Zappos Experiments with New Management Method

For Zappos CEO, Tony Hsieh, having 50 employees opt to quit was not necessarily a bad thing.

The beginning of the new year was the deadline put forth by the company for 150 employees to decide whether to take a generous severance package or begin under the company’s new structure of being a Holacracy. This new structure, unlike traditional corporate structures has no traditional bosses or even job titles and the hierarchy that most people work under today is no longer a part of the company’s structure.

In March of 2015, Hsieh (pronounced “Shay”) made the offer to his team which was made up of some 1,500 Zappos employees. With deadlines that varied between the 260 or 18% of Zappos’ workforce, decided to leave the company.

Zappos, which is known for its wide selection of shoes and its stellar customer service, is recovering after the departure of those who chose the severance package. In turn, the company decided to be a mobile first company and focus on those customers and brands that were most stable for them. With this added focus on self-management and intensified customer service, and the level of personalized service to customers, Hsieh thinks they are on the right track.

The concept of a Holacracy was first presented at the Conscious Capitalism CEO Summit in 2012 by Brian Robertson. This particular business model was based on the concepts of self-organization and self-management . Hsieh took the message to heart and started to consider how it could work at Zappos.

“I was looking at the weaknesses of the typical corporate structure and how it’s not been resilient. If you look at the Fortune 500 companies from 1955, 88% of them didn’t make it to 2014. Then you look at what structures do work in nature, like the human body, and they’re all structures that are self-organized.”

Other influences for Hsieh choosing the Holacracy for Zappos was the book, “Triumph of the City,” by Harvard professor Edward Glaeser. According to Hsieh, the concept of a city was the easiest example of self-organization for people to wrap their minds around. Because the mayor of a city doesn’t tell its residents what to do or where to live, and when people and businesses act in their own self-interests, Hsieh says that it creates opportunities for growth. Because Glaeser’s research showed that when the population of a city would double in size innovation and productivity would also increase by a rate of 15%. However, this rate of productivity and innovation could not be said of companies or corporations that doubled in size.

Hsieh, with his eyes always on the future wanted to prevent such a thing from happening. For him, the answer was in the Holacracy. The problem, however, was to help employees overcome the idea that in an organization with no hierarchy, it does not mean that there is no structure. If anything, Hsieh insists, there is actually more structure because each person is accountable and directly influences how particular tasks or company aspects are done and insists that a Holacracy is actually “a hierarchy of purpose.”

When Hsieh initiated the transition to making Zappos a Holacracy, 85% of the company successfully made the transition into the new system. He then made the generous offer to those employees that they could either stay with the company or take three month’s pay or one month’s pay for every year that they were with the company, whichever amount was greater. Some employees who had been with the company for 12 years received the option to take a year’s worth of severance pay.

Hsieh said that about half of those who took the offer did so because they wanted to go out and do something that they were personally passionate about such a starting their own businesses, for example. That gave them the option to try things out, have the money to do so and be able to return to Zappos if they wanted in a year’s time.

Working in a Holacracy is not for everyone, Hsieh insists. At Zappos the emphasis has always been on company culture and how employees are treated. Even new employees after completing a 5-week training program are given the option of taking $2,000 and quitting if they find that this different style of corporate structure is not for them.

“We want to make sure that employees aren’t here just for paychecks and truly believe this is the right place for them,” Hsieh said.

Even Hsieh himself as CEO has an open desk like other employees and envisions himself as doing whatever is needed most at the time. His goal was to make a profit for the company by the end of year five – which is 2016. According to Hsieh, they are close to being on track to see that goal come to fruition.

Today, companies like Zappos are finding that many of the old hierarchical structures simply don’t work for them. They want to stay on top in terms of innovation, productivity and empowering workers so that they are both motivated and involved toward a common vision.

Having that kind of flexibility and rethinking structures such as a Holacracy may not work for every company. Adaptation can be a tricky minefield. Because the area of human resources is all about people, having employees that can adapt with the changing business climate is important. At NetPEO, we are a network of companies that can help you find the right candidate for your organization and help you structure your business toward your needs. We feature HR outsourcing and Employee Leasing Services. Contact us today to learn how we can help with guaranteed results.