from them as members of circles. The constitution is adopted by ratifiers, who determine the rules to follow.

Comparison of Holacracy with Traditional Structures

In the previous sub-section, the specific features of Holacracy were discussed with a focus on the difference between Holacracy and Hierarchy. In this sub-section, it is important to compare Holacracy to all traditional organizational structures in general. The first important difference is related to the concept of “roles.” In traditional organizations, job roles and responsibilities are associated with certain job positions and clearly presented in job descriptions.

The scope of these responsibilities does not change frequently, and it is almost impossible to shift job responsibilities between individuals taking different job positions in a company (Yugendhar & Ali 2017). In an organization based on Holacracy, roles can be easily assigned and re-assigned depending on the current progress of the project.

The type of authority in traditional and emerging organizational structures is also different. In traditional organizations, some authority can be delegated to employees along with delegating tasks to complete. In this model, managers remain supervising the process and responsible for decision making (Livijn 2019).

According to the principles of Holacracy, authority is distributed, which means that circle members are fully responsible for their roles, distributed activities, and related decision making. In addition, traditional organizations cannot easily change their structure, activities, and operations because these processes are associated with complex transformations requiring much effort (Velinov & Denisov 2017). In the model based on circles, rapid changes in roles and task distribution are possible, and these changes are usually discussed during monthly governance meetings.

Another key difference is the attitude toward office politics in traditional and new structures. Any change and improvement in traditional companies are the result of the decision coming from the top of the organization. Usually, according to the principles of office politics, upper management and some representatives of middle management can participate in this process (Schwer & Hitz 2018). In an organization based on the idea of Holacracy, any member of a circle can influence the development of the project according to transparent rules (Lee & Edmondson 2017). These key four differences indicating specific features of traditional and new organizational structures are presented in Figure 6.

Differences between Holacracy and traditional models.
Figure 6. Differences between Holacracy and traditional models.

Application of Holacracy in Companies

The application of Holacracy as a framework to follow is mostly typical of companies operating in such industries as IT, technologies, consulting, coaching, education, and marketing among others. In general, there are more than 1,000 organizations worldwide that have changed their structures to adopt Holacracy or began as start-ups to follow this model. The most notable example is Zappos (the United States) that is usually referred in the literature on Holacracy, but other globally known examples also include ArcherPoint (the United States), Soulbottles (Germany), Durabilis (Belgia), Euforia (Switzerland), KEBA AG (Austria) (Holacracy.org 2019; Velinov, Vassilev & Denisov 2018).

Zappos is an online company that was founded by Nick Swinmurn in 1999, and in 2009, it became the subsidiary of Amazon. In 2013-2014, the organizational structure of the company was changed to Holacracy, and many employees (18%) left the company because they did not accept that model or associated changes (Yugendhar & Ali 2017). Zappos is an online retailer of shoes and apparel that today, after several years of following the Holacracy model, succeeds in its operations.

It is important to discuss how Holacracy is implemented in Zappos in detail. Employees of the company work in circles, and they can choose their career path depending on roles they can receive in circles. As a result, choices to take this or that roles are made depending on employees’ preferences, and they can easily move across circles and sub-circles depending on the role they choose (Kumar & Mukherjee 2018). Furthermore, frequent strategic changes of roles contribute to employees’ development of skills and exploration of different functions. In order to ensure that this model works effectively, Zappos also uses rewards for promoting collaboration between employees.

The personnel are also motivated to express their qualities of leaders when working in circles and focusing on decision-making and self-management. The combination of the rewarding system, the reference to the Holacracy constitution, and the promotion of a shared-leadership structure guarantee that this system works effectively in Zappos. Employees in the company also received opportunities to draw their coworkers’ attention to problems they could not easily discuss and address in the context of a hierarchical relationship based on management (Yugendhar & Ali 2017). It is possible to assume that the advantage of following Holacracy in this case is the accentuation of individualism and flexibility that are important to be respected in the context of online-based businesses.

The lessons from the application of Holacracy in different companies should also be discussed here. In Zappos, the principle of addressing the interests and needs of different generations has been adopted. The reason is that the focus only on young generations can be ineffective in a situation when a company shifts to Holacracy, rejecting the previous model adopted in the organization. Furthermore, the selection of Holacracy in cases when a company faces difficulties can also discussed as an inefficient strategy because of the lack of resources and motivation to promote and adopt the change (Kumar & Mukherjee 2018). The examples of companies that have succeeded in implementing this emerging organizational framework are important to be examined when choosing the path to follow.

Pros and Cons of Holacracy

Referring to the theoretical discussion of Holacracy as a framework to be followed in organizations, as well as to the examples of companies that started to apply this model, it is possible to state that this structure is not appropriate for any organization. The reason is in advantages and disadvantages associated with the application of its principles and practices. The advantages of Holacracy include its accentuated transparency, high-level productivity because of employees’ commitment, and the provision of creative solutions (Da Silva 2017). Thus, “Holacracy can be effective when these members value autonomy, commitment, risk-taking, and creativity” (Kumar & Mukherjee 2018, p. 1).

If an organization chooses the path of Holacracy, it is possible to expect that all its employees are highly committed to the firm and motivated to achieve success through performing their roles effectively and proposing the most creative solutions, and as a result, role conflicts are minimal (Bernstein et al. 2016). This approach is typical for start-ups and companies in the IT industry.

