Holacracy at Zappos (B): From Experiment to Exodus |
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The focus on infusing the right talent into the company stemmed from Hsieh’s experience at LinkExchange. When in Zappos, Hsieh wanted to develop a culture that would be a differentiating factor and give the company a competitive advantage. He sought to build a team of like-minded people who would enjoy working together and also hang out together. In order to maintain the culture at Zappos, it was important to hire people who were similar to those already in the company.... |
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| During the early days of the business, Swinmurn and Hsieh found that selling shoes online was a very difficult task. As the fit of the shoes was important people generally felt that it was only after trying out the shoes that they could gauge how comfortable they were. Besides, the hassles involved in returning shoes that did not fit prevented them from ordering footwear online. Swinmum and Hsieh thought they would develop the website to address these concerns and help people overcome their reluctance to purchase shoes online. Zappos thus started offering several customer friendly services, which were not provided by other online retailers... |
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| After moving from San Francisco to Las Vegas in 2004, Zappos struggled to attract and retain talent. The company saw that many engineers joined other firms in San Francisco and Silicon Valley. As the organization grew, the number of processes also grew. A lot of time was spent on planning and negotiating – time which could have been spent more productively. Zappos realized it was also slowly losing its entrepreneurial spirit and culture.... |
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| While exploring ways to boost Zappos’ culture, Hsieh met Brian Robertson (Brian), a software entrepreneur and founder of HolacracyOne . Holacracy was the brainchild of Brian. He founded the concept when he realized he was ‘more interested in how we worked together’ than in his own job.... |
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| Zappos’ decision to embrace holacracy generated a stimulating discussion in the media. Critics said that holacracy was not for everyone and could succeed in very few companies. There would be deep, long-lasting challenges that should serve as red flags for holacracy implementation, they said. Questions were raised on its applicability on a large scale. Though employees were empowered in a holacratic setup, that also brought an increased dose of responsibility which some employees did not want.... |
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| The results of holacracy, however, were not what Zappos had anticipated. The self-governing structure brought in chaos. There were a few misinterpretations associated with the concept. First was the belief that holacracy was non-hierarchical, though the introductory article on holacracy clearly defined the concept as a hierarchy much better than the conventional hierarchy. Second, there was an idea that there were ‘no managers’ but the fact was that employees would play the role of a manager but would not be given the title of ‘manager’. .... |
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| Zappos’ full transition to holacracy, which was supposed to be completed by January 2015, missed the deadline. By March 2015, only 85% of the company was operating under the new process. Hsieh then felt the management transition was going too slowly and decided to accelerate it with a ‘rip the band-aid off’ approach. He sent out a companywide memo stating that the company from then on would be more aggressive about pursuing self-organization...... |
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| Despite the criticism, Hsieh did not back down from his decision. He maintained that the exodus wasn't because of holacracy. He added, “Anecdotally I would guess that about half of them, the reason they took the offer, was because it actually had nothing to do with Holacracy or self-management. It was just because they really had wanted to go out and start their own businesses. And now with a year's severance, for example, they had the funds to try it out. And they also knew that they could, 12 months later, come back to Zappos.” ... |
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| On ‘Fortune’s Best Companies to Work For’ list, Zappos slipped from rank 38 in 2014 to rank 86 in 2015 and finally exited altogether from the list in 2016. That fanned speculation that Zappos’ experiment with holacracy was on the rocks. The entire scenario, however, was analyzed in different ways by different analysts.. |
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Exhibit I: Holacracy Vs. Hierarchy
Exhibit II: More on Holacracy
Exhibit III: More on COBRA
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