Holocracy Business Style: Case Study of Contect

Executive Summary

Contect is a global construction company that is in the midst of deciding whether or not to adopt a holacracy business style, which lets everyone be their own bosses and gives them more responsibilities. The CFO, Derek is unsure if he wants to move the company in this direction. The CEO, Rogier, believes this would be the best move for the company overall to keep expanding. The two co-workers and long-time friends are experiencing conflict that needs to be addressed and resolved for the betterment of the company. The alternatives we believe that will best help this company come to a peaceful resolution are: developing a leadership style of management, creating an atmosphere that is motivating to employees, eliminating subgrouping, developing shared knowledge, and effectively utilizing conflict resolution styles. We have decided that there are many pros and cons when moving towards decentralizing Contect, but overall the reward outweighs the risk. Our action plan for this issue is to slowly implement holacracy into one or two branches of Contect and see how that pans out. Although, Rogier wants things to happen immediately, we believe the company should take more time to investigate the idea of decentralization and make the move gradual rather than sudden.

Introduction

Contect is a global construction company based out of Eindhoven. Contect has 200 offices located all around the world. It is owned and operated by two friends: the CFO Derek and the CEO Rogier. Derek and Rogier have been friends for much longer then Contect has been around. They became friends at a university, and never lost touch. Derek pursued a career in banking, and Rogier founded Contect. Then, Rogier went through a brutal divorce, and Derek was there to keep him anchored. Rogier asked Derek to join Contect, and they have been business partners ever since. However, Derek and Rogier are not seeing eye-to-eye on a controversial topic. Rogier wants to move to a more decentralized system, but Derek thinks that the subsidiaries already have too much power. Derek is avoiding the idea of allowing the company to move to a more holacratic system of decision making. On the other hand, Rogier thinks that Contect will thrive if the employees at the 200 locations can be self-governed, or “be their own bosses.” If this happened, that would mean that large decisions would not need to be cleared at the headquarters. This also means that it would take some pressure off Derek and Rogier so that they could put their attention and efforts into developing and expanding Contect. Then, Vera, a member of the company board, contacts Derek to talk to him about the idea of holacracy. Contect faced a large scandal in Russia soon after Vera came on board with the company, and she helps create a stronger audit system. Vera and Derek worked closely together to create a centralized risk management system. Therefore, Vera doesn’t think that the idea of decentralization is a good idea for Contect due to the scandal. Lastly, Henning, another Contect board member, stops into Derek’s office to discuss the idea of holacracy. Henning’s view is that Contect will not be able to thrive and grow if power stays centralized. Henning is in favor of greater freedom and increasing autonomy. In sum, Contect’s board members need to choose whether they are going to be a centralized or decentralized company going forward.

The Problem Statement

One of the major problems we identified in this case was revolved around leadership. Derek is focused on controlling the operation in order to protect the company. He believes holacracy gives the subsidiaries too much power and this puts Contect at a huge risk. This is understandable from Derek’s point of view because of the scandal in Russia, there was a break in trust with the subsidiaries. On the other hand, Rogier is inspiring a vison with the decentralization initiative. He believes that the new initiative is the, “key to boosting engagement and performance” (Roelofsen and Yue, 2017, p.151) by motivating through independence. Rogier also wants the subsidiaries to be just as entrepreneurial as he is and by decentralizing the company this would give the subsidiaries the flexibility to do so. Additionally, there seems to be a motivation issue because of the Russia scandal. For two years, the subsidiaries had recorded revenue from a project that was never constructed. Derek and Vera, the head of the audit committee, believe the solution to the problem is to strengthen the system that is already in place and take back control at the top of the company. Whereas, Rogier and Henning, the leader of the company’s largest country group, believe that you can’t punish everyone, “because of one bad apple” (Roelofsen and Yue, 2017, p.153). Currently, there does not seem to be enough motivation for the subsidiaries to get the job done right and Rogier is looking to foster intrinsic motivation through job enrichment. This means giving the employee responsibilities of the manager in order to gain satisfaction. Furthermore, the management team is struggling with their team decision making skills. For instance, Rogier aligned directors to take his side right off the bat while also aligning the opposing team, Derek and Vera. This causes the issue of subgroups within the team and leads to segregated communication and information sharing. When Vera hears of the decentralization initiative, she quickly reaches out to Derek to discuss why the initiative is a bad move for the company. Although Rogier hopes that Derek will level out Vera, Vera only pushes Derek to, “be tougher” with Rogier and not let Derek’s, “personal relationship cloud his judgement”(Roelofsen and Yue, 2017, p.153). Along with subgroups the team has experienced a coordination loss through team mental model. Key members of Contect do not have shared knowledge and understanding of their environment.  Derek and Vera are wanting to stay consistent with the current policies because the company is doing very well, growth wise. However, Rogier and Henning think the holacracy initiative will make Contect more efficient and thereby book more revenue. Rogier is looking through the employee’s point of view and sees that, “people want to be their own bosses” (Roelofsen and Yue, 2017, p.151) and by doing so those people will want to stay with the company. The other half of the team is more focused on management and how giving the subsidiaries more power means the leadership team loses control at the local level. These opposing views make it a struggle to use team mental model effectively and synchronize views with other team members. Finally, this team is experiencing process conflict in management and they are not utilizing conflict resolution styles as they should. Derek and Rogier have had a long history of friendship and have always respected each other when it came to business, so the conflict lies solely in whether to implement the holacracy initiative. The disagreement over putting this procedure in place has led to process conflict between team members. Moreover, the team is struggling with process conflict because there is not enough clarity in who makes the final decision. It seems that Rogier is the top dog and should make the final call but there are many other people to consider such as Derek and the board members. The conflicting ideas make it difficult for one person to make a final decision and this ultimately leads to a dysfunctional team. Fortunately, the team is in the storming stage of this decentralization debate and there should be some conflict and disagreement between team members. However, without properly utilizing conflict resolution styles it will be difficult to move forward to the norming stage of team development.

