Holacracy 101: Could This Nontraditional Business Structure Work for You?

by Stephanie Taylor Christensen on January 29, 2014
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As most entrepreneurs will attest, job titles don’t define or limit the roles you or your employees must perform to meet the daily demands of running a business. Because flexibility and collaboration are instrumental to small-business success, why not scrap your traditional organizational structure? Trading hierarchy for “holacracy” could boost productivity.

Holacracy is a self-governing, purpose-driven business structure that reassigns authority and responsibility based on the task at hand. The model recently made headlines for sparking the interest of Zappos CEO Tony Hsieh. His company reportedly will become a holacracy by the end of 2014.

Here’s a brief explanation of how holacracy works and why it could benefit a small business.

It’s a different system, but it’s a system nonetheless. At first glance, eliminating job titles and the traditional boss/employee relationship can seem like organized chaos, but that’s far from the case. Although the absence of job titles is intended to eliminate productivity-stifling bureaucracy, it does not remove accountability or structure, says Alexia Bowers of the consulting firm HolacracyOne.

To understand what it’s like to practice holacracy, imagine a structure that distributes power equally by way of overlapping circles, as opposed to a strict top-down or bottom-up structure that limits a person’s duties by department or skill set. (To learn how these circles are developed and managed take a look at the Holacracy Constitution written by HolacracyOne.)

Instead of limiting who completes what tasks based on department or title, holacracy’s circles essentially make all employees equal, both in project ownership and accountability. When responsible for a task, partners who share overlapping responsibility become members of circles; they are then empowered and accountable for prioritizing their time and duties as needed to produce results. If insight from a partner outside the circle is needed to keep the momentum moving toward completion, the Constitution outlines who can be invited into it temporarily.

It can maximize a small team’s impact. The goal of holacracy is to produce results through complete transparency and realistic alignment of roles and responsibilities. For small-businesses owners, making everyone on the payroll accountable for the company’s success may in fact be the structure’s most appealing aspect.

Because employees can hold varying degrees of responsibility in any number of circles in holacracy — and those circles change and evolve with business needs at any given time — holacracy may be the answer to maximizing the productivity of your team, particularly as business needs ebb and flow.

You must be willing to share power.  If you struggle to delegate, practicing holacracy may prove challenging. It leaves no room for an “I’m the boss” mentality, despite the fact that you are probably the most financially vested person in the business. Per the HolocracyOne Constitution, every employee (called a “partner”) is essentially an owner of the business. Meanwhile, employees are empowered to make real contributions to the business. Because they’re encouraged to put their creativity and skills to use to solve problems and seek ways to constantly improve existing processes (even beyond the scope of what they may have been technically “hired” to do) they may also find greater fulfillment in their jobs. Specifically for small businesses, practicing holacracy can also bring more clarity to common uncertainties that arise when there are many things to do — but few clear processes to guide why, how, or who will accomplish those tasks.

Hiring and firing have their own set of guidelines. In the absence of roles and titles, how do you hire and fire? Beyond the importance of hiring employees who want to be held accountable, Brian Robertson of HolacracyOne developed the 3-Tier Partnership App to offer guidance around human resources matters, particularly at small firms.

Robertson explains that the app involves partner tiers (regular, tenured, and core). Though those labels do not directly refer to authority or compensation, they refer to the person’s “commitment to the organization.” He illustrates the example in terms of the varying levels of involvement that exist in a family. For example, though parents may direct the bulk of a child’s upbringing, others are involved in the process, including aunts, uncles, and family friends — who play critical roles, albeit to a lesser degree.

The same idea holds true with partner designations. Core and tenured partners, for example, may take part in the hiring and firing process, because they are more committed to the organization’s future than a regular partner. Because they are more committed to the organization, the organization is more committed to them. (Presumably, a more committed partner is also better compensated than one who is less committed.)

With that in mind, the organization uses commitment levels when determining grounds for potential termination. “Once somebody chooses to be a tenured partner, they promise the organization a certain level of commitment — and it’s much more difficult to remove them,” Robertson says.

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