What is holacracy and how can it help SMEs?

Published on 2022-06-09 by Tessa Anaya

Most businesses today automatically turn to the traditional hierarchical organizational structure, but what about those that are interested in a different way of working? In this article we explore the meaning of holacracy and see how the holacractic structure compares to others.

A holacratic structure makes all employees equal

There are as many ways to manage a business as there are business managers, and management philosophies tend to go in and out of fashion. However, the dominant organizational model for any organization has always been the top-down hierarchy.

With huge changes to the way people work, accelerated by the COVID-19 pandemic, some organizations are asking whether it’s time for a change. In this article, we examine the concept of a holacracy, its history, how it works, and whether SMEs could benefit from it.

We also look at how HR software can be used by SMEs to help them manage their business in a holacratic manner.

Hierarchy vs. heterarchy vs. holacracy

A hierarchy is by far the most common type of organizational structure found in business today. It comes from the Greek words for “sacred” and “rule” and has come to refer to a ranked order of management roles within an organization. The boss at the top is in charge of the people one level below. They are in charge of the level below that, and so on. We can visualize a hierarchy as a pyramid, with the power flowing from top to bottom. It’s important to note for the purposes of this comparison that levels within a hierarchy hold power over all the levels lower down, not just the one immediately below.

In a heterarchy (which comes from the Greek words for “other” and “rule”), the order of command between people within a system may change depending on the circumstances. While person A might outrank person B in one situation, person B might outrank person A for another. Heterarchies, as they might practically be used in a business, can work like a series of flexible hierarchies, where a chain of command is formed in response to a problem or task, rather than being a fixed part of the organization’s structure.

Holacracies are the least fixed of the three organizational types. They are flat structures where employees fulfill several roles rather than occupying a position on a pyramid. Autonomous teams can be formed to take ownership of certain tasks, and employees can move between those teams freely, working on whatever interests them. Holacracies may sound disorganized, but there are rules and guidelines that help the organization and its teams self-manage and deliver outcomes rather than focusing on who is in charge.

For SMEs who choose to stick with a more traditional hierarchy, org chart software offers a convenient way to create, visualize, and share your company structure. It shows the relationships between people, teams, and functions, and many solutions offer templates to help you get started.

How does a holacracy work?

Unlike hierarchies and heterarchies, which tend to describe the way humans naturally organize themselves into productive groups, the concept of the holacracy is a relatively new and deliberate invention.

The idea grew out of Ternary Software, based in Pennsylvania, in 2007. Its founder developed the principles into the Holacracy Constitution (now in its fifth version) and founded a company, HolacracyOne, which, in its own words, is “stewarding the Holacracy movement and evolution of the practice.” It does this through its holacracy resources, courses, and coaching.

Holacracy centers around certain concepts, which are defined with distinct and precise terms, including:

  • Role: a function within an organization, such as “website manager”. It’s important to note that this doesn’t describe a person. People usually have many roles within a holacracy. Roles have a Purpose, which clarify their intention, Domains (areas of the organization under their control such as the company website), and Accountabilities (e.g. building and maintaining the company website).
  • Circle: a collection of roles that work towards a common goal. Think of it like a team, but without a fixed set of people.
  • Tension: according the Holacracy glossary, a Tension is “a person’s felt sense that there is a gap between the current reality and a potential future.” These are the problems that must be fixed in order for things to progress.
  • Tactical meetings: regular catch-ups between members of a Circle where Tensions are processed and actions assigned.

The rules and guidelines for a holacracy are not simple. The constitution offers some guidance, but applying the fairly brief constitution to a real-world organization, with its many complexities, is not straightforward. HolacracyOne offers a bootstrap guide to help companies get started, but total adoption can take years.

Did you know? HR software makes it easy for SMEs to securely store and manage their critical employee data. This may include basic personal information, contact details, payroll information, roles and responsibilities, attendance record, and more. HR software is particularly useful in smaller organizations that don’t have dedicated human resources functions. It can automate many common HR tasks and integrates with other business systems like payroll software, accounting software, and workforce management software.

How can holacracy help SMEs?

Searching on the internet for holacracy usually surfaces a few success stories of companies that have adopted the practice. One of the most prominent of these, and cited as one of the largest, is shoe company Zappos, which adopted holacracy in 2014 and employs around 1,500 people.

According to HolacracyOne, 160 of the 184 companies (87%) that publicize the fact that they use a holacracy have 200 employees or less. This indicates that it’s a good fit for smaller, agile organizations. Indeed, the founders describe the practice as “intentionally disruptive” and say it “will require CEOs, managers, and workers to radically change behaviors that they automatically, and unconsciously, enacted in a traditional management hierarchy.”

Perhaps, then, holacracy is best suited to small, dynamic, growing businesses that are not content to stop once they reach a certain milestone. Testimonies from companies that have adopted the practice reveal a willingness to embrace fundamental change in pursuit of a much bigger goal. 

Is holacracy right for your SME?

The journey to a true holacracy is not quick or smooth, but ambitious SMEs may reap the benefits if they’re prepared to look at management with a completely new approach.

It’s worth asking some probing questions of your organization before considering 

  • Do we have complete buy in? Holacracy doesn’t just apply to the board or team managers, it affects the entire business. Decision-makers at all levels need to accept the effort required in adopting holacracy and the potential disruption it can cause. Moreover, they need the drive to persist with the transformation even when it gets difficult.
  • Are we doing this for the right reasons? Holacracy doesn’t work for every business, and it’s not an end in itself. It’s designed to make organizations more agile, transparent, and focused. You should be certain that this is what your business needs and that holacracy is the best route to get there.
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This article may refer to products, programs or services that are not available in your country, or that may be restricted under the laws or regulations of your country. We suggest that you consult the software provider directly for information regarding product availability and compliance with local laws.


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About the author

Content Analyst at Capterra, dedicated to helping SMBs access the insights that elevate their organizations. B.A. in English, University of Michigan. Based in Barcelona.

Content Analyst at Capterra, dedicated to helping SMBs access the insights that elevate their organizations. B.A. in English, University of Michigan. Based in Barcelona.