Should Indian startups embrace Holacracy?

(Update- I reached out to Olivier Compagne, who’s a partner at HolacracyOne, and he was kind enough to point out some of the issues he had in this article. I’ve made the required modifications wherever reasonable and where I found his explanations insufficient, I have made it a point to mention exactly what he said)

In general, we humans love buzzwords. And it seems that entrepreneurs love it even more, much to the irritation of Peter Thiel.

One such buzzword that’s caught the fancy is ‘Holacracy’.

Much of this buzz has come because of the early adopters, like Medium and Zappos. Apparently, over 300 organizations have joined the fold, and even Dibert has jumped on the bandwagon.

However, not all reviews have been positive.

Nevertheless, while buzzwords might contain a lot of hot air, there’s always a kernel of a good idea somewhere there. After all, they didn’t catch the attention of so many people by being ordinary. It’s always worthwhile examining them after you strip away the bullshit and find out what the inventors of the term really meant.

Today, we ask and try and answer the following questions:

Q) Does Holacracy really create a workplace worthy of the 21st century?

Q) Should Indian startups consider Holacracy at their early stages?

Of course, we’re not going to do any of this without actually explaining the darn thing.

Holacracy

About the worst place you can start if you want to understand Holacracy is its website, and that’s a bad sign. Once you read Holacracy’s constitution (yes, holacracy has a written constitution, unlike UK and Israel), you understand why it’s difficult to explain the whole thing in two minute video. Heck, people even seem to be confused about the spelling of the word.

Anyways, here’s what I’ve managed to understand about Holacracy.

a) Replacing the pyramid-shaped hierarchy with the hierarchy of roles:

The pyramid-shaped hierarchy that runs the world looks something like this (adapted for corporates):

This is what Holacracy would replace it with:

The super-circle represents the organization, the sub-circle represents different teams and the roles are specific, clearly defined, and autonomous that must coordinate with each other. They could also be temporary, and each sub-circle could have further sub-circles.

This is one of Holocracy’s major innovations – it organizes the company in terms of work, and not in terms of people.

Sounds like project teams? Actually, there is a key distinction – there’s no manager. Instead, there’s a lead link, whose major purpose seems to be to keep everybody focused on the right task and manage the communication inside and outside the circle. Unlike conventional managers, he’s not supposed to be resolving conflicts, leading the team or telling them how to do their jobs.

So how does the team move forward then?

T for Tensions

In a Holacracy, employee is expected to do is be a ‘Tension sensor’.

Before you try to get your head around what the hell that means, I must tell you that Holacracy defines Tension as a method to describe a person’s felt sense that there is a gap between the current reality and a potential future. Increasing sales is a tension, as is improving processes or office infrastructure.

Resolving tensions is what employees are supposed to do, both during their work and in something called a  ‘tactical meeting’, where all the members of a circle address the tension in a structured manner and propose a solution. The structured manner supposedly increases efficiency and helps distinguish “personal tensions” (personal preferences, ego) from “organizational tensions” (coming from roles), and not letting the former impact the organization.

I was curious as to how they could prevent the ego from coming in, and here’s an example that I got:

“A good example of this feature is during the Objection round: One of the criteria used to determine the validity of an Objection is whether the ground for the Objection is limiting one of the objector’s roles to do its work. If not, then the objection is deemed not valid.”

Hmmm. It seems as if it could work in theory.

Benefits of Holacracy

• Drives ownership and accountability from each employee and encourages them to be entrepreneurial.
• Sets up an agile and dynamic organization and avoids the problem of organizational debt.
• Reduces office politics and personal ego issues.
• Increases transparency by documenting procedures in the governance to ensure clarity.
• The Official Holacratic constitution updates itself with new versions (right now they are on version 4.1).
• There’s also a paid software available called GlassFrog which supports all the functions of the Holacracy.

Does it effectively serve the ideal 21st century workplace?

Let’s start by listing a bunch of things that the 21st-century workplace should ideally comprise. Of course, everybody will want to add or subtract their own values and principles, but in general this should be the kernel:

1. Agile (adapting to constant changes in the market)
2. Mobile (adapting to changes in physical locations of employees and even offices)
3. Iterative
4. Bottom-up (primarily driven by employees) rather than Top- Down (driven by management).
5. Passionate and purposeful
6. Brings the best out of everybody
7. Free of bureaucracy and politics, efficient
8. Transparent
9. Scalable

So here’s the thing:

Holocracy is well-intentioned, meticulously prepared and on first glance, seems to be in touch with all 21st century principles.

