Few months ago, I wrote an article about Holacracy and Zappos’ CEO Tony Hsieh’s determination to use his adopt holacracy or leave ultimatum as the foundation of his company’s quest to self-organization and self-management. You can read more about it in this article.

After two years of hyping up the business press with this radical alternative to traditional Corporate America  governance, it’s time to ask the million-dollar question: “What has Holacracy done for Zappos today?”

The Press: Holacracy is Failing

Eliminating corporate job titles and leveling out the corporate hierarchy is no small task — especially because the corporate ladder has been the norm observed by companies around the globe for over 50 years.

Today, the tide seems to have turned against Zappos as the business press baffled the world with news that Zappos’ Holacracy is failing.  elow are some of the headlines I found:

Here’s Why Eliminating Titles and Manager at Zappos Probably Won’t Work (Business Insider)

Are You Planning to Do Away with Your Managers? Doubtful (Fistful of Talent)

Tony Hsieh’s Workplace Dream: Is Holacracy a Big Failure? (Forbes)

And… there’s even a rant here about Holacracy if you’re interested…

I don’t blame the press for their speculations, lack of insight or skepticism. Holacracy can be great but it is oftentimes, misunderstood.

And adopting holacracy and making that paradigm shift in management practices at the corporate level is not as easy as changing the tie you want to wear at work.

5 Key Challenges of Adopting Holacracy

When I first learned about Holacracy, I thought the initiative will immediately become popular in the business world. But I was wrong.

Yes, it did become popular but not in the way I expected  — instead of reading reports and news that “Holacracy is the New Cool” or “Adopt Holacracy Today and Change the Way You Work Forever”, all I read were the unexciting remarks, “Holacracy is Failing”.

And I think I know why:

1. Holacracy doesn’t Give You a Step by Step Guide on how to Run Your Company

Contrary to most expectations, holacracy does not tell you how to run your company. Instead, it teaches you how to how to run your organization.

For instance, the Holacracy Constitution has rules on how to run meetings, etc.

Holacracy does not tell you how to run your company

Not having the traditional job title hierarchy may incite feelings of uncertainty and lack of proper structure which can be very challenging to start-ups and even to established businesses practicing the corporate hierarchy style of management.

2. Holacracy Reduces Control

In Holacracy you can’t boss around. You can’t reorganize a department when you want to and you can’t even set the sales target for next month!

Holacracy is all about self-management and self-organization. That means even as a CEO, you don’t have the power to dictate (or control, if you want to use word) what your departments are doing.

In Holacracy you can’t boss around

No surprise why adopting Holacracy is challenging for corporate hierarchies that put a lot of emphasis on power and control!

3. You Have To Get Rid of Old Habits

Old habits are hard to get rid of. If you want to adopt Holacracy in your business, you must accept the fact that old habits die hard.

You must accept the fact that old habits die hard

An “old way” manager has the habit of telling people what to do. And in micromanagement cases, how to do it. In Holacracy, it’s a different story.

4. It’s Hard to Change Course and To Get Everyone On Board

In Holacracy, everyone holds multiple roles and are accountable for each one.

Due to this distribution of authority, traditional job title holders may find it hard to change the course of the team or to make every member of the circle focus on the same goal.

Traditional job title holders may find it hard to change the course of the team

This challenge also makes it very easy to fall into the trap of fixing problems the old fashioned way — pressuring people and telling them what to do.

5. The Focus is on Roles, Not on People

Instead of focusing on people, one of the core ideas of Holacracy is to focus on roles. This means that you do away with corporate politics.

In this new management paradigm, team members are encouraged to freely discuss their “tensions” about certain roles while putting aside their personal feelings against the person.

“Condemn the sin, not the sinner”

As the old adage puts it, “Condemn the sin, not the sinner.” In Holacracy, it’s condemn the role, not the performer. And that’s easier said than done.

Is Holacracy a Failure? Or Do You Just Have to Give it More Time?

