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How Holacracy Works

How does compensation work? Is everyone paid the same?

Holacracy doesn't answer that question — not because it's lacking, but because Holacracy isn't designed to answer those types of business questions. Holacracy is a set of rules of the game for the company to organize its work and execute effectively. There is no one-size-fits-all compensation model; deciding how compensations will work is part of the work of each company.

Consider Holacracy the "operating system" for an organization — the core rules that regulate how power is distributed, and the decision making processes for changing that power structure. How compensations work, how to hire and fire, how to do budgeting, etc. are all "apps" that run on top of that operating system.

When you start with Holacracy, the best practice is often to keep doing all these business functions the way you've been doing them, then use Holacracy to evolve them as needs arise.

Who can fire people?

In Holacracy, you don't just have "a job", you can fill several roles in the company — even in different teams. So it's not the same thing to be removed from a role as it is to be fired from the company entirely. So let's split the question into two:

Who can remove people from roles?
The default rule in Holacracy is that for each circle, the Lead Link decides who to assign to the roles. They can use whatever process they want to do that, nothing is specified in the core rules of Holacracy. That said, it's only the "default rule" and it can be changed via Holacracy's collective governance process.

Who can fire people from the company?
Hiring and firing qualifies as an "app"; Holacracy doesn't provide a one-size-fits-all solution. More here.

Are there really no Job Titles, no Managers, and no Hierarchy?

Job titles in a Holacracy-powered company are largely meaningless, though some companies still choose to use them just so the outside world has something they recognize and understand. But within the company, they are totally irrelevant when it comes to power, authority, etc. Instead, people are assigned to one or several Roles. Roles represent a function of work (e.g. "Social Media Marketing" role), even though unlike a job description, roles don't need to represent a 40h/week amount of work (e.g. "Webinar Presenter" role) .

It's true, there are no "managers" with Holacracy. Some of the work typically done by managers is now baked into the system itself (e.g., deciding who is accountable for what, which is done via the governance process in Holacracy). Some other work typically done by managers still needs to get done, but instead of centralizing it all into one job, it is broken down and clearly defined into Roles. Finally, there is a core role in each circle called the Lead Link, which by default includes several accountabilities typically attributed to managers (e.g., assigning people to roles in the circle, or resource allocation).

Is there no hierarchy in Holacracy? Yes and no. There is no management hierarchy as we’re used to it, and no hierarchy of people/managers. However it’s not a “flat” or "structureless" structure either. Holacracy uses a totally different type of hierarchy: a holarchy of roles, and not a hierarchy of people/managers. The distinction is meaningful because people may fill several roles in the company, including roles at different levels of the organizational hierarchy. In one situation, you might have authority over your colleague's role, and in another situation, your colleague might have authority over your role.

How does Holacracy scale?

Holacracy is a system for distributing authority so decisions can be made locally, where they're the most relevant and where the information lives. At the same time, teams have links to channel tensions downward and upward the structure. Since it's a fractal structure, there is no theoretical size limit for an organization running with Holacracy. In practice, the largest company having tried it to date is Zappos with 1,300 employees.

The process of scaling a company running with Holacracy is likely to be more organic than with a traditional management model. Structural changes happen frequently and incrementally, as opposed to having occasional big re-orgs. As a result, scaling is usually smoother and more incremental.

Holacracy needs the CEO's power to adopt Holacracy... isn't it paradoxal?

Holacracy is a fundamental shift of authority: it changes the seat of power from the CEO to the Holacracy Constitution, which then distributes that power through specific processes. You cannot shift the seat of power without the CEO’s approval (and shouldn't be able to). This is just acknowledging the current reality: the CEO has all the formal power, and if you want to change this reality, you need a formal agreement from that CEO to vest her/his power into something else — in this case the Holacracy Constitution. Without this formal agreement, you would just be "pretending" to work differently.

Does Holacracy really get rid of politics?

Holacracy doesn't "eliminate" office politics, but it addresses work issues in ways that make politics less useful. For one, Holacracy provides more transparency around roles and accountabilities, which in turn reduces the necessity for informal office politics. Second, Holacracy funnels whatever political tensions do arise into specific meeting processes—which actually leverages those tensions into useful organizational learning.

People often resort to office politics not because they're ill-intended, but because they have no clear and effective channels to effect the changes they believe are needed. By providing such channels, Holacracy simply makes it more effective to use those channels than play the old “political” games.

More in this blog post: Obsoleting Organizational Politics

I heard there are no deadlines in Holacracy — is that true?

Deadlines are a part of reality, and this reality applies to Holacracy as well.

Holacracy deals with this by creating clarity and supporting informed decision making by everyone. In conventional systems, we see panic (work overtime, call for help, etc.) over often arbitrary deadlines. In Holacracy, role fillers can get clarity on priorities and make a trade off as to where the best use of resources would best support the purpose of the organization, thus best satisfying a real deadline.

With this clarity, a role filler can also understand when to panic based on the clarified reality of the situation rather than on some arbitrary checklist item without understanding the value of it. The reality is that we cannot always meet these real deadlines, whether they are explicitly prescribed or simply prioritized. Conventional systems do not have the greatest record for meeting prescribed deadlines. How often is victory declared at the prescribed date no matter what was accomplished. Holacracy gives you a better chance of satisfying the more important deadlines, since there is less waste in trying to meet many arbitrary deadlines.

