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Shadow Organizations

The Serendipity of a Highly Standardized Management Fashion 

  • Stefan Kühl
  • Thursday, 4. April 2024

There is broad interest in organizational concepts because they successfully establish themselves as management fashions, which are widely shared ideas about how companies, administrations, hospitals, universities, schools, armies, police forces, or associations can be better organized. They address the widespread need in organizations to remedy perceived deficits and to tap previously unused opportunities for improvement. In this context, management fashions suggest that the introduction of new design principles can increase adaptability, performance and innovation (see ​P. P. Carson et al. 2000, 1143f.​).  

The term “fashion” implies that organizations are “infected” by the concept currently in vogue. Similar to clothing fashions, there are also pioneers in organizational fashions, which are then followed by many others (see ​Aspers 2005​). It is impossible to know who the pioneering fashionista is, but as soon as one emerges, more and more people follow his or her lead. A process of “social contagion” takes place from which it is increasingly difficult to escape. At some point, the social pressure is so strong that you have to justify why you are not (depending on the current fad) lean, digital or agile. 

When a new management fashion surges up in the business press, management journals, and executive conferences, many organizations often have no choice but to adapt to these management fads in some way (on so-called “isomorphism,” see ​DiMaggio and W. W. Powell 1983​). We know from organizational research that the survival of many organizations is not solely influenced by their capabilities in producing products, delivering services, or teaching pupils or students, but depends significantly on their legitimacy in their relevant environment (see the classic ​J. W. Meyer and Rowan 1977​). In this respect, it makes sense for organizations not only to commit to generally accepted values such as environmental protection, human rights, diversity, or gender equality, but also to position themselves as innovative and flexible organizations (see in detail ​J. W. Meyer 1992​). Adaptation to current management fashions, even if merely verbal in nature, plays an important role here.  

In many cases, symbolic measures on the display side of organizations can satisfy environmental requirements. The communications department sets up a new mission statement process, the human resources development department purchases new training, and the quality assurance department adjusts its observation grids. Certainly, such measures do not pass the organization by without leaving a trace, but in the rarest of cases there are immediate effects in the form of fundamentally changed formal expectations. The display side of the organization, which serves to produce legitimacy, and the formal side remain largely decoupled (on this concept, see ​Kühl 2013, 132​).  

This form of decoupling of the display and formal sides, which is common for management fashions, does not actually take place in holacratic organizations. The attempt to patent the concept of holacracy aims not only to monetize the concept comprehensively, but also to fix the formal framework for the applying organizations.1 The principles set by a holacratic constitution are so strongly fixed that any change is immediately codified as a formal expectation. This process is intensified by the fact that the holacratic governance software leaves little room for deviation in the formal structure. Holacratic organizations—unlike many other organizations that adapt to management fashions—do not primarily change their external appearance, but they do change their formal structure in particular. 

The introduction of holacratic structures is intended, at least, to lead all employees to speak the “same language.” Going further, the vision anticipates that by adopting holacracy, large corporations, innovative startups, and small businesses would have a common ground of understanding through which they could share ideas, exchange talent, and innovate (at least, that is the vision for a network of companies in Las Vegas where holacracy has been introduced; see ​Groth 2018b, 69​). It takes a certain tolerance for frustration to understand the complex principles of holacracy. Once you understand them, however, you can easily move from one holacratic organization to the next. 

For organizational researchers, the high degree of formal standardization of holacratic organizations is a stroke of luck. Studies of new organizational forms suffer from the fact that hardly any organization is like another. Sometimes the implementation of supposedly revolutionary management principles are merely minor efforts in a few departments, largely isolated from the rest of the organization. Occasionally, organizations see themselves as agile pioneers simply by eliminating one or two levels of hierarchy and setting up a few cross-departmental project teams without changing anything in the basic principles of their own organization. Identifying the common characteristics of organizations that advertise themselves as pioneers is often like trying to nail a pudding to the wall.2 

This problem does not come up in holacratic organizations. Holacratic organizations all function according to a precisely defined blueprint, which makes structural effects in various holacratic organizations very similar. Within the holacratic principles, organizations can permanently change the configuration of roles or circles; but deviations from individual holacratic principles require changing the constitution—then valid for all holacratic organizations—and subsequent adaptation of the control software. To exaggerate: If you know one holacratic organization, you know them all. 

From an organizational science perspective, holacracy can be understood as a grand “experiment” in which generalizing statements become possible through the introduction of a highly standardized management concept in various organizations (such as ​Hodge 2015​; ​Groth 2018b, 68f.​). Given the high degree of standardization, the setting resembles classic social psychological experiments such as the Milgram experiment, which tested organizational members’ willingness to follow instructions (​Milgram 1974​); the Stanford Prison Experiment, which demonstrated the effect of role assignment on violent behavior (​Zimbardo 2007​); or the Robber Cave Experiment, which demonstrated how easily conflict can arise between groups (​M. Sherif et al. 1988​). While members of holacratic organizations can only choose to participate in the experiment to a limited extent, it is a unique opportunity for organizational scholars because the effects of hyperformalization can be observed very closely in these highly similar organizations. 

Prof. Stefan Kühl

links in his observations the latest results from research with the current challenges of the corporate world.

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