Holacracy

A system of organizational structure that embodies decentralized management

What is Holacracy?

Holacracy is an organizational structure that embodies decentralized management where an organization comprises units or teams that work autonomously to achieve company-wide goals.

Holacracy aims to distribute the authority of decision-making and innovation through teams that govern themselves, instead of a classical hierarchical system where authority and decision-making are concentrated at the top; the independent teams and their interconnectedness are better known as holarchy.

 

Holacracy

 

The term holarchy originated from the book “The Ghost in the Machine,” published in 1967 by Arthur Koestler. The term refers to the connection between holons, which are both a part of a whole, and a whole itself. It applies to teams within an organization where the team itself is independent to govern itself; however, the organization is also built with such teams.

Furthermore, within the holacracy system, there is one set of rules that applies to everyone in the organization, from the CEO to new hires.

 

How Does Holacracy Work?

Holacracy works around a system of flexibility and independence to achieve the greater good for the organization. Some essential elements allow holacracy to work smoothly and effectively. The first of such elements are creating roles instead of job descriptions.

Holacracy works because one person can take on multiple roles, which may help cut costs when it comes to hiring. For example, when looking to fill a role within the organization, the company can look internally to see who may possess the skills to fulfill such a role, instead of hiring a new candidate. It can help the company avoid an expensive hiring process, once recruiting, onboarding, and training costs are accounted for.

It can also be very valuable for employees of a holacracy. They can experience a wider variety of job roles, improve skills that would not be otherwise used, and build their human capital.

Another element is the circle structure related to the organizational structure of a holacracy, where the organization comprises teams and circles that are self-organized. However, the circles are organized hierarchically among themselves, and circles are often assigned goals to achieve. However, the governance and decision-making on how to achieve the given goals of the circles are independent of other circles.

This means that circles meet independently to discuss and decide how to achieve the goal given to them and assign duties or tasks within the circle. Another element that was already touched on is governance. Governance is mostly conducted independently within each circle; further, rules are created within each circle and regularly updated.

Additionally, to amend or propose changes to existing governance or rules, holacracy uses a process called “integrative decision-making.” Integrative decision-making is a system centered around gathering all relevant input and making a decision that objectively best suits the organization. It differs from a consensus-based system or a consent-based system.

The final element is an operational process. The operational element is centered around organizing teams to best suit the organization’s operational needs and ensure that each team works effectively and efficiently. Each member who fills a role enjoys the freedom and autonomy to decide how to best achieve their goals.

 

Advantages of Holacracy

Proponents of holacracy argue that it empowers team members to freely contribute ideas much like in an idea meritocracy. It is possible because employees from all levels are autonomous and are given the freedom to discuss ideas they believe will benefit the organization.

In addition to an idea of meritocracy, holacracy also allows fewer layers between customers and employees; it is argued that such a structure allows for a quicker decision-making process that improves customer satisfaction.

 

Other Organizational Structures

Other forms of organizational structure are the functional structure, the divisional structure, the matrix structure, and the flatarchy system. Each structure comes with its respective benefits and drawbacks. For example, the divisional structure would be very applicable for an international company.

 

Related Readings

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)® certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Bureaucracy
  • Corporate Structure
  • Knowledge Capital
  • Organizational Design

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