Executive summary: empowerment....
But there are many crucial differences.
Disempowerment
Empowerment does not mean that nobody can tell you what to do. It means that authorities match accountabilities -- the "Golden Rule" of organizaitonal design.
In Holacracy, people are disempowered -- not by a boss but by Holacracy's rules and processes.
People may ask for the right to impact another's domain. These requests must be granted unless a legitimate objection is raised.
The leadership team at the next level up ("Super-circle") retains the right to change subordinate Roles, or to create or eliminate sub-groups. And if any group breaks the rules, there's a defined procedure for superiors to take the group over (not demand that its manager perform). Once the problem is fixed, the group is then given back its autonomy.
Even people's daily time management is prescribed by the Holacracy Constitution. Generally, staff must process others' messages before doing their own work, and they must attend meetings before doing their own work.
Disempowered Managers
Managers, termed "Lead Links," are especially disempowered.
The role of Lead Link is a bit different from managers in conventional structures. They can recruit staff; allocate resources; establish priorities and strategies; define metrics; and resolve issues that get in the way. But they don't control staff's time; people take on multiple Roles (in multiple groups) and decide their own priorities.
Furthermore, organizational decisions within a group are made by the Core Circle (the leadership team), not by the Lead Link (manager) alone.
Thus, a Lead Link is accountable for the performance of the group, but he/she doesn't have the authority to control its resources (staff's time). Here's an example:
Tony Hsieh, CEO of Zappos, wanted someone to implement a time-reporting system so that everyone could see how others are allocating their time. No one volunteered. So Hsieh asked an employee if he would do it. He declined, saying he was too busy. Hsieh pushed until he relented. The only way Hsieh could get the project done was by overriding Holacracy.
Managers are further disempowered when they share with others the job of representing the group at the level above ("Rep Links").
Similarly, Cross Links give other groups some degree of authority over a group's structure. But that doesn't make them accountable for the group's performance. This, too, disempowers the manager (and the group).
Here's a sad case example of the disempowerment of management.
At a small education company, Betsy had always been a problem. She was emotional, angry, and difficult to talk to. She verbally punished people for disagreeing with her. She turned business debates into personal animosities. She aired differences in public, and rallied allies to help her fight with her peers. She blamed any attempts to address her problems on sexism.
Most of the women in the Circle would not support firing her (a team decision in Holocracy); they saw her as a voice for diversity. And Betsy rejected any overture to discuss her problems.
Betsy turned the group against Larry, the group's "Lead Link," using the term for manager derived from Holacracy's anti-authority ethos. Her negative role model and behaviors affected the whole team; morale plummeted.
In this Holacracy, Larry was held responsible for the group's performance. But there was nothing he could do to manage Betsy.
Betsy ultimately moved on to another group, and caused the same turmoil there. But for Larry, the damage was done. This talented young leader was forced out of the company.
Holacracy advocates proudly proclaim that it "removes power from a management hierarchy." But with or without official bosses, the work of supervisors still needs to get done somehow. Or if it doesn't, things fail.
No Science of Structure
Although a "Governance Process" is defined in detail, Holacracy doesn't offer insight on how best to define structure. There are no guidelines for structural decisions (nothing akin to the other Principles). And there's no conceptual framework for defining domains (nothing akin to the Building Blocks).
There's no guarantee that the organization will cultivate expertise in all the specialties it needs, so gaps occur.
And groups may be defined in ways that create overlaps (Principle 3) or reduce specialization (Principle 4).
It doesn't preclude conflicts of interests (Principle 5).
And with specialties scattered among groups, professional synergies are lost (Principle 6).
Doesn't Encourage Specialization
Employees don't have a "home group" which defines their specialty. They can accept multiple Roles in multiple groups based on their interests, drifting from group to group, from specialty to specialty. This leads people to become generalists (Principle 2).
But specialization is the key to performance. Specialists deliver better, productivity (lower costs), speed (learning curve, methods), quality (usability, capability, maintainability, life-cycle costs, and reliability (reliable delivery). Furthermore, confidence in one's competence reduces stress and is motivational. Holacracy encourages none of the above.
The lack of specialization undermines innovation as well as performance. At Zappos, so far people can't cite any innovations that have improved customer service or increased sales.