“Holacracy is not a governance process “of the people, by the people, for the people”—it’s governance of the organization, through the people, for the purpose.” says Brian J. Robertson

While Zappos is plagued by employee departures (you can read about their response here) since starting their radical experiment of eliminating corporate hierarchy and adopting Holacracy, a 30-year old California-based agency called Phelps has been reaping the benefits from it.

Here’s their story:

Although Holacracy was coined by Brian Roberts last 2007, it doesn’t mean that the idea is new.

As a matter of fact, Joe Phelps has been using its philosophies since founding his company in 1981.

Phelps used a zero-management approach. Instead, he formed his employees into independent teams organized around clients who have specific needs.

The team members don’t only report directly to the client, they are also expected to make decisions for the benefit of the businesses they are serving.

While the structure does involve coaches and admins, these people don’t give top-down decisions like corporate hierarchies.

Instead, they hold themselves accountable for educating each team member about their discipline and roles.

However, at worst cases (which rarely happen), the admins become the end-point for client-related issues.

The Benefits

According to Phelps, because of Holacracy, his agency is now reaping the following benefits:

• Marketers and creatives can focus on great work because they don’t have to worry about layers of approvals

• There are no internal politics because there is no where to move up unlike in traditional firms where employees “compete” for corporate titles

• No C-suite creative director taking credit for another employee’s idea and work

• Compensations are based on individual performance
• Contribution matters and each team member pushes each other to do their best

4 Elements to Focus On If You Want to Build a Holacratic Culture

Holacracy overhauls the entire corporate structure that you and I have both grown to love (and hate). Power or authority shifts from one person (or a couple of C-level executives) to the creatives.

This is a big transformation. And for Holacracy to succeed, Phelps said that you have to focus on 4 key elements.

1. Personal Responsibility

As a leader, you have to give up control. You are no longer responsible. In Holacracy, individuals are responsible for the work and for the decisions made.

To make this successful, you have to give trust freely to your employees. And don’t forget, trust begets trust.

2. Timely and Honest Communications Between Team Members

Candor and constructive communication is important in Holacracy because decisions are done by a group and things are moving quickly.

3. Openness to Collaboration and Feedback Outside the Team

In Phelps Agency, the finished product is showcased to the entire organization and each employees are encouraged to give constructive feedback and commentaries to produce a better final product.

This type of openness isn’t the norm today and can be intimidating at times. But it is necessary.

As Phelps puts it, “Feedback is the critical counterbalance to the autonomy enjoyed by self-directed teams.”

4. Live the Core Values of Holacracy

Holacracy is not for everyone and perhaps, never will be. If you want to build a successful Holacratic culture in your company, you have to get rid of people who don’t want to embrace its ideals.

That’s the number one reason why Zappos gave an ultimatum to accept Holacracy or leave. And probably that’s why they are still experiencing high turnover rates after two years of implementing it.

Without the right mindset, it would be easy for individuals to use power, control and privacy once again — things that are prevalent in job title hierarchies.

More than 30 years of no management is to be honest, dumbfounding. And it can seed a lot of doubt as to whether the company will succeed or not.

But here’s what I’ve learned. Studies show that the average client tenure with an agency is just 3 years.

But because of Phelps’ revolutionary approach, 60% of the company’s clients stayed with them for an average of 13 years! For specifics, Panasonic (29 years), Tahiti Tourism (23 years) and Whole Foods (13 years).

Now that’s something right?

Parting Words…

Only time will tell whether Holacracy will become the new norm of the 21^st century or not. As to the question: Is Holacracy Failing? My answer is: It’s too early to tell.

Zappos is experimenting on the idea for 2 years now (at the time of writing) and for me, it is still not enough to completely overhaul the corporate hierarchy culture that’s been running in our veins since the Industrial Revolution.

I’d say, let’s give Holacracy more time to prove itself.

What do you think?

Lenmark.