🔮 Reinventing Organizations: Hierarchy vs Holacracy

Organizational structure is still the one Sumerians were using 6000 years ago

Language is a beautiful thing. I find it really amusing that the term ‘Company’ can stand for the following:

Companies haven’t changed much since their inception. There can be much debate whether to define the first commercial business as the first government (Sumerians were one of the first urban civilizations in the world, established around 4500 BC) or the first for independent company (Kongō Gumi, a Japanese construction firm founded in 578 AC - world's oldest continuously ongoing independent company oldest company overall, operating for over 1,400 years until 2006), but one thing is certain: the way they organized their governance (the way rules, norms and actions are structured, sustained, regulated and held accountable) is exactly the same as companies like Google, Facebook and Amazon do today.

Why has it never changed in such a long time?

The answer is simple: it worked.

It worked very well to govern unpaid (early governments were using unpaid labour and slavery) or manual type of work, where the key was the capability of controlling and execution of tasks.

In the modern service economy, things have changed. Manual tasks are being automated, commoditized. What really makes a difference is the creative and intellectual work that employees can give to an organization, and this is by design a whole different ball-game. It requires employees believing the mission and having their contribution valued, much more than the one single managers can have.

So the tables are turning. What once was the base of the pyramid considered as brainless workers, now is going to be the biggest capital of companies - and their contribution much more important and bigger (just by outnumbering) than the one of a single CEO or restricted leadership group.

There are just two roadblocks:

💡Companies need to realize this - and many won’t, they’ll just keep going as is

♻️ Changing the way organizations are structured - the current pyramid just won’t cut it

Introducing Holacracy

What is Holacracy?

Holacracy can be seen as a game that modern organizations can play when they’re on a mission and want people who work there to be happier and more productive.

It has the objective to:

🧵Break-down large organizations - Dunbar’s number suggests that humans can work with best up with groups of maximum 150 people. Once organizations surpass this number, they start undergoing a phase transition, going from a more ‘liquid’ state to a more ‘solid’ and rigid state - diminishing the efficiency of information exchange, innovation and so on.

🏃Agility - Having people across multiple roles and self-organizing means that there can be a faster rate of adaptation to change, removing the red tape that usually slows down hierarchical organizations.

🕴️Entreprenurial mindset - Organizations won’t be able to survive the pace of change that’s required to succeed in todays’ world without having every member of the team feel ownership and contributing not just to doing the work but also to the strategy.

Some companies that have adopted this system have been Zappos, Bol.com, Medium.

How does Holacracy Work?

🧩️Modularity - allows for more plug-and-play activity across the enterprise than in a system where teams sit squarely in particular units and departments. And the teams come and go as employees perceive changes in the organization’s needs (just as task forces and project teams in traditional organizations do, but without the surrounding matrix structure, which has a way of holding ad hoc groups together even after they’re irrelevant).

📜 Holacratic organizations ratify a constitution—a living document outlining the rules by which circles are created, changed, and removed. So the circles don’t just manage themselves; within those guidelines, they also design and govern themselves. The constitution doesn’t say how people should do their tasks. It explains in a broad-brush way how circles should form and operate: how they should identify and assign roles, what boundaries the roles should have, and how the circles should interact.

🛒 Market-Based Dynamics - Basically, meaning that each group/circle has ownership of their own P&L and therefore has to determine which services to provide, based on a) Not being able to spend more than they earn b) Needing customers that want services they offer

🤑 Customer-Generated Budgeting - Instead of budgets being passed top down, budget conversations happen between these micro-enterprises

Limitations of Holacracy

🤗Adoption - Only few companies have had the guts to try, and this inevitably slowed down its evolution and improvement

💸Economic Incentive - Its first development was extremely focused on changing the way teams and communication, orders flowed. It lacked economic incentives tied to employee contribution.

🤖Technology - There are a few tools out there who try to help govern and redesign - but the true missing link was Blockchain technology and Smart Contracts that enable true proof of ownership, work and ease of trade and exchange of value

⌛️Time and Effort - “Holacracy exclusively focuses on internal processes and keeps the organization busy with organizing itself. [...] Holacracy implementation used up all of our energy that we should have used to work on our actual pain points, such as lack of innovation, unclear strategy, critical market feedback and declining internal morale”

🥨Multiple roles vs focused work - Its fluid definition of roles means that one single person could be looking at many different jobs, versus being able to do one type of focused work

Where it all comes together: DAOs and Web3

DAOs follow a very similar approach to Holacracy.

They are decentralized by definition, and organize under the following pillars:

🔮Mission - A DAO starts with a clear mission, whether it’s very specific (Constitution DAO aimed at buying a physical copy of the US constitution) or broader (Friends with Benefits aims to be pivotal in the development of web3, JUMP aims to be the web3 Marketing agency, and so on). Usually they are developed in ‘Seasons’ i.e. time-boxed roadmaps and goals that then drive the activities. These are usually decided during regular governance calls where everyone can participate and vote using their tokens.

☝️Contribution - DAOs reward the community members based on their contribution levels. This means unlocking access to particular features, groups (’Social’ capital), or economic value usually through tokens.

🏡Ownership - By using Smart Contract technology, anything can be registered on the blockchain and therefore be proved - it could be in the form of NFTs or business referrals, piece of land in the metaverse..you name it.

🤝Collaboration - Roles are fluid, much like in the Holacracy concept of ‘bubbles’ - contributors can wear multiple hats at the same time, and switch whenever they feel like it. There may be some roles dedicated to being moderators or ‘links’ between the different bubbles.

Work is usually organized with ‘Grants’ or ‘Bounties’, which basically lay out desired outcomes and tokens that can be earned.

Given that token value is usually the result of the value of the DAOs’ work, this theoretically ensures a virtuous cycle: the more value they put in, the more they get out.

Right now this might not work / it’s still quite messy, but a lot of tooling is being built, and with time it will become more common and perfected.

TL; DR - Key Takeaways and Useful Resources

• Organizations are still mostly structured with hierarchical, ‘pyramid’ - like systems, but this is and needs to change to adapt to new business dynamics (faster, global competition, innovation, fluid roles)

• A possible solution is the Holacracy (or Teal) system which focuses on more empowerment to the individuals, though it has challenges in how to adopt it and in its multi-role responsibilities

• DAOs are shaping to be contribution-based and Holacracy like organizations, so it’s good to understand what is working and how they will evolve

📕GVH DAO - A specific example of how a travel/event management brand is applying this concept

📕Leadership and Decision Making in DAOs - What is decentralized leadership like?

📕DAOs: Social Networks That Can Rewire the World - Article by Coinbase with some interesting numbers and graphs

📕Reinventing Organizations - Book by Frederic Laloux, best one I’ve read on the subject so far - illustrating the resistances and possible plans and great real life examples of organizations of all sizes that have implemented this. Highly Recommended!