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Leadership 2.0: Holacracy and Other Org Structures

What is a holacracy? While it might sound like a name for a future dystopian society, it’s actually more widely spoken about – and accepted – than you think. In its most basic definition, a holacracy is an egalitarian leadership style. Instead of following a strict, hierarchical organizational structure, companies such as the online retailer Zappos or the online publishing platform Medium are doing away with traditional managerial roles and titles and replacing them with a self-governed, self-organized company distribution of power.

Zappos CEO Tony Hsieh explained that whenever the size of a city doubles, the amount of productivity and innovation per resident increases by 15 percent, yet whenever companies grow larger, these levels go down.

leadership“So we’re trying to figure out how to structure Zappos more like a city, and less like a bureaucratic corporation. In a city, people and businesses are self-organizing,” Hsieh said. “We’re trying to do the same thing by switching from a normal hierarchical structure to a system called holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”

While radical, this “flattened organizational” approach does not completely do away with structure, it just dramatically redefines it. Information is generally openly accessible and major decisions are made in company meetings, not just behind closed doors. Essentially, most voices have weight in this specific organizational style.

Does it work?

Numerous studies do show that certain companies with flat organizational structures do tend to outperform their hierarchical peers. However, a Harvard Business Review article pointed out that this leadership structure works best when the company-wide focus is on improving innovation, everyone shares a committed purpose and the environment is evolving rapidly.

While many smaller organizations have found success with their holacracy, recent rises in Zappos​’s turnover rate may prove otherwise. Following the transition to a holacracy, Hsieh offered a buyout for any employee who does not want to continue under the new organizational structure.

As a result, the retailer lost an estimated one-third of their employee base, including many of its senior members. Meanwhile, it fell off Fortune’s ranking for the 100 Best Companies to Work after being a long-standing member for seven years. Zappos​’s turnover rate for 2015 was at 30 percent, which is 10 percentage points above its typical yearly attrition rate, according to The Atlantic.

What about other less drastic organizational styles?

You don’t have to completely abandon your company’s hierarchy to achieve an innovative flow of information. Sometimes, companies such as Starbucks or Southwest Airlines, leverage existing hierarchies and structures to enable their employees to make region or location specific decisions that meet their unique needs.

To focus on its global needs, Starbucks implemented a three-region organizational structure in 2011, which includes: China and Asia Pacific, the Americas, and Europe, Middle East, Russia and Africa. Within the U.S., there are further divisions, including the northwest, the west, southeast and northeast.

Each region has its own senior vice president to provide area-specific support each location encounters. Therefore, while each Starbucks manager has to adhere to their superiors, they actually report to two: their corporate head and their geographic VP. This way, their unique voice isn’t lost in a vast corporate sea.

While the holacracy leadership 2.0 structure may work for certain companies, it might not be the right choice for all. Consider the various benefits and shortcomings to many types of organizational approaches to discover precisely what option might be right for your business.