Why Is It So Hard to Change How We Manage Ourselves?

Holacracy, the latest attempt at upending the corporate ladder, is faltering.

Zappos offices in Henderson, Nevada.

Zappos offices in Henderson, Nevada.

Photographer: Ronda Churchill/Bloomberg

After four years, Medium is giving up on Holacracy, the avant-garde management system it used as an alternative to the traditional office hierarchy.

Just a year ago, the blogging platform was all in on Holacracy. The company invested thousands of dollars in consultants and HolacracyOne's proprietary software, Glass Frog. The employees spoke the language of a post-hierarchy organization. There were no managers or bosses or job titles; people "energized" roles within "circles." Teams held regimented "tactical" and "governance" meetings run by annointed facilitators. 

So what happened? "For us, Holacracy was getting in the way of the work," wrote Andy Doyle, who works in operations at Medium, in a blog post last week. Forgoing hierarchy is supposed to set companies free from the tyranny of bureaucracy. Holacracy just created a new kind of organizational red tape. 

For decades, companies have craved an alternative to top-down management. Traditional hierarchy is increasingly seen as an outdated vestige from the industrial revolution and a recipe for failure at organizations that operate within its framework. Yet moving beyond the corporate ladder has proved challenging. Most businesses don't operate as pure hierarchies. Only 38 percent of more than 7,000 companies recently surveyed by Deloitte said they were "functionally organized." Yet, many offices are stuck in an awkward in-between phase. 

Holacracy isn't the first attempt to redraw the org chart, and it won't be the last. Researchers have argued for alternative organizational structures going back to the 1960s. The contingency theory of leadership from the late '60s, for example, said that there was no single way to structure all companies; form should follow function. Since then, various management fads have gone in and out of style. In the '70s and early '80s, the matrix promised to cater to the new, more complex organization with "parallel" reporting structures. But in practice, the system "proved all but unmanageable," according to a 1990 article in the Harvard Business Review. By the early '90s "self-management," which gives autonomy to employees, became the organizational system du jour. While there are some success stories—notably, at video game maker Valve and the tomato processing plant Morning Star—the flat, nonmanagement approach has failed to go mainstream for the same reason the matrix didn't work: It's hard to implement. Valve and Morning Star spent years creating bespoke systems that don't necessarily translate to other organizations. 

The chatter about Holocracy's potential failures is familiar, said Ethan Bernstein, who studies organizational behavior at Harvard Business School. "It seems like every 10 to 15 years, or so, we come up with a new word for it. There's this cyclical aspect."

Holacracy appeals because it offers an off-the-shelf solution for any company looking to evolve its org chart. Brian Robertson, creator of the Holacracy program, spent years developing his unfortunately named system by experimenting on his own company, which made software. Medium Chief Executive Officer Ev Williams, a startup veteran, was drawn to Holacracy because of its promise to help him run his latest company better. 

Zappos founder Tony Hsieh displays a copy of his autobiography Delivering Happiness.
Zappos founder Tony Hsieh displays a copy of his autobiography Delivering Happiness.
Photographer: Noah Berger/Bloomberg

Medium lists a series of "challenges" it faced while using Holacracy, all of which boil down to a familiar problem: It was too complicated. While operating as a holacracy, Medium found it "difficult to coordinate efforts at scale," got bogged down in the record-keeping, and had challenges overcoming the public perception of holacracy as cultish and weird. "The biggest pain point was, with a growing company, investment and teaching new people when they show up how to use Holacracy," said Jason Stirman, who was Medium's enthusiastic Holacracy Officer—in addition to his estimated 40 other roles—until he left to start his own app six months ago. Shoe retailer Zappos, the biggest company to use holacracy, has reportedly had similar struggles. About 18 percent of the workforce has taken buyouts offered by CEO Tony Hsieh to anyone who doesn't want to work within the management structure. 

Medium failed because it didn't fully commit to holacracy, said Robertson. "I'm not surprised it was getting in the way for them." The company wasn't doing it right, he said. "If I have a screwdriver and I keep smashing nails with it, I'm going to think it's a pretty shitty tool. On the other hand, if you use it for what it's designed for, you might end up with different results." 

Committing to alt-management is expensive. HolacracyOne, the company that sells the branded system, charges $50,000 to $500,000 for its consulting services, another $4,000 a seat for seminars, and $500 a month for its GlassFrog software, although there is also a free version. That doesn't include the cost of spending time on something other than running a business. "Teaching a mindset was a big investment," said Stirman. Hiring and orienting new employees, an already expensive process, was made even more difficult because of Holacracy. "You could essentially take a week off [from] work to get everyone trained professionally, which would be incredibly expensive." And he's not even sure that would get everyone up to speed on the intricacies of Holacracy. 

Robertson has said that Holacracy is a five-year journey and admits that it involves some pain. "It is an investment, and there is a productivity hit in the beginning," he said in a interview earlier this week. "This is something that takes years and years of experimentation and learning." Despite reports of confusion among some employees, Robertson doesn't think Zappos's holacracy experiment is failing. Plus not all employees are unhappy

Many companies can't afford to spend the time and money working on the way they work, rather than on the work itself. Stirman, for example, doesn't plan on running his new venture as a holacracy. "With my new company, nothing is more important than getting this app in the app store," he said. "I'm not employing any system that involves any kind of learning." He sees the value in holacracy but isn't sure it's worth the investment. 

By many accounts, the office hierarchy is dying. It's just not exactly clear what, if anything, will replace it. "The wholesale movement to a purely self-managed approach is probably not going to be attractive or right for most organizations," said Bernstein.

Holacracy offers companies like Medium a starting point for thinking about how to run a company in a different way. "The promise is always bigger than the reality," said Bernstein. "But the reality of these implementations is usually better than the reality was before."

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