We are on standing on the brink of the AI revolution. Researchers at the University of Oxford predict that in the next two decades up to 66% of American employees will be replaced by robots and machines operating on complex, self-learning software. The human jobs that will remain will require high-order thinking: creativity, innovation, and emotional engagement.

This presents business leaders around the world with a difficult challenge: creating new organizational cultures that will support these behaviors and allow the flesh and blood workforce to thrive. As Professor Ed Hess reminds us in his article for Forbes, “…an emotionally positive work environment better enables learning, thinking, innovating and collaborating while an emotionally negative work environment inhibits them.” Such an environment is the key to your competitive advantage and survival in the new world economics that will soon emerge.

In light of these changes, I have been searching for a new management solution that will suit the needs of XSolve and our sister company Chilid. I have long been devoted to the idea of Turquoise (or Teal) organisation but I was looking for a framework that will provide concise rules for organizational governance that are clearly understood by all employees – a scalable model, which will enable all employees to take responsibility, develop and grow. During my research, I came across a practice called holacracy and after months of consultations and discussions we have come to the conclusion that we need to dive in with both feet and became a holacratic company.

Three months into the change I want to walk you through the business thinking behind giving up my power as a CEO and passing the baton to all employees.

What is Holacracy?

The concept was coined and developed in the noughties by Brian Robertson, following years of experimentation in his role as a software company CEO. In a nutshell, “Holacracy is a practice which allows everyone to work together in an organization, to steer, to make decisions in a different way. It’s not following the conventional hierarchy, the conventional power structures.” So says Matthias Lang, trainer at Dwarfs and Giants, a Holacracy adoption certified training company, which led XSolve and Chilid through our transformation.

In holacracy, the company is organized into independent and self-governing circles (i.e. teams), giving them control over their own decisions and actions rather than concentrating that control within traditional management silos. Within each circle various roles operate to fulfil the circle’s purpose and the company’s purpose. Roles are assigned to individuals but they can fluctuate and change according to circumstances.

xsolve holacracy general company circle

In the words of Matthias Lang, “Holacracy is deeply rooted in an agile mindset and that’s why it opens up the opportunity to react responsively to changing environments. So if there is a lot of uncertainty, a lot of changes in the environment or in the technology, holacracy is the practice that gives you the tools, the methods to adapt to that and adapt in a quicker way.” At Xsolve, we’ve been successfully working with the agile framework called Scrum for over six years and we were more than ready for a management practice that would reflect the way we operated on a daily basis.

scrum and holacracy comparison

Agile methodology has proven to be very effective in areas such as software development and holacracy takes the concept of agility and applies it to organizational structure, focusing on responsiveness, self-organization, and grassroots decision-making. Let’s take a look at how each of these qualities affects the business.

Let the people do their job

The hierarchical structure most commonly observed in companies worldwide was invented over 100 years ago, when the vast majority of the workforce was unskilled, often unable to even read or write. The top-down chain of command might have been necessary then it’s outdated nowadays, especially in companies exclusively employing highly-skilled individuals. It becomes clear just how obsolete the hierarchical structure can be in a software development company hiring top of the line PHP, Java and JavaScript developers, certified Scrum Masters, and experienced business, HR and operations employees. In other words, in a company like XSolve.

There are companies leading the way. Morning Star is a completely self-managed food processing company in the US that has been registering double-digit organic growth over the last 20 years (compared with their competitors who average around 1% a year). Morning Star’s employees are driven by a personal commitment to work rather than managers. Every member of the company has a personal mission statement which highlights how they are going to contribute to the company’s goals, with the complete freedom to choose how they make that contribution.

Demolishing informal power structure

Most companies have much a more complex structure than the one shown in its organizational chart. We should not underestimate the informal power networks within the company, internal politics, favoritism, and personal relations between people which are often the real barriers to pushing the company forward.

Holacracy aims to remedy this complexity by providing strict rules regarding how the company is governed. In this context, it focuses on the institution of roles within a company (rather than job titles), their purposes (the aim of each role) and associated accountabilities (specific duties). Within their roles and accountabilities, employees have the power to make independent decisions suitable to a given situation without the need to consult other roles. In other words, they operate free from formal and informal traditional dependencies.

xsolve holacracy role description marketing

The mechanism at play here is the rule of “safe enough to try” or “good enough to try”. For example, if you propose a solution within the accountabilities of your role no one has the power to prevent you from taking action unless there is a risk, supported by evidence, that your idea could harm the company, or its circles or roles. Obviously, discussion is warmly encouraged – holacracy is built on trust and teamwork – but the real power resides in the role.

A powerful motivational tool

I know what you’re thinking: isn’t it risky, giving so much power to everyone in the organisation? In a world where the lack of employee engagement is one of the biggest challenges to achieving higher efficiency, holacracy might actually be a perfect remedy. The premises of holacracy are trust and faith in individuals and the benefits of that offset the risk.

During a TEDx Talk by Dan Ariely, a behavioral economist, he skillfully proves that money is not the biggest motivational factor. During a number of studies he carried out, Ariely found that the meaningfulness of an employee’s work, the sheer joy of creation, ownership of the project, and even the challenges they encounter all have a much greater impact on engagement than mere financial reward.

