The Foundations of Holacracy, Liberated Companies and Management 3.0

As Managers, we try to anticipate environments and built organizations that fulfill a certain purpose.  So what happens if we can not predict the environment to a meaningful precision?  And what if on top of that we know that the environment will change again and again, faster and faster anyway? What is the purpose of organizing when what we are optimizing for remains elusive?

Modern Business is the realm of uncertainty: three quarters of the factors on which the success of business depend is based is wrapped in a fog of greater or lesser uncertainty. A sensitive and discriminating judgment is called for; a skilled intelligence to scent out the truth

Do you agree with these two sentences above? Keep them in mind, I will get back to them.

We need to grow a system of management, that is adapting itself to rapid, uncertain changes with greater speed than traditional hierarchical management systems are able to deliver. So let me give you a puzzle:

What is the organizational system best known to man that is able to bring about rapid decisions, timely execution in ever changing, immensely uncertain environments?  

There is such as system. This system has seen never-ending evolutionary refinement. It brought out the absolute best and worst of man. It has shaped nations and created heroes. It is still a part of every society, all around the world.

What is this system?

Foundation 1: Complexity and Autonomy

This system has been shaped in wartime and has is called: The Military Organization.  I stole the blockquote above from Carl von Clausewitz, one of the world’s most influential thinkers on military theory, and just replaced “War” with “Business”:

clausewitz citation.png

Ain’t this ironic? One of mankind’s least idolized organizations, known for its rigidity and inefficiency, its steep multilevel hierarchy is the best organizational type humans came up with to organize in uncertain times. This is difficult to believe. Yet in the life and death situations of war, in a time of great danger, desperation, and need, in cases of maximum uncertainty and change, humankind invented and sharpened, reinvented and sharpened this organization, the Military, again and again. Failure not to evolve the military system meant death to war bands, tribes, and nations.

Yet business is not war. Business is not a life and death struggle as War is. After all, in business, the individual can just quit and do something else. The element of coercion in the military organization makes a stark difference to the fundamentally voluntary nature of businesses, even with all the material needs that need to be satisfied.

Nevertheless, there is a lot to learn about agility from military organizations, e.g.:

  • Napoleons field armies that decentralized into many columns marched divided and strike together in 1802-1815 through superior coordination by multiple staff organizations
  • German “Storm Troops” bringing the French Front Line close to defeat at the end of World War I 1917/1918.  These were basically empowered teams with a clear mission and a lot of autonomy how to carry out their only broadly defined mission
  • German mechanized “Panzer” units devasting all opponents through superior information technology (radio) and decentralized coordination of combined arms in World War II from 1940-1943,  despite inferior numbers and often inferior Tanks
  • American troops fighting in asymmetrical warfare campaigns through a maximum use of empowered teams augmented by real-time information systems in Stanley McChrystals Campaigns in Afghanistan and Iraq from 2003 to 2010 (see his 2015 book “Team of Teams)

The story of the evolvement of military organizations is a story moving towards ever more decentralization, local autonomy, individual empowerment in the face of ever greater complexity and uncertainty.

It is ironic: To stay in control, you need to let go and decentralize control.

And this is highlighting the way for businesses, too: Handling complexity by decentralizing in a fluid environment: Welcome to Liberated Companies, Holacracy and Management 3.0.


Foundation 2: Very little Hierarchy

Military organizations need the hierarchy to achieve the level of coercion of soldiers necessary to make them expose themselves to destructive power. While some businesses rely on coercion by “nondeadly means” aka Jobs and Money- coercion won’t achieve much in settings where…

  • knowledge workers need to be managed. These enjoy, by definition an immense informational advantage over their managers
  • individual and organizational learning and innovation is important
  • motivation of people is necessary to achieve organizational performance

This is why Liberated Companies and Holacracy abolish the traditional hierarchy.

Management 3.0 attitude towards Hierarchy is similar, but it acknowledges hierarchies substantial role in legally authorizing people to do things. Thereby, it connects the business organization to the legal sphere – a very sensible thing to do, won’t you say?


Foundation 3: Servant Leadership

Managers do not produce anything themselves. All they are doing is providing direction and coordination. They are there to ensure that others get things done. Traditionally they do that by assigning jobs and checking that these jobs are done.

The modern three management ideologies discussed in this post rely on Servant Leadership, the notion that a Manager is there to enable others to put in their best performance for the common goal. Servant Leadership has been first described by Robert K. Greenleaf, an American early management theorist, in 1958. It has been since picked up in many styles and flavors like Jim Collins “Level 5 Leadership” in his all time classic book “From Good to Great.”

Each of the three Management Models is based on Servant Leadership, but there are special flavors:

  • Within Liberated Companies, everyone can be a leader, as long as others are willing to follow. Leaders do not coerce others to follow, but they attract them to do so. They are not promoted to be a leader, they are natural leaders at certain times for certain topics, elevated by followers.
  • Holacracy embraces Servant Leadership only implicitly. Indeed, the new Operating Models (i.e. Holacracy)  job is to do away with the role of a Managers for good. Everyone is free to lead within the framework of the “Constitution” (a set of rules) of a Company. As with Liberated companies, Leaders need to attract willing followers – within the checks and balances of the operating system.
  • Management 3.0 recognizes the need for Managers. It wants managers to see their trade as a craft which needs to be honed and perfected every day to achieve excellence. Again, I see this a very sensible demand: Managing (or its elder brother Leadership) requires skill. And skill comes from hours of deliberate practice (see Malcolm Gladwell, “Outliers“)

By the way: I do not care much about distinguishing Management and Leadership. It’s just semantics.

