– Look carefully before you leap into “Holacracy.”

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The October 2015 issue of “The Atlantic” magazine featured an article asking the management question, “Are Bosses Necessary?” In it, they present a concept called “holacracy” which, in a nutshell, calls for the elimination of middle management and a more democratic form of government in business. In essence, a company consists of nothing but senior management and the workers organized into teams or “circles.” The term is based on the word “holarchy,” representing a connection between holons – where a holon is both a part and a whole. The term was coined in Arthur Koestler’s 1967 book, “The Ghost in the Machine.” (source: Wikipedia)

Similar approaches surface every ten years or so, all with little success, but this appears to be a more overt push for change.

To illustrate how “holacracy” works, the article referenced Zappos, the young Internet based shoe and clothing store headquartered in Las Vegas, Nevada, and a wholly owned subsidiary of The company has over $1billion in revenues and employs +1,500 workers. According to the article, this past spring, CEO Tony Hsieh, embraced “holacracy” by eliminating middle management, job titles and organization charts, and devised a 10,000 word constitution for self-governance. Instead of management directing activity, employees join “circles” where they determine priorities and project assignments. In essence, “holacracy” empowers employees by creating a democratic society within a business. Allegedly, this approach is derived from “Agile” programming, a quick and dirty approach for building software.

Results are mixed thus far. According to the article, Zappos employees have met the new approach, “with everything from cautious embrace to outright revulsion.” Without middle management, there is little in terms of decisive leadership and teamwork. Instead, it is hoped leaders will emerge among the circles along with a spirit of cooperation. So far, the jury is still out.

I’m not sure the developers of “holacracy” truly understand the concept of democracy. A true democracy doesn’t work effectively in government and ultimately represents mob rule. This is why America is a Republic, with democratically elected representatives to serve the interests of the people. The management of the government is entrusted into these representatives. One has to wonder, if democracy doesn’t work in government, why would we kid ourselves into believing it will work in business? The point is, it doesn’t.

The “holacracy” approach is a knee-jerk reaction to overcoming Theory X “micromanagement,” a very dehumanizing form of management which, unfortunately, is still popular in corporate America today. Basically, it represents autocratic rule which tends to inhibit employee creativity and stifles worker responsibility. Unfortunately, instead of using other proven management techniques, the promoters of “holacracy” are essentially throwing the baby out with the bath water.

The obvious alternative to Theory X is Theory Y, whereby a company manages from the bottom-up as opposed to top-down. Under Theory Y, workers are treated like professionals, are delegated responsibility, and held accountable for their actions. A management hierarchy is still maintained to allocate resources and assignments, control the corporate culture and expedite problems, thereby providing a sense of direction and promoting teamwork. However, unlike Theory X, workers are empowered to execute assignments on their own, and report to management on progress and notify them of problems. This approach encourages worker participation and promotes a sense of project ownership.

Then there is Theory Z as developed by Dr. William Ouchi (UCLA) based on the study of Japanese businesses during the 1970’s. Ouchi observed higher productivity because Japanese society encourages mutual trust and cooperation between management and workers. Making a decision normally takes longer due to the need to achieve “consensus” from all parties involved. However, when a decision is reached, it is quickly implemented as all parties have agreed to it.

Interestingly, Theories Y and Z are not new, having been used since the 1930’s (Theory Y) and 1970’s (Theory Z). However, over the last twenty years there has been a movement to ignore worker’s feelings and institute stringent management control and bureaucratic regulations (“micromanagement”). In other words, companies have gone too far towards autocratic rule, with radical techniques such as “holacracy” emerging to take its place.

Personally, I believe Zappos is on a dangerous and reckless path. It is no small wonder the employees are nervous about it. It may also cause investors to think twice about gambling on the company. I, for one, will certainly not be investing in it, as I consider this a pseudo-scientific approach devised by naive people. Their intentions may be good, but their delivery will be catastrophic.

Related articles:

Theories X, Y, and Z – Nov 03, 2014
Managing from the Bottom-Up – Jul 16, 2012
Pseudo-Scientific Management – Aug 10, 2011

Keep the Faith!

Note: All trademarks both marked and unmarked belong to their respective companies.

Tim Bryce is a writer and the Managing Director of M&JB Investment Company (M&JB) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at [email protected]

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Copyright © 2015 by Tim Bryce. All rights reserved.

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