As far as business management principles go, it’s as radical as it gets: a self-management business philosophy where companies operate more like cities and less like hierarchies.

Based on the writings of anti-totalitarian political writer Arthur Koestler, and made famous by its adoption in 2013 by US online shoe retailer Zappos, holacracy effectively aims to create an ‘office without bosses’, based on a complex set of rules and procedures which replace traditional managers with a utopian-seeming model of self-governance. Instead of receiving ‘orders’ from ‘higher ups’, workers join voluntary collaborative groups called “circles” based on their interests and skill sets, and are then evaluated by peer review, rather than an ‘employer’.

The concept has been adopted by only a few business in New Zealand but is currently being championed by Samantha Gadd, founder and managing director of HR Shop. She says that by sharing leadership and responsibility across the business, a new scalable business model can emerge, one that isn’t contingent on certain key players to make the majority of decisions.

So what’s the real deal with holacracy? Pie-in-the-sky fad, or a real alternative to an antiquated management structure? And what’s involved in such a radical transition? What’s the risk? What’s the return? And how hard is letting go?

Idealog: Hi Sam. First question: Where did you get the idea and how on earth did you pull it off?

Samantha Gadd: The idea of doing this came from me doing a bunch of research around how to organise a business. We had grown really fast and we needed a way to organise things that could scale quickly. It had become apparent that there was a serious bottleneck developing in the business – me. I had realised  I’d hired a bunch of amazingly smart people, so it seemed like a really good opportunity to see what giving them that autonomy would do.

Image via http://www.holacracy.org/whitepaper

Okay, so what is holacracy? How does it actually rearrange the business? Is it as radical as it sounds?

Yeah, it is radical. Holacracy is a system for operating a business which redistributes power and decision-making and allows individuals to act like entrepreneurs within their organisation. It has very set rules and boundaries around how things operate, but it removes traditional managers and hierarchy. Essentially, what you’re doing is taking power away from the person who traditionally holds all the power.  

In terms of what the organisation looks like on paper, it’s like a group of nested circles, instead of the pyramid you associate with a typical business hierarchy. There’s an anchor circle with a number of other circles inside it and that represents your organisational structure and the roles and responsibilities of employees.

Image: Samantha Gadd, founder and managing director of HR Shop

Sounds good, but what are the benefits? Why bother?

The benefits that we’ve had are around individuals being able to contribute their ideas to the business in a way they wouldn’t have been able to otherwise. People being able to self-nominate in and out of circles sees people playing to their strengths as well as building their commercial acumen. Everyone is acting in the interest of the business. I suppose the big benefit is that when everything is implemented, that level of buy-in is really high.

The other benefit is that I’m no longer a bottleneck in the business. Decisions are shared and it’s not a case of ‘all roads lead to me’. More people have contributions, and those contributions come from the business, not from one person sitting at the top.

The cynic in me has a question: What stops employees from just doing nothing at all? Don’t employees need supervision?

No, not really. It’s self-managing. Because people don’t have managers, when there’s a performance issue, it’s not a case of getting taken aside and having a chat. Instead, people have got really specific goals, their own OKRs [Objectives and Key Results] instead of KPIs, and all that links back to what the business is trying to achieve.

What about the downsides? What issues have raised their heads since you made the switch?

Yeah, there are some challenges. For one thing, it’s a little bit unclear how a holacracy works with New Zealand employment law. Some of the traditional legal processes are not really in line with how holacracy works. Also there are other questions: How do you remunerate people? How do you manage it? There are a whole lot of new challenges, but the great thing is, we’re having really open conversations about what solutions we can come up with.

And making the change itself? It sounds like a mammoth undertaking.

Any change is hard. I think the key to it is consulting wide and getting buy-in from anyone who’s going to be involved. There are heaps of benefits, but no, it’s not easy.  

And at the moment we’re holacracy inspired – we haven’t adopted the whole system yet. It’s quite complex and there’s not much support on this side of the world, so that’s something we’re working towards.  

How hard is it to let go of control issues?

It depends on the leader. The leader and CEO has to be willing to share power and I think many business owners just aren’t ready to do that. You have to have that buy into the concept and that can be hard.

But remember, if you hold all the power, that’s quite a risky position. You can’t go away and have a holiday for example. Nothing happens without you, so you end up becoming a risk. There are huge benefits to sharing that power.

But what about you personally? Has there ever been a moment when you thought ‘Yikes, I’ve made a huge mistake?’

Well I’m probably one of the people who would find it easier that most, but it still hasn’t been easy for me. There have been decisions made that I would not have made, and at the time I was incredibly uncomfortable with, but in hindsight they were the right decisions. For example, we had committed to doing a rebrand and we got a certain way down the path, but things weren’t going to plan. I thought we’d probably just relook at the brief and go from there, but instead, the team decided not to do it at all. That was hard because I was really excited about the rebrand, but it turned out to be the best decision we could have made.

Does the hierarchical approach nefariously make its way back into the model?

Yeah, I think that part of it does take quite a lot of discipline. People still come to me with things they shouldn’t in a holacracy, so it takes discipline to push back against that.

But that’s okay.

Those hierarchical structures are very engrained, so it will take a little time.