Except for scalability.

Here’s why:

1. Most Holacratic processes will only work if the circle is small- maybe less than 20. That’s easy enough for startups to manage, but you do think that it would be a problem at larger organizations. For instance, Zappos reportedly now has 400 circles, and that’s a company with 1500 employees. How many circles do you think Wallmart would need? How long would it take for them to restructure? How could anyone even make sense of it?To their credit, the makers of Holacracy have come out with a software called ‘GlassFrog‘, which means that the managers of a Holacratic  organization can at least keep track of the circles without losing their head. (Oh wait, they are no managers in Holacracy)
2. Holacracy will only work with the right kind of employees – employees who thrive on initiative and self-regulation. Proponents of Holacracy disagree, but really, I cannot see why. For instance, Here’s a phrase from Holacracy’s constitution- “You are responsible for monitoring how your Role’s Purpose and Accountabilities are expressed, and comparing that to your vision of their ideal potential expression, to identify gaps between the current reality and a potential you sense”.Now ask yourself about the last organization you worked for and how many employees you would thrive in such an environment. If the answer is “Almost Everybody”, then you have spent way too much time in Silicon Valley. Small and famous companies like Medium might find it easy to recruit such employees, but such people come at a premium. They might be dime a dozen in Tel Aviv and Austin and Paolo Alto, but try searching for them elsewhere.
3. Some of the problems Holacracy seeks to solve- office politics, lack of accountability, beauracracy- are more problematic on a larger scale than on a smaller one. Most worthy entrepreneurs have all heard about the importance of ‘culture’, ‘transparency’, ‘accountability’ and ownership. Early employees are hired with the expectation that they embody all these values. With about 50–100 employees, it is relatively easy to seek transparency from your employees.

(As you might imagine, Olivier took issue with points these points. However, his response -“Not true. Where did you get that information? Most companies using Holacracy are more than 20 people, by far” wasn’t detailed enough for me to be convinced, although it did spur me to further develop the argument)

How’s it doing in the Real World?

Holacracy has been inspired by various concepts including the ‘Spaghetti Organisation’, the ‘Agile Corporation’ etc. While it’s evolved and iterated over time, it shares many of the same principles.

Jan Klein, a senior lecturer at the MIT Sloan School of Management has spent years researching the concept of a self-directing team, back when the world was still obsessed with manufacturing and not software. Many companies in the past embraced such systems, even Shell Oil and Cummins, but only one company she studied has successfully implemented a true title-less, manager-less system, and it used the system for more than 20 years. She says it was a highly unique case: a factory located in a rural area where everyone knew everyone, with the same leader for two decades, and staffed by local families.

Olivier says “Holacracy does not consist of self-directing teams, and Jan Klein knows nothing at all about Holacracy.” I’m sure he’s sick of Jan Klien’s arguments, given that they have been mindlessly copied from the original Forbes article by all and sundry (including, I must admit, by us.) He also points out that Valve, Morning Star and W. L. Gore others have implemented a managerless system to great success.

It’s easy to imagine Valve being a part of something like this. But Morning Star and W.L. Gore, whose names you probably haven’t heard of, are the real surprises here, for they aren’t employing 50 extremely smart people to sit and write code in a room.

Morning Star actually makes tomato products. And it’s 400 employees swell to 2400 during the harvesting season. (Is it just me or does it sound exactly like Jan Klein’s exception?).

W. L. Gore is a manufacturing company in diverse fields with a blazing track record of innovation, but it hires an incredible 10,000 employees.

These organizations don’t use Holacracy, but they do challenge conventional notions about self-management systems, including the assessments of Jan Klein.

One of the things that, for example, Morning Star highlights is that it might be possible to make employees self-regulating in the right environment. And it’s a powerful notion- one that has scientific backing in the psychological principle most famously highlighted in the Stanford Prison Experiment.

However,  the idea is still controversial in psychology.  And every single ‘self-managed’ organizations admits that hiring is a major challenge. Even after being extremely selective with their hiring, it can take up to two years for a seasoned employee to fit in, and W. L. Goe have reported that over 50% of new hires leave within two years. The environment matters, but, it seems not everybody can adapt.