Developing Alternatives

Leaders trump managers in most organizations, and this is the central issue at Contect. Rogier thinks like a leader, whereas Derek thinks like a manager. There needs to be a break through to resolve the decentralization debate. To resolve this issue, Rogier not only needs to think like a leader but he needs to act like a leader. According to Scandura (2018), “Leadership is the process of influencing others to understand and agree about what needs to be done and how to do it … to accomplish shared objectives”. In this case, Rogier has inspired a vision for the company but he has yet to communicate with Derek and the rest of the team about what exactly needs to be done and how Contect is going to be successful with holacracy. On the other side of this debate, Derek needs to learn how to adapt to situational demands through managerial leadership. Derek is too caught up in the risks of decentralization that he is not looking at the greater benefit that it can bring. Rogier and Derek should evaluate their management style and realize that being a leader is the best way to motivate their employees. Along with leadership from management, employees are motivated through factors such as specific goals, recognition, and incentives. Rogier and Derek need to make changes in order to avoid another Russia scandal. Therefore, decentralization would be a good idea to get employees motived but there needs to be a clear plan on how to accomplish this goal. Also, by giving more managerial responsibilities to the subsidiaries they will recognize that management has faith in their capabilities. In the same way, decentralization can motivate subsidiaries through intrinsic rewards. By leaving more responsibilities to the local level there is greater potential that the employees will identify with the job and therefore experience meaningfulness of work. Rogier and Derek should consider moving forward with the decentralization initiative because it enriches the subsidiaries jobs and therefore gives them greater motivation and satisfaction of their work. When focusing more on the upper level management team, factors such as subgrouping have affected the team processes. The focus of this team is Rogier and Derek which becomes an issue very quickly because the team is too small. Team members tend to be the most satisfied when their teams have four to five members. Another composition issue arises because Rogier and Derek are homogenous. The two of them met in college and both come from a business background, with Derek in finance and Rogier founding Contect. If the team were heterogeneous, they would be more effective because it is a complex task that demands creativity. The formation of subgroups does not seem to arise because the team is too large, but because members of the team are purposely forming with others to sway the direction of the issue at hand. It would be best for Derek and Rogier to meet with the board and work as a team in order to resolve the holacracy debate. Another factor affecting team processes is a coordination loss through team mental model. To overcome this loss the first step would be to gather up a team that can work together effectively, as described above. The team will then need to put forth effort to discussing the pros and cons of decentralization and work to synchronize ideas with each other. An important piece of team mental model is developing a shared knowledge with team members. Rogier has the most knowledge of holacracy because he attended the executive training course in Las Vegas, but Derek and the rest of the team did not receive that same knowledge. It would be vital in developing team mental model to either share this knowledge with the rest of the team or, better yet, take the team on a similar training course so they can experience it firsthand. Once team mental model is reached it will make the team decision making much more effective. Lastly, the team’s process conflict can be resolved by effectively utilizing conflict resolution styles. The most successful resolution style in this case would be integrating/collaborating which involves a high level of concern for yourself and others. This style is best because the time restraint is of low importance and the issue is highly important. This decision will have such a large impact on Contect that it should be given the time necessary to come to a conclusion that benefits the majority. The issue of decentralization is of high importance because it can make or break the company and the relationships between coworkers is also important in operating a successful business. Therefore, once the team collaborates, they will be able to move from the storming stage to the norming stage of decision making.

