Flat By Design: The Latest Business Management Trend

Anyone who’s ever held a job is aware of hierarchy. You have a manager, your manager has a manager, their manager reports to someone, and so on.

The hierarchy is designed to promote accountability and generally keep the wheels turning and the lights on.

But the largest and most exciting companies today are leaving traditional business management behind.

Today’s business leaders are not only disrupting the industries they enter. They’re also disrupting traditional business management.

Leaving behind traditional hierarchies, bosses, and middle management, a new trend embraces the idea of a flat company structure – or as it’s also known, a holacracy.

Holacracy 101

The Holacracy System of Management is derived from the term holarchy.

A holarchy is not an ancient form of management. In fact, the word itself was first introduced by Arthur Koestler in his philosophical thriller, The Ghost in the Machine back in 1967.

Basically, a holacracy is surrounded by holons. And here’s where it gets ancient.

Holons is a term derived from holos, a Greek word meaning ‘whole’.

Holons are units (or in this case, people) who are self-reliant and operate autonomously. Yet, they remain apart of the whole.

In management terms, they’re workers who have the autonomy to set their own paths. They manage themselves in order to better maximize or encourage organizational growth.

These teams and companies aren’t waiting around for a manager to tell them what to do.

However, they haven’t gone off the rails either. The workers are still working towards organizational goals.

Digging Deeper: The Circles

Upon first glance, holacracy appears to be a fanciful world filled with self-directed projects and devoid of management.

In fact, outside observers may not see the tell-tale signs of the hierarchies of yore, but that doesn’t mean one isn’t there.

Holacracy does involve the application of a hierarchy. As Steve Denning noted in his article for Forbes, the Holocracy Constitution 4.0 explicitly describes the hierarchy adapted for this lean business management system.

For example, in section 1.3 of the 2013 version of the constitution, it is explicitly stated that you can execute an action useful for your role.

What you cannot do is exert control or execute an action in someone else’s domain.

How do you know what your role is?

Your role depends on your circle – sometimes.

Circles are autonomous teams that replace traditional management structures. According to the constitution, they’re self-organized.

So, the organization sets the purpose of the team. But it’s up to the team to determine how to reach it.

The circle structure flips traditional hierarchy on its head. Traditional structures provide management with final say, regardless of the decision.

Holacratic circles provide those on the front lines with the final say.

So, the leaders are not management per say. Rather, the leaders are the team itself.

And if your team needs to alter another teams’ work, you need their permission.

So rather than having a vertical hierarchy, it shifts back and forth.

New Hierarchy: Subtle Differences

But as Olivier Compagne, a partner at HolacracyOne, points out, there are nuances separating holacracies from traditional hierarchies.

Circles are self-organized. But they’re not entirely self-directed.

There are higher and lower circles. After all, circles (teams) are still expected to adhere to organizational purpose. Teams must still fulfill certain duties.

The higher circle can also change or destroy a lower circle at will. For example, they might eliminate a circle if it doesn’t meet expectation. Teams may also be packed in if there’s a pivot in purpose.

But what isn’t accounted for in the circle discussion is what the circles are made of.

And the contents of the circles is key. It’s also why circles only sometimes determine roles.

Unlike traditional management and organization, a holarchy is not made up of people.

It’s made up of roles.

Compagne suggests that this distinction matters most in this discussion.

Basically, different employees can take on different roles. They can take on multiple roles within a circle or even taken on roles across different teams.

Switching from the concept of workers with roles to roles filled by workers leads us away from traditional management. Instead, roles take us back to a flatter hierarchy.

How Does Holocracy Work?

Holocracy is made up of circles of roles that move sideways. Circles are also impacted by the circles above and below them.

But what does that mean for operations? How do they actually work?

In short, these circles produce rapid iteration.

They look at the rules of the game again and again in rapid succession to re-evaluate plans.

This why these circles are important.

If you’re going to re-evaluate your system time and again, you need to have space for your organization to change with it.

There’s no point in identifying changes if they can’t be implemented.

Additionally, there’s little benefit in identifying a change and taking so long to put in place it that it requires another new change immediately.

Thus, the roles (not people!) are able to move without needing direction from the top circle.

When the system is more agile, teams can implement change faster.

Change is also why the system is focused on roles and not ranks. By decoupling the two, it ensures that teams reach the right decision rather than blindly following the hierarchy.

Why The Switch?: Agile and Flatter Hierarchies

Why are companies switching to a new system of hierarchy?

The answer to this question requires looking at one of the previous business management systems that inspired it: agile project management.

Agile Management took the idea of creating a robust, fully-developed plan and tossed it out the window.

It argued that modern firms don’t need to plan out every last detail of every project. On the contrary, intense planning and scrutiny from management hold companies back.

Hierarchies create and allow sub-optimal systems. Whilst they may be well-suited for their purpose, they remain difficult to throw out after they’ve expired.

Getting rid of old systems when a new one comes along is essential for keeping up with your competitors.

Plus, these long-term plans entrenched in predictability don’t work in today’s world.

Building software isn’t like manufacturing lightbulbs.

It’s not predictable. It changes rapidly. And it’s hard to manage unpredictability and keep up with consumer demands if there’s a hierarchy getting in the way.

In other words, if engineers know what the consumer wants, they need a way to give it to them.

An executive who’s expertise isn’t in line with the engineers or the customers shouldn’t get in the way of delivery.

The Benefits of Flatter Business Management

Flatter hierarchies, like holacracy, were developed in response to the top-down management. Moreover, they represent its failure to adapt to new ways of working.

But companies wouldn’t adopt them if they didn’t provide some benefits.

Benefits of flat management are often directed at employees.

For example, self-directing teams take on more responsibility for their role in the organization.

Flat management also improves communication by allowing for greater coordination and speed.

Decision making is also faster. Without having to send every minor decision up and down the chain of command, teams can pivot in a new direction. They can then pivot back if need be.

These employee benefits also benefit the organization by keeping it competitive. But there is one strictly organizational benefit: if you don’t have middle management, you don’t have to pay them salaries.

So, in theory, flat management keeps things moving. But it also frees up the budget for spending in new areas, like project development or team motivation.

Of course, there are the accompanying disadvantages.

Without middle management, employees aren’t sure who to defer to for some decisions. Lack of clarity can lead to confusion or even power struggles.

Some firms who have implemented flat structures have also had to make up titles. These titles appease clients who want to know their ‘most senior people’ are overseeing their project.

New Trends in Business Management: Will It Last?

Holacracy is the latest among flat business management trends. But how will it fare in the long run??

According to London Business School’s Julian Birkinshaw, the jury is still out.

Somewhere around 90% of the new management ideas he’s worked on fall out of favor somewhere around a decade after arriving on the scene.

For example, Google, that touts “20% time” seems to be abandoning their own pet management projects.

Google’s 20% time is the day per week allotted to employees to work on personal projects. It’s brought consumers products like Chrome, Gmail, and AdWords.

However, holacracy and the agile methods it draws upon seem to be here to stay – at least for now. Of course, the most famous case study is Zappos, but other major firms are also joining in.

IBM is notably toying with the idea of “agile management”.

GE has adopted a system inspired by the “lean startup” movement dominating Silicon Valley (and also influenced by agile).