It’s easy to get carried away by these inspiring examples that began with crazy, idealistic notions and actually succeeded in implementing them, but apart from simple problem of finding enough people- there are other important things to remember:

• These companies began with a self-management system. It’s much easier to begin on  a blank slate. Converting to a self-management system, is another challenge all together, one likely to encounter a lot of resistance from managers, who currently run the company.
  For instance, this article points out how numerous companies have visited Morning Star to study their organizational structure, but have been unsuccessful in implementing a similar change.
• Zappos is an example of a company adapting to Holacracy. It’s unique culture meant that it was primed to succeed more than others, but it’s definitely running into some problems. At 1500 employees, Zappos isn’t small, but it isn’t large either. Holacracy will still have a lot to prove about it’s effectiveness at a large scale even if the Zappos experiment succeeds
• These companies remained exceptions, often because of unique conditions. Yes, it begins with the exceptions, but sometimes it doesn’t move past them.
• I pointed out earlier how many process that streamline Holacracy would not be very effective in large circles. The same principles apply to business units.Here’s what Terri Kelly, CEO of W. L. Gore, had to say,“If a plant gets too big or a business gets too large—more than 250 or 300 people—you start to see a very different dynamic. The sense of ownership, the involvement in decision-making, the feeling that I can make an impact starts to get diluted”Every organization that has ever taken advantage of self-management, has tried to keep business units and teams small. But is it really feasible to do that when you have over 100,000 employees?Also, remember that several businesses, like Semiconductor Fabrication, only make feasible on a really large scale- the kind that would dilute the sense of ownership W. L. Gore sought to protect.

On the positive side, the proportion of small to mid-sized companies that are economically feasible on a smaller scale isn’t a small number by any means. It will be a highly significant change if more of these businesses succeed in implementing self-management systems.

And also, this isn’t to say it’s impossible for the larger ones to do it. After all, before I had heard of Morning Star, I would have flat out refused to believe that such a company exists. There’s no way anybody can say for sure that no larger corporation will ever succeed in Self-Management.

Should Indians adopt it?

One of the major problems with lots of articles written in the Western World is their complete ignorance about the developing world. That might be acceptable, if they would not label everything as the ‘future of X for the world.’
After all, the developing world is where 97% of  the world’s population growth is happening. Nothing that can’t work here is going to be the future of the world in its actual sense.

The truth is, despite all these success stories, it is almost impossible to imagine self-management systems really working in India anytime soon.

One of the smaller reasons is that GlassFrog, the software at the heart of Holacracy costs about $500 in India. If you thought Holacracy was difficult to implement, wait till you do it without GlassFrog.

Secondly, it will be incredibly hard (and expensive) to find people who will thrive in a Holacratic environment. Much, much harder than it is in the west, where it’s already pretty hard.

To start, Indian society is rooted in hierarchy, right from the infamous ‘caste system’ which still has a pervasive hold, to the culture of fawning and sycophancy that exists in all organizations. There are some notable exceptions, and corporations like HCL have done much to try and change this, but they’re still a long way away from self-management.

This is one of the reasons startups in India have such a problem hiring. To illustrate my point, I went through 500 of the most recent posts in the facebook group ‘Delhi Startups’ and found that the most popular word was ‘Looking’. Nobody who’s a part of that group will be surprised

However, Entrepreneurs should definitely try their own experiments in organization, and can take inspiration from Holacracy. For instance, replacing ‘task groups’ or ‘project teams’ with circles might be an idea worth considering. Also, every startup would benefit from the emphasis on ‘Explicitness’ in Holacracy. Holacracy and other self-management systems can be a brilliant resource for trying your own organizational experiment, uniquely adapted to the Indian context.

That said, maybe we get our own ‘Morning Star’. We already have small success stories like Bunker Roy‘s barefoot college. Perhaps a leading startup can implement a true self-management system in India and change the prevailing mindset.

Will Holacracy change the world? Not unless enough people in the world become self-regulating and initiative driven overnight, or we find the right environment for them to become this way.

(Olivier responded that it’s not necessary for people to be self-regulating and initiative-driven for Holacracy to work. I, however, remain unconvinced, because of the reasons already discussed)