Action Plan

Contect is faced with an extremely difficult choice when looking at their future and the direction they want their company to follow. When debating whether to implement holacracy within the different branches across the world the decision falls on risk versus reward. The organization’s board is split on the idea of decentralization among the teams especially because of the illegal, fraudulent activity operating in Russia that cost the company millions. However, as bad as this mishap was for the company, they were still able to operate in other countries and continued to pull in revenue as Rogier stated at the employee meeting. After looking deeper into decentralization versus centralization and determining what plan of action is most efficient, we have come to understand that there are pros and cons to both sides. When considering successfully implementing decentralization there are huge benefits. As Rogier stated, decentralization would allow himself to focus on meaningful business transactions that require his attention and he could hand off smaller contracts to other reliable associates. Rogier continues to add that having more independence throughout individual groups would raise the level of motivation and reliability. This could be a great change in culture for the company, teams would be more motivated and willing to do their work which could open more opportunities to expand the organization. Zappos is a great example of a company who has had success with implementing holacracy. Zappos introduced decentralization slowly beginning in 2013 with about 1500 employees. They were able to turn job positions in roles and dismantle office politics by being transparent. The success with Zappos makes decentralization look like a fantastic idea but it is important to note that Contect is a much larger company and it will take more time and resources to be successful with holacracy. Finally, for the action plan, Contect should consider making holacracy a slow, gradual transition to a few locations to start. Not everything has to be done as fast as Rogier wants it too, and holacracy does not need to be implemented to every location at one time. Even though they have been a company since 2000 and have many projects under their belt, jumping into decentralizing all over the world could prove troublesome. Since Rogier explained during the employee meeting that revenue and order intake is up and rising, this should show everyone that the course of action they are currently on is indeed working. Because Contect is thriving, this may be a good opportunity for the company to consider and adopt decentralization. The company should continue with their current plan, and over time start to evolve with the new idea of holacracy. With Contect being a global company, it would be best to start with one country and see how it plays out and if it proves successful then they should implement holacracy in other countries too. This has great potential to transform into the new norm of the organization. To help support our decision of integrating holacracy for Contect, we had an interview with Jeff Jorgenson, who is the owner of Jorgenson Homes, Inc. He supported our opinion of holacracy in this situation. He said that many current construction companies run on the concept of holacracy, and the idea of moving to holacracy for Contect would eliminate the company chaos by allowing the company to run more smoothly. Holacracy also gives the employees more meaning to be involved in the company and people like to make their own decisions to feel a part of something.

Conclusion

To conclude, with everything we have learned between Derek, Rogier, Henning, and Vera, it can be assumed that Contect will stick with centralized management until Derek and Rogier resolve their conflict. However, once this conflict is resolved there needs to be change within the organization to increase employee satisfaction. We think that it would be best for the organization to gradually implement holacracy. It is a big change and needs to be thought out thoroughly and implemented slowly through each branch of the company. It has been shown that with decentralization there are risks, but there is also potential for huge rewards such as employee motivation and job satisfaction. If holacracy is only implemented at two locations for the time being to do a “trial run”, Derek and Rogier can determine whether decentralization is going to be a good fit for the company. If Contect decides to stay centralized and make no changes it may instill a lack of employee motivation and employee scandal will therefore be inevitable.

Appendix

Interview with Jeff Jorgenson What are some problems you believe is Contect having?

• leadership issue
• Trust issues
• CEO/friendship conflict

Do you believe Holacracy (decentralization) is the best decision for this company?

• Company chaos, go through main office, time is money in construction, no time to delay and make decisions and need people in the area to run the place.

Do you believe decentralizing the company will increase employee’s satisfaction?

• Yes, most want to be a part of something and feel appreciating. Getting rewarded by making their own decisions.

References

• Jorgenson, Jeff. “Jorgenson Homes Inc. Owner Interview.” 13 Nov. 2018.
• Roelofsen, E., & Yue, T. (2017). Case Study: Is Holacracy for Us? Boston, MA: Harvard Business School Publishing
• Scandura, T.A. (2018). Essentials of Organizational Behavior: An Evidence-Based Approach. Newberry Park, California: SAGE publications.