Undermining Hierarchy? The Future of Organisational Structure

In 1994 it became apparent that the world-wide web would remove salespeople from the process of transaction. If the way we do business was being redesigned, then the idea of management also needed to be revisited. Today, experiments in Holacracy, Wirearchy and others are starting to point the way to the future.

The 1994 digital revolution meant the opportunity to reimagine the way that commerce worked. This would mean the removal of the barriers between consumers, their choices and their actions. Digital in effect ‘innovated out’ layers of job functions. There was a quick realisation that in order to survive continuous innovation, the top-down, command-and-control model had to be thrown away and a new one devised.

Traditional business peered over the edge of the precipice and backed off. But for some the realisation that a clean sweep was possible was exhilarating. To be able to do away with hierarchy, which inherently holds back progress, and find a new way fit for a vast unknown future felt like liberation.

Digital companies found themselves operating in a completely uncharted paradigm. In the Cyberspace environment old conventions frequently revealed themselves to be gloriously redundant. It was liberating to be able to have no rules. A few web evangelists, multimedia artists and cyberpunks with cow-pattern suits and electric blue hairdos started to make money selling the virtual world to hip brands wanting to surf the edge.

Some of the digital firms that sprung from the primordial bitsoup reflected a rebellion against the corporate. Many of these were formed without any traditional management. They forswore hierarchy and leveraged creativity and technological innovation to uncover entirely unconventional opportunities. This flat, anarchic model actually worked well to a point. Everyone was included in decisions and the best ideas in team meetings coming from the receptionist, a visiting business parter, or magicked out of nowhere after a weekend of repainting or lego-ing the office. (At Head New Media, then the world’s most awarded digital agency, the sysadmin became its head of planning literally overnight, and clients Unilever and Mars didn’t blink.)

Despite the novel freedoms, there were a few pragmatic constraints. The lack of traditional management expertise made firms start to creak at around 25 people. The industry consensus was that pods of twelve were optimum – at double that, ‘management’ not just entrepreneurialism was also required. Very few firms were able to remain truly flat at scale, and attrition in the guise of frenetic M&A activity and the Dotcom Bubble provided near-fatal setbacks to the form.

A little later, the reins of the flat/no rules experiment were taken up by the post-bubble tech firms and then the app movement. Again all small companies despite the sometimes vast revenues. Firms that did scale into the hundreds or thousands of employees devolved quickly into traditional and uncontroversial hierarchy, which had the effect of reassuring shareholders and creating stability following rapid growth.

To those that remained committed to innovation-oriented, fast-moving, unconstrained organisation, hierarchical management was viewed cynically as a matrix designed to slow career progression, formalise pay disparity and constrain responsibility. With contact limited to one person upwards and six people downwards, it limits the numbers anyone has to manage. This renders almost everyone else invisible, a depersonalised commodity, boon or irritant. The pyramid structure cascades with a diminishing demand for trained skills and a general dismissal of aptitudes or insight.

As a suppression mechanism, maintaining large numbers of unskilled, uneducated masses controlled by privileged and logarithmically fewer managers, it works well. But only when everybody knows precisely what they have to deliver upwards and require downwards. Its problem is that once the boundaries of these deliverables and requirements have been prescribed, there is little room left for creativity or adaptability (say in the face of new technology or patterns of consumption). A successful individual’s contribution is rewarded by a slightly quicker climb up the hierarchy than her peers. And contribution is almost exclusively measured against the yardstick of the prescribed deliverables and requirements. It is an entirely inertial system: there isn’t any intrinsic way to bypass the hierarchy to respond to sudden change.

For production industries that need to be around for scores of years it’s probably ideal. But the world has changed, the pace of change itself has changed, and these industries are being innovated out. Large organisations face the real possibility of disintegration unless they can find a way to restructure themselves around instability rather than stability. Likewise, small, flat companies no longer necessarily want to ‘grow up’ to be hierarchies pinned to a moment in time receding in the face of rapid innovations.

Holacracy as an alternative organisational structure

So what’s the alternative? For the past few years, Holacracy has been touted as the grand new experiment, seeking to establish a working non-hierarchical organisational convention, and to demonstrate that it can lead to genuine commercial success.

So how does Holacracy compare to hierarchy? In brief, it divides the functions of a business (say marketing, accountancy, widget production) into working groups (Circles). These report to all the other functional working groups that have a need to know or may be impacted by what they are doing.

