Considering Holacracy? Watch Out for These 6 Red Flags

For example, Raleigh, N.C.-based Red Hat Software has posted 13 consecutive years of growth riding a relatively flat organization led by CEO Jim Whitehurst. Others include eClinicalWorks, an electronic-health-records company in Westborough, Mass., Denver-based social-entrepreneuring outfit CauseLabs and W.L. Gore, maker of Gore-Tex fabric, which has been practicing a form of holacracy for decades at the $3-billion company.

The examples are few, however, and companies considering a flat management model should consider these 7 cautions.

1. Top leaders may be the most resistant. In most companies, holacracy won’t work, said Joseph Flahiff, an expert on teams and organizational culture. “Holacracy is not likely a viable option for the vast majority of businesses because it is an organizational revolution,” he said. “Most organizations are based in hierarchies where leaders have spent entire careers climbing their way up the corporate ladder [and won’t be] quick to give all that up and put the inmates in charge of the asylum.”

2. Don’t discount the value of leadership. That’s what holacracy can do, some experts said. “People want great leaders – a need that is innate and biological,” said Mark Fernandes, chief leadership officer of Luck Companies. “Humans are motivated by emotions, so leaders with vision and integrity will inspire the commitment of employees to greater ends. Employees will work exponentially harder from a place of commitment over one of compliance, [and] holacracy does not align with this principle.”

3. Power can’t stand a vacuum. No matter how flat the organization is structured on paper, “power still exists and must be considered,” said Glen W.S. Dowell, a Cornell University management professor. “Power accrues to experts, for example, or to those who have delivered superior results over time. The company needs to prepare for people managing through expertise and charisma, and build in safeguards that prevent these forms of power from being abused.”

4. Give it time to work. Even holacracy proponents don’t believe it’s a quick fix. “Though we are all excited about the promise of change,” CauseLabs’ Cook said, we also know that the structural shift is an investment that will reap benefits over time rather than a tactical maneuver that will drive profitability short-term.”

5. Walk the walk. CEOs and owners attempting to implement holacracy need to make sure “not to sabotage the system,” said Lawrence Polsky, co-founder of Teams of Distinction. “They are the leaders of the culture. If they continue to act like a command-and-control center, this will create a culture working against holacracy. They need to work on coaching and inspiring their teams, as a role model, which will then support the success of the new structure.”

6. Study the history. While some companies have used a flat structure for many years, that same period has seen others fail with a “holacratic approach.” As Bonnie Hagemann, CEO of Executive Development Associates, noted, “Does anyone remember Best Buy and the Results Only Workplace? It sounded great, but they no longer use it; as a concept, it did not catch on.”

Given all of these red flags, business leaders may want to move with caution when considering a flat management approach.