As many companies grow, it's common for their owners to structure the company from the top down, handing off some of the decision-making powers to newly appointed managers. For many entrepreneurs, it’s a tough, but necessary, transition.

But there's a new management structure finding fans that may just render top-down hierarchies a thing of the past and give even more responsibility to individual employees. Is your business ready for a "holacracy"?

Breaking New Ground

Zappos is one of the largest and most well-known companies to have begun implementing a holacracy, a new management system that achieves control by distributing, not centralizing, power in any organization.

According to Zappos CEO Tony Hsieh, research shows that every time a city’s population doubles in size, the innovation or productivity per resident increases by 15 percent. Alternately, Hsieh contends that when companies grow, innovation or productivity per employee generally goes down. As a result, he and his team are working to structure Zappos more like a city and less like a corporation.

According to Holacracy.org, a holacracy “enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do. Everyone becomes a leader of their roles and a follower of others', processing tensions with real authority and real responsibility, through dynamic governance and transparent operations.”

For this system to work, a small-business owner first needs to have a purpose-led company whose employees all share a clear sense of direction. Then the business can shift to organizing the work, not the people. Teams, which are called “circles” in a holacracy, are created, and instead of employees having a pre-defined job, they try to fill many roles in many circles within the organization. Each role comes with a list of responsibilities that are assigned to an individual within that circle. These responsibilities are both public and updatable.

Individual Responsibility

According to John Bunch, technical advisor to Hsieh, a holacracy distributes three key attributes among its employees: accountability, authority and leadership. Let's take a look at the differences between each of these qualities in a top-down-structured business versus an organization that follows the system of holacracy:

Accountability. In a traditional top-down organization, a manager is responsible for the performance of his or her team. Employees bear little individual accountability except for what the manager can draw from them. On the other hand, in a holacracy, everyone clearly understands what his or her roles and responsibilities are within the organization—as an individual and as part of a team.

Authority. In a traditional top-down organization, the ultimate authority is the CEO or manager of a group. In a holacracy, all employees make the best decisions they can in order to fulfill their job responsibilities.

Leadership. In a traditional top-down organization, leadership is most often defined as the ability to move a team in the direction you want them to go. The leader is typically the only one who sets the team goal and makes all the critical decisions. In a holacracy, conversely, the leader helps each team member chart a personal course that fulfills his or her role in the organization.

Start Small

Not ready to switch gears completely and run your business as a holacracy? You can take small steps toward that goal by following five of holacracy's core principles:

1. Give everyone a voice. While complete agreement isn't necessary, you can begin to truly listen to your employees as they offer you their points of view. Taking what they say seriously makes them a larger part of the process.

2. Set clear rules that apply to everyone. Set an example for everyone by checking your egos at the door and asking your employees to do the same. Demonstrate firsthand that political game playing has no place at your company.

3. Focus all teams on incremental improvement based on data. Forget about giant leaps forward: Get your teams to constantly evaluate their progress and, as results become apparent, make continual shifts in response.

4. Emphasize action, not analysis. Data is important, but don’t get stuck endlessly reviewing it. Take small, action steps, and immediately evaluate the results to plot your next step.

5. Practice transparency. Show that there's no place to hide in your company and that everyone is held to the same standards.  

A holacracy isn't a management style that can be implemented overnight. There needs to be complete buy-in from everyone for such an arrangement to work. But if you start small, you just may see big progress made in the right direction.

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