The system is heavily circumscribed by rules. There is a written constitution and formal descriptions of precisely how meetings are to be run, who can say what, and how Circles (and sub-circles) report to each other and service each other’s needs. Within the bounds of the Constitution and Circles it offers complete freedom for teams to solve issues and find innovative ways to further the corporation’s goals. No top-down instruction or approval, just collaborative problem solving and commitment to effectiveness.

This enables individual people within a Circle to play to their specific strengths. And this is a key idea: the structure of Holacracy recognises that each person is good at some things and not so good at others. In a traditional hierarchy a person fulfils a job role and is hired on the basis of their ability to more or less completely fill the spec. In turn that relies on an educational system which prepares people to adequately fill the slot designed, say, for the square peg. In an Holacracy, while there are clearly-defined and required roles in a circle, any given role may actually be best filled by a combination of people. The role is a defined function within the organisation, but the role may be delivered by one or many separate individuals playing to their respective strengths. Think role as a pie chart.

This is a radically different perspective on organisation. Tools like Belbin and Strengthsfinders are already used extensively for optimising team construction. In the Holacratic context they no longer simply point out which trait gaps we might need to fill to optimally balance a team. They can be used to identify the requirements for a role, and suggest which combination of people can meet them, even if that means a person’s time is only needed for a specific function of that role.  Doing only the 80% of a role that suits one person’s aptitudes is fine, provided someone else with the required aptitude and available capacity can fill the missing 20%. It avoids people doing things they aren’t suited to, which means that less work is done badly or detrimentally to the whole.

The idea that a role is in itself independent of the people who might fulfil it has fantastic implications. As long as every role is satisfied, and the team has all the aptitudes and skills to fulfil every role, not only will everything be done optimally but everyone will be doing those things they are best at. In theory this can only lead to higher engagement, higher productivity and greater commercial success. Through the example of Zappos we know that Holacracy can be introduced to a traditional organisation and to be made to work at reasonable scale (2,000 employees). Yet there are still huge hurdles to face. Challenges to the experiment include the chafing of highly prescriptive rules, how to remunerate people (no hierarchy!), and the lack of Holacratic competitors for job mobility.

Wirearchy and the future

At the other extreme is Wirearchy. Jon Husband came up with the system, based around four focal points, in 1999: “a dynamic two-way flow of power and authority based on knowledgetrustcredibility and a focus on results, enabled by interconnected people and technology.” It feels like the sort of order that happens in an enlightened cooperative where there is an assumption of intelligent maturity. It requires respect, temperance and contemplative self-discipline, or at least enlightened self-interest. But because we are all human and prone to mood, influence and accident, I suspect that it can probably only really work either in combination with some other system of organisation, and tangible examples at scale are hard to find.

A consultancy focusing on the future of work, Ethos has applied Wirearchy-like values with the addition of ‘moderation’ as one of its core tenets. Perhaps using an open rating system to report against the four focal points of Wirearchy might provide a technology-enabled means of moderation for large organisations.

In a society, moderation is provided by culture, and culture by education. Patrick Lencioni’s Four Obsessions of the Exceptional Executive offered the stand-out observation that a corporation really only requires two things: a crystal-clear vision; and organisation-wide coaching to support its realisation. Tony Llewellyn’s Performance Coaching for Complex Projects looked at how to manage Agile teams and suggested that coaching and training need to be bottom up, not top down. Perhaps this is the missing link in Wirearchy, the gel, where pervasive coaching provides culture, clarity and direction.

Organisations do, in my view, need some framing structure. They need to be able to deliver what they sell in response to customers who ask for it (after all to paraphrase Steve Denning, a business should exist only to find customers). That requires process, continuous improvement and the ability to rapidly innovate. Every organisation requires roles to be performed, but the gift of Holacracy is that a given role does not equal a given person. In this way skills and aptitudes across several people can be leveraged to maximise personal as well as organisational effectiveness.

Every organisation needs leadership to set vision, direction and motivation, as well as structural liberty to cater to people’s talents, personal needs, creativity, newly-discovered passions, introverted brilliance or electric blue hair. And it needs its people to be liberated through great coaching to think and behave at their best, so the organisation can successfully serve its customers.

It remains to be seen whether something that can work at scale will emerge from this new wave of experimentation in organisational structure. It may require a revolution in education, so that we no longer produce square pegs but collaborative, creative participants. Disruptive post-digital thinking is fostering discussion, success and excitement. No matter how it turns out, hierarchy is being subverted and no matter what eventually emerges it can only, in this post-inertia age, be a good thing.

I am indebted to Marc CanterJon HusbandTony LlewellynKatz KielyEuan Semple, Michael Nutley and Rob Pye for the conversations that led to this article.