Holacratic Management

Here’s an update on the flattest organizational structure you are likely to encounter.

In the December 2015 issue of Inside Information, I wrote about several advisory firms that had adopted an entirely new, very interesting internal management process known as the Holacracy (https://www.holacracy.org/).  The Holacratic management can be fairly described as an ultra-flat organizational structure where, instead of the founder or COO having to manage the operational details of the firm, those oversight duties drop off of his/her plate and become the responsibilities of the people who are handling the tasks.  The tasks or duties are divided into “roles,” which are the atomic units of all the services that the firm provides, and each person takes on a set of distinct roles and has responsibility for managing and “energizing” them.

So where does the oversight come from?  The firm’s structure is organized in ‘circles,’ where everyone involved in the roles associated with a particular set of activities—like marketing or managing assets—meets on a regular basis (usually weekly), and there is a process whereby every member of the circle can propose changes or introduce new ideas, to be discussed by the group. 

There are several benefits.  One, as mentioned earlier, is to take decision-making responsibilities off of the plate of the company founder.  Another is to provide much better job descriptions; the job description is simply a collection of the well-defined roles that an individual is assigned or has taken on.  For instance, the director of marketing might have, as one role, administration of the company website, and approval of any changes made there.  A second role for this person might be to work with each advisor to help them formulate their individualized marketing plan for the year.  A third role might be to schedule social media messages written by various staff members, and to assign articles for the company newsletter.

An associate planner, meanwhile, might have as one role the collection of client information for the financial plan—which means taking notes in client meetings and following up when anything is missing.  A second role might be entering the data into the planning software.  A third role might be preparing the reports and information for client meetings, which have to be on the senior advisor’s desk several days before the meeting.

Of course, the holacracy management structure allows the staff members to feel empowered, which is often cited as an important issue in job satisfaction and loyalty.  It drives the routine operational decisions into the hands of the person who is closest to (and most familiar with) the impacted activity.  If you need software to make your job easier, you propose it in your circle, the team discusses the cost and benefits, and makes a decision.  The firm owner may not be participating in the circle, and doesn’t need to be.

Finally, the process allows the firm to discover new roles that were not obvious—and make affirmative assignments.  One example in the original article was that the potted plants scattered around the office were dying.  When this was brought up in one of the circle meetings, it was quickly learned that nobody had taken on the role of watering the plants.  Somebody volunteered to take on the task, and it became a part of his (slightly) expanded job description.

At the time of the article, I thought the Holacracy was a very interesting alternative to the typical top-down management structure that so burdens advisory firm founders, many of whom prefer to deliver service to their clients.  It might also be an alternative to hiring an expensive COO from outside the profession, since the Holacratic system will steamroll flat your management structure.

But these management fads come and go, and I was curious whether this particular innovation had staying power.  So I contacted Rick Kahler, of Kahler Financial Group in Rapid City, SD, to see if he was still managing by Holacracy.

Not only was he, and not only did he still like the concept, but he had deepened his firm’s involvement in this diversified management structure.  “Since we talked, I’ve sent everyone on staff except for one person to the week-long trainings,” he says.  “And we’ve had one of their top coaches come out and do a presentation to the group.” 

Over the years, the number of circles has expanded.  The shareholders meet in what is called the Anchor circle, and there is now a Culture and Compensation circle, a General Company circle, a Marketing circle, an Investment Circle, a Financial Planning circle, a Financial Therapy circle and an Accounting circle.

Some are overlapping.  “Marketing, investment, financial therapy, financial planning and accounting are all in the General Company circle,” Kahler explains—meaning that the larger circle sets broad policy and makes suggestions that can be taken up by the sub-circles.  The Culture and Compensation circle focuses on human resources issues, while pricing decisions are made in the Accounting circle.

Kahler says that taking oversight responsibility off of his plate is the biggest advantage of the Holacratic structure—both because it frees him up, and also keeps him from interfering when important decisions are being made at the level where they have direct impact. 

But he also says that the Holacracy helps him evaluate staff members, and define job descriptions. 

“Each person has well-defined roles,” he says.  “We tell someone: this is what you have control over.  These are your accountabilities within that role.  This is what you do.  When you’re evaluating job performance, what you’re really doing is evaluating whether each specific role is being “energized”—that is, handled in a superior manner.  If it is not, instead of firing the employee, you recommend to the group that the specific role be transferred to somebody else who will give it more creative attention.

“When you’re doing a performance evaluation,” Kahler explains, “you don’t have the mess of going into somebody’s job description and trying to figure out, what do you do, anyway?”  The Holacracy process produces what Kahler describes as “job descriptions on steroids.”

Another advantage is Dave Allen’s involvement in helping create the Holacracy software.  Allen is famously the author of “Getting Things Done,” a book about systematically defining goals, then defining tasks, and making sure all of this is committed to writing, so that the people working on accomplishing the goals aren’t distracted by having to keep track of everything in their heads. 

“Holacracy incorporates Getting Things Done,” says Kahler.  “You build right into the software the routine activities, the projects, the next steps, the actions you can request from people, and it’s visible to everybody.”  The project is discussed during the meetings, and everybody can give progress reports on the tasks they’ve been assigned. 

The software also lets you input proposals that you want to run by the circle, either in person or via internal messaging (Kahler uses Slack) if no objections are anticipated.  “It keeps track of everybody’s roles, everybody’s accountabilities, all the policies in the company, the history of all the meetings, how long the meetings lasted, what happened in those meetings, all the notes, all the checklists, all the metrics of the company are in there,” Kahler explains.  “I’ve had people say that Holacracy is almost worth doing because of the software alone.”  (Price: $10 per month per staff member.)

Interestingly, there is a significant downside to the Holacratic management system: not every employee is capable of the degree of self-management that it requires.  Initially, Kahler experienced some turnover as he began demanding that staff members take accountability for their roles, and make decisions.  He estimates that only 20% of potential hires will thrive in a Holacratic organization.

“When we hire now,” says Kahler, “we’re looking for people with high emotional intelligence, people who have some type of self-management system (and we prefer Getting Things Done), and who are familiar with nonviolent communication, because the process requires people to go to another person directly to sort things out.”  Those people are rare, and especially so in a smallish city like Rapid City.  Kahler has been forced to hire people around the country who are able work remotely—and, in the present social distancing environment, those people have been among the most comfortable with the GoToMeeting virtual circle meetings.

Another potential downside is the cost of training staff in the nuances of Holacracy.  “When I first did this,” says Kahler, “I was quoted a cost of $30,000 to get it up and running, and I was like, no, I’ll spend $10,000.  That was probably the biggest mistake I made,” he admits.  “It requires coaching for several years to really internalize and ‘get’ this system.  It’s not something you can read a book and go out and do, any more than you can read about how to play golf, and then go out and golf.”

Kahler says that the internal structure of his firm is always changing, as new circles are added, new people are assigned to manage the circles, as new roles are discovered or introduced, as projects are proposed and tasks are assigned.  “That’s because the firm is evolving,” he says.  “It’s just like a financial plan; it’s outdated the moment you finish it.  It’s a process.”