The specific nature of the organization based on the high-level responsibility and commitment of employees is also associated with certain disadvantages. The problem is that not all employees can independently control their task performance having an appropriate level of self-management. Furthermore, the work of circles can be disorganized in some cases when meetings do not perform their key function (Kumar & Mukherjee 2018). Finally, the idea of sustainability can also be problematic to easily achieve because of the lack of focusing on the environment and financial aspects in a traditional way (Velinov & Denisov 2017). Figure 7 lists all these pros and cons connected with the application of Holacracy in an organization.

Advantages and disadvantages of Holacracy.
Figure 7: Advantages and disadvantages of Holacracy.

From this perspective, the advantages of the framework support the idea that it is appropriate for modern IT companies, for start-ups, for small companies with a large scope of functions but only a few employees. The disadvantages of this self-managed structure do not allow for implementing it easily in large corporations with many departments (Kumar & Mukherjee 2018). Furthermore, the principles of accountability and distributed authority associated with Holacracy can work inappropriately with junior members of teams or individuals who have limited experience in self-management, decision making, and problem solving.

Controversies and Bias Associated with Holacracy

There are certain controversies, biases, and myths that are associated with understanding the practice of Holacracy. Thus, some leaders and practitioners can state that this framework rejects the idea of an organizational structure, and it is almost impossible to speak about a structure when referring to this model (Yugendhar & Ali 2017). However, while analyzing the structure of Holacracy, it is possible to state that it is clearly identifiable because of the arrangement of sub-circles into super-circles and making the link between all these circles to ensure communicating and reaching the goal.

The second bias to pay attention to is the focus on the absence of any hierarchy in a new form of an organization. Researchers claim that some kind of a hierarchy still exists in the context of Holacracy with reference to lead links (Bernstein et al. 2016). The key difference is that the authority is not assigned to a certain person because of his or her job position, instead it is associated with a specific role. There are many lead links in organizations following the model of Holacracy, but they cannot be evaluated as traditional managers because their area of responsibility and authority change not with their positions but with their particular roles.

The third myth associated with Holacracy is that the main focus of meetings and work in circles is the achievement of a consensus. However, as in any other organization, in companies following the principles of Holacracy, it is not necessary to reach a consensus if some members of a circle do not agree with some decisions. The team concentrates on finding decisions and solutions that can address the needs of a company and meet its goals (Velinov, Vassilev & Denisov 2018).

From this perspective, it is a biased viewpoint that the main problem is in a consensus. Instead, much attention is paid to equality and flexibility, as a result, each member of a self-managed team has an opportunity to express his or her idea and influence the decision-making process related to the work and activities of the whole circle.

The Future of Emerging Organizational Structures

Active changes in a business environment determine particular alterations in organizational structures, leading to the progress of emerging structures which address the current needs of society. When discussing the future of emerging organizational structures similar of Holacracy, it is possible to assume that the rejection of hierarchical structures will progress. The reason is that Generation Y that will form the majority of employees in the nearest future are not ready to follow the standards and rules associated with strict corporate hierarchies (Kumar & Mukherjee 2018). Therefore, they require new models of organizational systems to implement and facilitate productive collaboration.

The modern transformation of organizational models is an outcome of the focus of entrepreneurs on interactions, networks, self-reflection, and cooperation (Schwer & Hitz 2018). Consequently, leaders of modern companies are more oriented toward openness, transparency, equality, and experimentation in their approaches, and the concepts of management and leadership can also be discussed as changing, rejecting the principle of hierarchy.

It is possible to predict the further development of the idea of emerging organizational structures because they reflect and satisfy the needs of modern companies. These needs include the focus on individualism, creativity, the generation and sharing of new ideas for further realization, flexibility, and the development of a new variant of an organizational culture. In this new context of the future of business and organizations, Holacracy and other similar models seem to be working because they are dynamic and flexible.

From this perspective, it is possible to predict the positive future for self-managing organizations and models they are grounded in if much attention is paid to overcoming disadvantages associated with collaborating in the context of these models (Bernstein et al. 2016). As it was stated earlier, not all people are ready to easily switch roles and responsibilities, as well as to demonstrate developed skills in self-management and self-organization. In many cases, the lack of supervision or coordination can negatively affect the realization of a project (Kumar & Mukherjee 2018). Consequently, emerging organizational structures can be developed and improved to address the needs of leaders and employees.

Conclusion

The problem with emerging organizational structures is that it is rather problematic to state clearly whether they are advantageous for companies or not. The fact that these new structures have appeared can be explained with reference to the needs of a modern business world. From this viewpoint, new organizational models are applicable to modern environments, especially with reference to the active development of IT. Therefore, the development of Holacracy can be regarded as a reasonable outcome of the changing business sphere. However, the idea of Holacracy is rather provocative, and it almost completely rejects a traditional hierarchical structure. This aspect means that existing organizations need to change significantly to adopt a new model, but the advantages of this framework are not viewed as only positive.

Currently, only about 1,000 companies around the world have implemented the principles of Holacracy as their organizational structure. The analysis of weaknesses and strengths of this model does not allow for concluding that Holacracy is really widely accepted, as well as profitable and beneficial today. However, it is possible to predict the choice of such models in the future when individualism, collaboration, and flexibility will be prioritized in the changing business environment, as it is discussed by experts. The selection of Holacracy as an organizational model will be appropriate for a company if potential disadvantages are addressed.

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