Put simply, holacracy facilitates employee engagement. Mathias Lang from DG claims, “Holacracy enables every person in the organization to take responsibility for a certain area and really be in charge of that task, of that role, of those accountabilities.” The key is implementing mechanisms that allow the roles to fulfil their purpose undisturbed by others, as long as they act in the best interest of both circle and company. On the other hand, individuals are accountable for their actions and their performance is reviewed not by a manager but by their peers in the circle. Fully owning a project and seeing how your work affects your colleagues is hugely motivational and leads to much better results than fear of a manager.

Finally it is worth reminding ourselves that employee engagement has a significant impact on overall company performance. New York Times best-selling author Kevin Kruse lists over 32 research findings proving that high engagement positively influences areas such as sales, profits, quality, safety, retention and absenteeism.

Holacracy is built on solid evidence that people are responsible human beings who, if treated with respect, will repay that with engagement with their work.

There is a place for strategic thinking and planning

The independence of roles does not imply a lack of strategy nor that actions are random or unconnected. Each circle includes an obligatory Lead Link role that is tasked with mapping out the overall strategy for the circle, allocating financial resources and appointing appropriate people to the roles.

Furthermore, holacracy recommends holding regular Tactical Meetings focusing on operational issues. During a Tactical, members make sure that recurring assignments have taken place, they discuss metrics, projects and the resolution of any current tensions (e.g. problems, new proposals). The Tactical Meeting can be structured around strategic goals in a circle (e.g. using the OKR method – Objective Key Result) allowing members to map out how individual projects contribute to the overall success of the circle.

It is crucial to remember that apart from the abovementioned Tactical Meeting, holacracy does not impose a rigid structure for gatherings. If a circle has a need for another strategic meeting they simply organize one!

DIY – Do it yourself to eliminate waste

By now it should be clear that a core premise of holacracy is self-organization. In itself, this is not a new concept and has been proven throughout history to be highly effective in different environments. Harvard Business Review lists a number of case studies showing the benefits of self-organized teams, including the 90% reduction in defects at Volvo, the 13% decrease in service errors at FedEx, the 60% reduction of costs at C&S Wholesale Grocers, and the 40% productivity increase at General Mills plants.

In holacracy, each circle has its own purpose – e.g. the Business Circle at XSolve aims to, “Attract amazing customers” – and each role within a circle is focused on fulfilling that purpose. At an operational level, this means that every task and project realized with a circle needs to contribute toward the purpose. The same principle applies to the whole company – any strategic decision must be focused on the company’s purpose for existence. This eliminates waste and unnecessary distractions.

xsolve holacracy business circle

Another mechanism for fighting waste is the way holacracy clearly defines each role’s accountabilities. Every project or task realized by a role must fall into the accountabilities of that particular role, allowing the individual to focus on the real job at hand. If several people are needed to fulfil the same role, then each has a clearly defined focus; e.g. our Customer Success role is covered by three individuals and each is assigned to particular clients.

A further benefit is that with clear structure and accountabilities comes easier and quicker onboarding of new employees. Holacracy provides transparency – it’s crystal-clear how the company is governed and how it operates, making it much easier for new hires to find their way, settle in and make a contribution. With tools such as web app HolaSpirit you can quickly search and get to grips with the company circles, roles, and accountabilities, as well as projects realized.

Finally, the greatest saving for the company is eliminating the waste related to management overhead. With the power distributed across circles there is no need to support an elaborate and expensive management structure. Suddenly, a single individual to come up with ideas and strategies, allocate tasks, and control the work of others is obsolete. In a holacracy, the whole circle is responsible for delivering the results, not the individual.

The body of proof

A few years ago, holacracy has hit the business front pages when Zappos took the bold move of shifting their entire structure to this self-management approach. The company offered a severance package to those unhappy with the changes and it was reported that around 18% of the workforce decided to leave the company, with 6% quoting holacracy as the main reason for their resignation. The Zappos case study has been shrouded in a cloud of misunderstandings and sensationalism, with critics interpreting the mass resignations as a sign of holacracy’s failure. But a few years after the shift, Zappos is stronger than ever with a 75% year-on-year increase in operating profit.

On the other hand, another famous holacratic company, Medium, has since decided to drop this practice and search for their own path, saying the model wasn’t scalable enough for their needs, opting instead for their own version of Teal.

With these two contradictory examples, one might wonder if holacracy is the right path for XSolve and Chilid – only time will tell. However, what is certain is that holacracy fits our culture and our proven agile approach to software development. What’s more, it offers room for employee engagement, self-organization and self-management and promises to allows our people to reach their full potential. All of which should permit our company to thrive in a rapidly changing business environment. I trust in our decision and believe that giving up my power as a CEO might have been one of the smartest moves of my career. More updates coming soon!

Finally, if you are curious how our organisation is structured according to holacratic principles download our Holacracy Practitioner Guide which lists all our circles, roles, accountabilities and policies.

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