While the word may conjur images of a new-age cult, Holacracy is an alternative organizational structure that has been adopted by companies around the world—including Medium, the alt-publishing platform from Twitter cofounder Ev Williams, and the David Allen Company, the productivity consultants. It sheds traditional hierarchies for self-governing teams that get work done through tactical meetings. Zappos is the largest company to have adopted the system, and the transition hasn’t been entirely smooth. By multiple reports and now an admission in an internal memo, first posted by Quartz and obtained by Fast Company, people don’t love the idea of relinquishing their manager titles.
Nevertheless, Hsieh is anxious to fully embrace Holacracy, and is going all-in on the new structure by offering three months severance to people who don’t want to adapt. “We’ve been operating partially under Holacracy and partially under the legacy management hierarchy in parallel for over a year now,” Hsieh writes in the memo. “Having one foot in one world while having the other foot in the other world has slowed down our transformation towards self-management and self-organization.”
Adopting Holacracy isn’t cheap or easy. The system has its own set of rules and lingo, and is complicated to implement. The Holacracy parent company, HolacracyOne, helps companies transition by offering consulting services that run from $50,000 to $500,000, depending on how long it takes to achieve self-sufficiency. Even for much smaller companies, like Medium, which implemented Holacracy when it was just a couple dozen people in 2012, the journey takes multiple years and has a steep learning curve.
Holacracy was invented by Brian Robertson, a 35-year-old former programmer with barely any management experience. He created Holacracy in 2007 because he had a “burning sense that there has to be a better way to work together,” he said in an interview with Fast Company. Robertson, who describes himself as a coding savant, says he taught himself to program at age 6. By the time he was 13, he says he was charging $25 an hour for software development through the Sierra Network, an early competitor to AOL. “They had no idea how old I was” Robertson said. “I didn’t even know enough to name my business.”
After dropping out of the Stevens Institute of Technology, 17-year-old Robertson managed to get a job at Analytical Graphics, an aerospace company known for its perk-laced work culture. “You couldn’t beat the benefits, the environment, the culture. From a conventional view, they were really cool” he said. They had free meals, a gym, and a game room. Robertson had a great boss, who he still considers a friend and mentor. Analytical Graphics even won an award for being one of the best small companies to work for in the U.S. by the Great Place to Work Institute.
Robertson hated it.
“The bureaucracy seemed to be set up in a way that people couldn’t use their gifts, their talents,” Robertson said. In 2001, he started his own company to figure out a better way to run one.
Robertson certainly isn’t alone in his disdain for top-down order. Holacracy comes out of and operates within a milieu of unconventional ways to work that have become more popular in the last decade as younger and more visionary CEOs eschew tradition and seek out a new way of working. Among the options are sociocracy, Freedom at Work, the Morning Star Self Management System, and the Results Only Work Environment (ROWE). Each of those systems, including Holacracy, has a distinct approach to the same general problem. “The industrial age operating system is no longer compatible,” said Traci Fenton, the founder and CEO of WorldBlu, which preaches the Freedom at Work method used by hundreds of companies worldwide, including Zappos before it adopted Holacracy. (Zappos still uses WorldBlu’s services, which aren’t incompatible with Holacracy.*) “You have to move into the new age to realize we’ve outgrown the clothes.”
The hierarchical organization dates back to the industrial revolution, when companies wanted to preserve accountability while employing large numbers of people. “It was a way of organizing labor such that the division of labor would be more productive and would be able to do tasks better repeatedly in a predictable way,” says Ethan Bernstein, who studies organizational behavior atHarvard Business School.
As the American workforce moved away from the assembly line and into the cubicle, work no longer required people to repeatedly complete specific tasks. The information economy prizes ideas, creativity, and collaboration—all of which gets stifled by hierarchy. One Stanford study that looked at 80 different teams, both real world and lab simulated, found that hierarchy led to conflict at higher levels of management. “I found they didn’t reach as good of a collective or a group solution,” says Lindred Greer, who studies hierarchy at the Stanford School of Business.
As a result, the relationship between manager and employee has organically shifted over the last few decades. Almost half of the CEOs interviewed for a 2015 report by the London brand consultancy Wolff Olins said they had structured their companies to give employees more autonomy. The modern company is more of a conversation than a mandate.