Foundation 3

Foundation 4: A jolly good Metaphor

The leading Metaphors of each model are useful to illustrate their workings. And they are so telling about the values of the authors…

The traditional metaphor for hierarchical organizations is the machine: Specialization, interchangeability of parts, the smooth, predictable relation of In- to Outputs which is easy to control.

For liberated companies, the leading metaphor is the organism: All the liveness, the interdependencies of all parts based on the nervous system and the metabolism, the specializations of organs and the adaptability of the body and mind. Although there is no firm reference to this metaphor in Isaac Getz “Freedom Inc”, that is the metaphor I find most fitting. Plus: This Metaphor is often used in the Agile Software Movement.

This stands in sharp contrast to Holacracies technocratic view of the organization as an Operating System:

  • Messaging Bus & Clock Speed: The flow of information from one individual to another through the organization is organized in meetings of circles with strict timing and rules
  • API – Application Programmable Interfaces: Individual people may have a “link” role in representing their home circle in other circles
  • I/O Units, Periphery, Hard Drives, Screens: All circles in the organization have specialized roles
  • Message types and Interrupts: Organizational problems are defined as “tensions,” like error messages that are to be  logged and resolved through standard ways by the operating system
  • The Operating System must be installed as the whole. There can be no other operating system. Full stop. But once the operating system has been installed, you are free to install additional “Apps” (i.e. other management processes) on top

I think this sounds rather frightening, as it degrades people to programs existing on a computer.

Isn’t a business more like a city? This is the view that Management 3.0 is taking. Very diverse people are living in a city. They all have their own agenda, but the city connects  them into a whole, e.g.

  • Public transports or telecom infrastructure connect people to other people
  • Open Spaces are where people can explore and interconnect to the people
  • Offices, factories, and workspaces let people produce
  • Universities, Libraries, and Schools let people learn
  • Public services for Water, Power, Waste, Security, etc. provide the basic needs
  • There is a mayor taking care of the people, but he can not rule by coercion alone without threatening his prospect of reelection, and he is reined in by the legal system, anyway

Wow: Sim City!


Jurgen Appelo attacks the Organism metaphor by questioning its validity: If people are cells, who has ever heard of a Cell that is able to leave the organism and join another organism? Which cell is able to voluntarily transform itself from a Hair cell into a heart cell (i.e. transfer from one department to another)? In short:

The organism metaphor is not taking into account the amount of freedom people have to decide themselves what and what not to do.

The same can be said for the Machine Metaphor: People are independent actors, with their own minds, beliefs, and motives. They will never be a dumb and passive cog in a machine. They will play the system to their advantage, dummy.

But I disagree with the City metaphor, too. A city is not an as purposeful system as a company is. It is a place to live and exist – everyone according to her tastes. But it is not a very purposeful system, which a company certainly is. A company is threatened by bankruptcy.  A daily fight for survival. A city might go bankrupt, but will not cease to exist: Hej, even Detroit is still (kind of) alive!

So what is my metaphor for an organization? A city under siege by a hostile enemy? That would make a city a more purposeful system, but it’s such a negative way of thinking: To see business as a struggle for life and death is plainly wrong. The struggle is mainly about material wealth and often about psychological health. Business is not War.

I do not know the best metaphor. Do you?

Foundation 4

Foundation 5: Benevolent dictators

NONE of these three Management Systems would work if the person with legal authority over an organization does support it: Someone in an organization must provide shelter for the new system, where Hierarchy takes a back seat and Management takes on a serving and not a ruling perspective.

That someone acts -de-facto- as a benevolent dictator: She has got the power to do as she pleases but chooses to be a servant leader and expects the same patterns of behavior from others in the organization.

Does this make Liberation, Holacracy, and Management 3.0 unstable? After all, the succession of a dictator is often a bloody affair and the successor is free to act as she chooses. So these Management Systems can never be stable: Once the shelter provided by a benevolent dictator is removed, the systems will break down over time. How long that takes is just a function of how deeply engrained the management system is in the culture of the company. How deeply it is engrained into the individual beliefs and behaviors of its people.

But: The Classic Hierarchy has the same instability problem. By Succession or by willingly changing her behavior any leader can break an existing system. So the stability problem is NOT a weakness of these new Management Systems. It is inherent in any organization.

The transfer of power is dangerous. There is no such as thing an organizational model without power. Even in the most basic democratic organizations like Wikipedia or Linux, there are people with more, and there are people with less power: What distinguishes Management Models is not the existence or nonexistence of power. Instead, it is the arrangement of the checks and balances that separate Management Systems.

By the way: I do not care much about distinguishing Management Systems and Organizational Systems. It’s just semantics…

Where to Start?

The benevolent dictator does not need to be the CEO, it can be any middle manager in a strong enough position to organize her part of the organization along these less authoritarian ways.

That’s it for now. More on the intricacies of the “craft of management” in the digital age next time, when I will explore some other dimensions of these modern Management Systems.

I am really interested in your opinions on Management Systems – share them with me and give others – including me – a chance to learn.

Summary Table: The Foundations of Liberated Companies, Holacracy and Management 3.0

Foundations summmary.png

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