The Zappos Case Study

The Case Study of Zappos

The following is a case study of Zappos, an Amazon subsidiary and online shoe shop. One of the largest businesses to implement holacracy in their organizational structure is Zappos. The consequences of implementing this organizational behavior have been inconsistent, with some employees preferring the outcomes while others were discouraged and bewildered by the idea to the point of quitting their positions when the system was implemented. The organizational principles of holocracy and how they are used at Zappos will be covered in this essay. The implementation of holacracy has exposed some challenges that are inherent in the structure, challenges which involve augmented bureaucracy, confusion and an extra workload. Zappos would is better niched through adopting the general idea of Teal organization of which holacracy is a subset and which is less inflexible with regards to its flexibility.

Zappos Case Study

There was an emergence of specialization and division of labor during the Industrial Revolution. Around the same time, it led to new kinds of human organizations. Inquiries into how individuals act in organizations uncovered that there exist hard and soft sides to organizational performance and the quality of organizational production is reliant on the quality of the staff and the level of utilization. Organizational behavior studies how people relate to groups to create more efficient business organizations. The main tenet behind the study of organizational behavior is that a scientific perspective can be applied when managing staff. Organizational behavior theories can be utilized for human resource purposes to make the most of the individual members of the group. There are various philosophies and models of organizational behavior which focus on increasing job satisfaction, augmenting job performance, encouraging leadership and promoting innovation. So as to realize the desired results, managers may take up varying tactics which may include the modification of compensation structures, reorganization of groups and changing performance evaluation. Holacracy as an organizational behavior theory refers to a system that advocates for self-management in organizations. The system substitutes the conventional management hierarchy with a new peer-to-peer operational model which distributes authority. Zappos, an online shoe retailer, applied this system and had mixed results. Zappos’ case will be studied, and the results of the adoption of the system will be demonstrated. Recommendations on the way forward will then be offered.

Background

Zappos.com is an online shoe retailer established in 1999 by Nick Swinmurn and headed by CEO Tony Hsieh. Zappos shunned the top down hierarchal management choosing instead to adopt a peer-to-peer operational model where authority is distributed among its workers, a system known as holacracy. Despite this system creating an inclusive work culture where decisions are made collectively, and employee’s motivation is through peer pressure rather than micromanagement, holacracy has proven to be rigid, overly complex while taking a long time to implement.

Issues and Problems

This case study examines the results of the adoption of the holocracy organizational structure in Zappos, an online shoe retailer. Zappos adopted holacracy to counter the push and pull inherent in the traditional pyramid business models which often stifle the ideation process and discourage experimentation. The advantage of this system is that it hands operational decisions to staff (Velarde, 2016). The staff operates within self-organizing circles which can be compared to departments. Every circle is allowed to make decisions within the boundaries of its responsibilities as long as they do not expressly impact other circles or the business (Robertson, 2015). Theoretically, the circles interact guided by some strict formal rules. Because of the freedom to make decisions, holacracy ought to make it easier to brainstorm solutions and offer fast and efficient ways to deliberate, assess and put in place new ideas. Ideally, it is supposed to end up in a culture of constant improvement. Holacracy has some cultural advantages too. Everyone is granted an equal opportunity to voice their opinions during the meetings with decision making being a collaborative and highly engaging process. Nevertheless, there are various issues inherent in holacracy. The company faced transitional challenges with a substantial number of employees leaving the firm. There were also criticisms on the rigidity of the meeting processes and complexity of rules. The bureaucracy that holacracy is supposed to eliminate is surprisingly very much inherent in the system.

Analysis

Holacracy is a brain child of Brian Robertson, a software engineer. He contends that this system motivates individuals to function as a computer operating system. The chief setback to such super-efficiency is the intricacy of human emotion, and therefore holacracy seeks to compartmentalize or stamp out the ways in which our humanity impedes our capacity to produce (Robertson, 2015). In late 2013, Zappos CEO Tony Hsieh announced that the online shoe retailer would be shedding traditional manager roles. In light of the shedding off of these roles, managers and direct reporting would be replaced by “lead links” who supervise “circles” or particular projects that needed particular “roles” to be occupied (Guzman, 2016). Within the system, staff acted similarly to entrepreneurs, and they were encouraged to find multiple roles.

In 2015, the CEO felt that the transition into the system was moving too slowly and consequently told the staff that they were to adopt the new system or opt for a severance pay. The change to the system left the staff dazed and demoralized by the unrelenting pace of change (Reingold, 2016). Converse to what Brian Robertson contended with regards to holacracy, eliminating the human component does not make it go away. It results in an air of antipathy. About eighteen percent of his employees decided to leave, with dissatisfaction being a major reason. Among other things, this leads to a sharp drop in the company’s standing in the Fortune’s Best Company to Work For list. A member of staff who left the company described the system as a social experiment that resulted in uncertainty and chaos. Moreover, the transition from the traditional system has resulted in conflict between the previous stipulations and a culture that is grounded in tolerating the unruliness that is inherent in personal expression (Guzman, 2016). Another employee, a senior HR manager at Zappos criticized the system for being not particularly suited for the organization, and the fact that it put a strong emphasis on its governing guidelines instead of people. The process of conducting meetings under this system has been is rigid due to the stipulations behind the system. This means that there is “no natural, back-and-forth conversation that begets camaraderie, respect, trust and connection” (Groth, 2016).