Not Based on Business Within a Business
Perhaps most profoundly, there's no guarantee that jobs will be defined as businesses within a business (Principle 7). Roles (groups) are defined by any combination of their purpose (function), "domain" (what it owns and controls), and/or accountabilities (defined as activities, not products and services).
Since groups aren't defined as internal lines of business, no entrepreneur is accountable for offering a comprehensive, innovative catalog of services. No one is accountable for ensuring that internal services are delivered at competitive costs. And no one is accountable for planning the future of each business within a business.
The lack of entrepreneurial thinking leaves an organization adrift, and puts its future at risk.
Lack of Performance Management
Holacracy leaves unclear who has the authority to hire people into the organization, decide compensation, evaluate performance, and discipline (or fire) people.
People act is independent agents, moving fluidly among Roles in various Circles. The Roles have a boss; people do not.
So no one has the authority to deal with performance problems. A Lead Link (manager) can fire someone from a Role; but not from the company. And the more people spread themselves among groups, the harder it is to appraise their performance.
Thus, people aren't held accountable for delivering their commitments, or for their productivity, quality, effectiveness, or innovation. There's significant risk in expecting everybody to perform well without oversight, just because they're "empowered."
Another perverse effect of the lack of performance management is that people who are good at studying the rules and playing the game succeed; while better performers and perhaps the more creative souls are lost in the chaos.
Compensation Is Not Based on Performance
Holacracy also makes compensation decisions more difficult, since there are no job descriptions or performance metrics.
Holacracy users are forced to invent new compensation schemes. For example, at Zappos, a "badge" system pays employees more for moving into different Roles and gaining competencies in other professions, or in the theory of Holacracy. The system is not based on contributions, and seems to encourage dabbling in many things rather than specializing in one.
Weak Cross-functional Teamwork
Holacracy does not define mechanisms of cross-boundary teamwork. Instead, each Role is expected to be self-sufficient. It must recruit staff with all the specialties it needs. Holacracy forms a new Role to address every new initiative and every new skills requirement.
Another obstacle to teamwork is that when colleagues ask for help, everybody has the right to accept the task or decline it (with a reason or an alternative).
Thus, it's difficult to coordinate the delivery of large projects, for example, major strategic initiatives which engage many functions and people throughout an enterprise.
Its Own Form of Bureaucracy
If you're getting the feeling that Holacracy contains a miasma of rules and jargon, you're right! It's fraught with complex jargon, and time-consuming procedures and meetings.
Although it purports to eliminate bureaucracy, Holacracy devotes a great deal of people's time to building consensus on every governance and operational issue.
Getting the job done takes a back seat to all these procedures. Everyone is accountable for improving the way they do their work (resolving "Tensions"); defining projects and "Next-Actions" (tasks); tracking their own work (and making status available to all); and actually doing the work, as time permits -- in that order.
The structure is in constant flux. Each new challenge may require a structural change. And everybody in the enterprise is expected to keep up with all those changes.
Holacracy may support flexible reassignment of talent among teams, but at a cost of significant amounts of everybody's time spent on organizational issues (some say more than half a day each week per person).
Alternative
Many of the values at the core of Holacracy are embodied in the Principles -- empowerment, entrepreneurship, clear roles and boundaries, and participative decision making.
But Holacracy makes a critical error: It confuses groups in a structure with cross-boundary teams. This is why each new initiative requires a reorganization.
A better answer is found in a principle-based organizational structure.
In a business-within-a-business organization, people are truly empowered, with authorities that match their accountabilities.
Everybody has a stable home that allows them to specialize -- the very reason organizations exist. Then, overlaying the organization chart, a team-formation process (walk-throughs) draws talent from these groups, bringing together just the right people for each unique project and service.
This team-forming process defines clear individual accountabilities for well-defined results -- hard commitments for deliverables, not simply assigning people to teams or, as in Holacracy, requesting people's best efforts. And it provides a clear chain of command within each team, which facilitates team decision making.
With effective teamwork, there's no need for reorganizations every time a new project arises, or when groups need help from other specialists. The organization is both stable and dynamic.
A well-designed organization has none of the ills that Holacracy rails against, and delivers all the benefits (and many more).
