Understanding Holacracy: Governance, Origins, and Functionality

What Is Holacracy?

Holacracy is a system of corporate governance that eliminates the traditional corporate hierarchy and allows for a fluid organizational structure and a level of decision-making authority by employees within defined areas. Conflicts and challenges are addressed in regular governance meetings held within team circles. Notable companies such as Zappos and Mercedes-Benz.io have adopted holacracy, though it can be controversial. Critics argue that holacracy may hinder operations, and some companies have abandoned it after initial adoption.

Understanding the Mechanics of Holacracy

Holacracy seeks to replace the rigidity of a traditional command structure with a system of flexible roles, each with wide authority within its specific area of responsibility. Instead of a traditional pyramid-shaped structure, a holacracy is described as a series of nested circles, each representing autonomous teams with many roles.

Rather than having fixed job responsibilities, individuals functioning in a holacracy may occupy several roles, each with a specific purpose, and one or more "domains" and "accountabilities." Since each individual has multiple roles, it is possible for the CEO of a company to take a leadership role on one team and a subordinate role on another. Any conflicts that arise are resolved in periodic governance meetings within each circle.

Role leads are empowered to make key decisions without having to defer to the management chain of command. This gives rise to what is described as the "golden rule" of holacracy: "To fulfill your role, you have the full authority to make any decision or take any action, as long as there's no rule against it."

The Origins and Evolution of Holacracy

Arthur Koestler, author of the 1967 Book “The Ghost in the Machine,” coined the term holarchy as the organizational connections between holons (from the Greek word for "whole"), which describes units that act independently but would not exist without the organization they operate within.

Brian Robertson then developed the concept and dynamics of Holacracy while running a software development company named Ternary Software in the early 2000s. In 2007, he and Tom Thomison founded HolacracyOne and published the Holacracy Constitution three years later. Companies that have publicly adopted Holacracy in some form include Zappos.com.

Real-World Examples of Holacracy Implementation

The largest company to integrate holacracy into its management practices is Zappos.com, an online retailer for clothing, shoes, handbags, and other accessories that has over 1,500 employees. According to Zappos, holacracy "allows every employee to quickly surface and act on customer feedback."

HolacracyOne lists around 185 organizations that have publicly adopted holacracy principles. Besides Zappos, others include Liip, a digital agency in Switzerland; Springest, a Dutch company that produces learning software; and Mercedes-Benz.io, the online arm of the auto manufacturer.

Critical Considerations and Challenges of Holacracy

Critics have described holacracy as "hype," or the latest in a long series of tech-sector buzzwords. When Zappos integrated holacracy into its management practices, nearly one in five employees elected to receive a severance rather than continue with the company, and many of them cited holacracy as their reason for leaving.

Some tech companies that adopted holacracy later abandoned it. For example, Medium, a blogging site that adopted holacracy in 2013, ended its experiment three years later. In a blog post, the company said that holacracy "was getting in the way of work."

The Bottom Line

Holacracy is a governance system that relies on autonomous yet symbiotic teams. It replaces traditional corporate hierarchies with flexible organizational and role structures. Zappos is the largest company known to have implemented holacracy and encountered mixed feedback, including a significant number of employee departures. Holacracy has been criticized for its potential to interfere with employees' ability to get work done.

Correction—June 18, 2022: A previous version of this article incorrectly listed Valve as an example of a holacracy-based company.