In describing some of the politics still inherent in the system, Nox Voortella a former sales planner at Zappos was optimistic about the prospects of holacracy but soon she changed her mind. She noted that the old managers around her were getting increasingly insecure and tried to rearrange management. This action had the effect of forcing out the leaders that would have been better positioned to rally people to embrace the system with the managers left behind having little to offer. Another setback with regards to holacracy is that it does not possess vital components such as the compensation process. It does not place a premium on rank or how much money one manages, and there are no official performance evaluations. Zappos established their method where the staff is remunerated as per the skills based on the market rate.

Some workers have become disgruntled because they saw holacracy as an attempt to gamify the company with its various novel systems. For instance, there is a system where the employees are given badges as per their verified skillset and “people points” which is a currency which employees use in filling out the roles within the firm (Groth, 2016). These points determine how the staff apportions their time, and it also defines their pay. Staff with too many of unassigned people points goes to “the beach” where they are given the option of either finding other positions within the firm or leaving. This situation of unpredictability tends to create worried employees.

In its effort to boost efficacy and eradicate human emotion, holacracy foists layers of bureaucracy and injects pointless psychological burdens on the staff. A management consultant to Zappos advised the CEO in the course of the rollout of that the average member of staff was overworked and undertrained therefore if was both foolish and inhumane to ask them to be conversant with the management equivalent of Dungeons and Dragons on top of their usual work.

Zappos’ CEO in a recent interview talked about moving towards the “Teal” organizational structure (Reingold, 2016). Teal organizations have three main defining features namely self-management, wholeness and evolutionary purpose. With regards to self-management, teal organizations function with a structure that is grounded in peer relationships. They establish systems and habits where individuals are highly independent in their sphere and are responsible for cooperating with others. Power and control are entrenched increasingly throughout the organizations, and it is currently not relegated to the top management. Under wholeness, Teal organizations ask people to embrace their wholeness. They establish surroundings where individuals are free to fully express themselves which often results in high levels of creativity, passion, and energy at the workplace (Ferrell, Fraedrich, & Ferrell, 2015). Finally, under evolutionary purpose, Teal organizations ground their strategies on what they perceive to be the immediate needs of their surroundings. Flexible practices that work to perceive and respond to substitute the apparatus of targets, incentives, budgets, targets and plans (Ferrell, Fraedrich, & Ferrell, 2015). Ironically, by placing less emphasis on shareholder value and bottom line, they spawn fiscal results that are ahead of the competitors.

Recommendations

The adoption of holacracy may just have been the step in the right direction for Zappos as a company to tear away from the rigidity and the rigors of the traditional models of organizational behavior. The digital revolution spurred a major change in the traditional hierarchy of organizations. Most of the staff at the present day workspaces eschew the constricting, top-down hierarchal structures and are for systems that are more empowering and flexible. Nevertheless, from its experience with holacracy Zappos should step back and re-evaluate the success and setbacks it has faced thus far. It is clear that the system has been problematic and has persistently created confusion, panic, and disgruntlement among the employees. The movement towards Teal management is the right move for Zappos. Holacracy is part of the Teal organizational structure. The Teal structure advocates the same principles of self-management, wholeness and evolutionary purpose but is less rigid regarding what guidelines should be followed so as to achieve this. Zappos CEO may have adopted the holacracy system without much thought of what impact it would eventually have on the company. He ought to have adopted a less severe type of Teal organization before easing into holacracy. Although even before the adoption of holacracy Zappos had a fairly relaxed corporate culture, the CEO might have overestimated the ability of the organization to adapt to the organizational structure. However, the adoption of Teal represents a step in the right direction as holacracy is haunted by the unwavering Constitution that governs it.

Conclusion

Zappos online shoe retailers are a pioneering organization with regards to the adoption of holacracy to pursue the Teal organizational structure. Although the company had a fairly relaxed workplace culture, the CEO failed to anticipate the challenges that would come with the introduction of the system. The organizational structure manifested the same setbacks it was designed to curb, that is bureaucracy and undesirable human emotion. Therefore to shift to a Teal organization, Zappos would have been better off adopting a less rigid Teal organizational structure.

References

Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2015). Business Ethics: Ethical Decision Making and Cases. Boston: Cengage Learning.

Groth, A. (2016, December 21). Zappos is struggling with Holacracy because humans aren’t designed to operate like software. Retrieved from Quartz: https://qz.com/849980/zappos-is-struggling-with-holacracy-because-humans-arent-designed-to-operate-like-software/

Guzman, Z. (2016, September 13). Zappos CEO Tony Hsieh on getting rid of managers: What I wish I’d done differently. Retrieved from CNBC: http://www.cnbc.com/2016/09/13/zappos-ceo-tony-hsieh-the-thing-i-regret-about-getting-rid-of-managers.html

Reingold, J. (2016, March 4). How a radical shift left Zappos reeling. Retrieved from Fortune: http://fortune.com/zappos-tony-hsieh-holacracy/

Robertson, B. J. (2015). Holacracy: The Revolutionary Management System that Abolishes Hierarchy. New York: Portfolio Penguin.

Velarde, F. (2016, May 16). Is Holocracy finally dead? Retrieved from Quartz: https://qz.com/677130/is-holacracy-finally-dead/