More about this topic in this blog post: The Insanity of the What-by-When

How does Holacracy ensure there is alignment to the overall direction of the company, and everybody isn't doing what they want?

This question often comes from those who mistaken Holacracy for a "flat" or "structureless" organizational structure. Actually, Holacracy is more structured than both conventional and most non-conventional management systems. The 'rules of the game' are clearly defined in the Holacracy Constitution, and these rules are designed to ensure alignment to the direction of the company.

Partners/employees fill roles in the organization, and those roles have clear accountabilities. By virtue of filling a role, people have the authority to take any action they deem useful to express their accountabilities, but no more (within certain limits, the details of which would be beyond the scope of this Q&A). When the work of two roles conflict, or when we need to limit the freedom over certain assets of the company—as is often the case, Holacracy has built-in mechanisms to establish those limits.

Implementation of Holacracy

Is Holacracy best suited for specific industries?

Holacracy wasn't designed for specific industries, and it would likely work in any type of company. The reason for it is that Holacracy doesn't prescribe a specific way of organizing a company, instead it prescribes a way to decide how to organize a company. As long as you have a group of people that needs to organize its work toward a same purpose, Holacracy can work for you.

Holacracy includes processes for the organization to adapt its structure incrementally, based on real feedback from doing the work, in order to be more in tune with external demands. Any organization can benefit from being responsive, however organizations that need it the most will likely experience more benefits from Holacracy.

Can companies add their own rules, or is it necessary to follow the rules from Holacracy?

The Holacracy® brand refers specifically to the organizational model defined in the Holacracy Constitution. In your organization, you're obviously entitled to use whatever rules you want to run your business, including adopting the Holacracy Constitution and changing its rules. If you do, however, it's at your own risks. Unless you are very experienced with the model as it is officially defined, you will most likely break something or create an imbalance by modifying the rules.

In the vast majority of cases, you shouldn't need to change the core rules of Holacracy, however. Holacracy is a system of rules that helps you define and refine the structure of your organization, so that you can adapt it to your unique context. You should be able to use the processes of Holacracy to create the rules you want to run your business. Holacracy is the 'operating system' on which you want to install the 'apps' you need. See this question for more details on this distinction.

Would Holacracy work for my network/community?

Holacracy isn't designed to organize a community of people — it's specifically designed to run an organization. Holacracy has no mechanism to govern people themselves, it can only govern the roles of the organization. An organization necessarily includes a community, but a community of people alone does not make an organization. An organization has:

  • A clear membrane, a clear boundary that defines what's inside and outside of it.
  • Something that it owns and controls (e.g, a website, financial assets, an intellectual property)
  • A clear energetic exchange across the boundary (e.g., service exchange, money transaction, etc.)

Without all three, it's likely that you don't have an organization. For example, by that definition a family is not an organization. Family members may want to create an organization (e.g., a family business), but the family itself is not the organization. In fact, if they were to adopt Holacracy for their business, Holacracy would likely help differentiate what matters are business matters and which ones are family matters.

History of Holacracy

How and when was Holacracy created?

Holacracy was incubated at Ternary Software, a software development company founded and led by Brian Robertson. Since early on, they had been experimenting with alternative approaches to managing the organization, borrowing elements from multiple existing models and evolving his approach through trial and error.

In early 2007, when the "Ternary approach" was mature enough to be shared with others, Brian Robertson teamed up with Tom Thomison to found HolacracyOne—the company developing Holacracy—in order to further evolve and spread Holacracy.

You can find the full story here: History of Holacracy

Where does the name Holacracy come from?

The term Holacracy is derived from the terms “holon” and “holarchy,” coined by Arthur Koestler in his 1967 book The Ghost in the Machine. A holon is a whole that is a part of a larger whole — like a cell of the body is both a self-contained whole and at the same time part of an organ; similarly, an organ is a self-contained whole and at the same time part of an organism. That series—cell to organ to organism—is an example of a holarchy. It is the kind of hierarchy that nature uses.

While the name "Holacracy" is inspired by Koestler's concept of "holon", the relationship stops here. The name was chosen after the method was developed. Holacracy is by no means an attempt to apply an abstract notion invented by a philosopher.

Why is there a Holacracy "Constitution", and how did it end up being created?

Brian Robertson, pioneer of Holacracy, explains it in those words:

"It was Tom Thomison (ed: HolacracyOne co-founder) getting frustrated with me just making up new/clarified rules whenever I didn’t like something he was doing and just declaring “that’s Holacracy!”… He helped me see that when the rules were just held in my head and I was the only authority on them, it wasn’t really different from me being the heroic empowering leader. There’s a big difference between a leader saying he’s applying a set of rules (that no one knows and no one can challenge and where that leader is the ultimate judge of them), and actually having a set of rules explicitly captured where everyone can refer to them, point them out, and call out that leader on them when needed. Tom’s frustration with the former state of affairs helped me see that crucial difference, and that prompted the first version of the written constitution. It changed everything. That’s also when Holacracy’s deeper evolution truly began. Evolution requires a code—a DNA—that can be varied in search of a better code. The constitution serves as that DNA, and until it was encoded that way, it couldn't truly be evolved through an evolutionary design process." (Source: private conversation)