Zappos' switch to holacracy: Blunder or success?

25th Feb 2016

Ecommerce giant Zappos, known for its huge supply of shoes and an impeccable client service, has lost over 200 people in less than one year. The reason? A crucial reorganization of the management system.  

Zappos hapiness

Zappos' success: wow your customers 

In October last year, we've published a podcast in which Rob Siefker - Senior Director of the Customer Loyalty team at Zappos - fascinated us with an interview about how Zappos is wowing its customers.  


Zappos started out as a website that offers the best shoe selections and today, it's one of the top online shoe and clothing stores in the world. The company has proven that wowing your customers can take a you right to the top. 

According to Siefker, Zappos' main goal is to get a personal connection with all their customers. At Zappos, it's not about a transaction, a sale, a return or an order. It's about connecting with the people. Zappos wants to establish itself as a human brand, which means that both the employees and the customers need to be fully engaged.  

How do they do that? All Zappos employees are free to do what they want, as long as they think it's the right thing to do and if it satisfies the customer. Zappos is convinced that self-management needs to be implemented to be a successful company.  

The switch at Zappos 

Implementing self-management was only the beginning. Tony Hsieh - CEO at Zappos - introduced Holacracy to the Zappos team. Holacracy is a new way of running an organization that removes power form a management hierarchy and distributes it across clear roles. Those roles can be executed autonomously, without a micromanaging boss. In an organization where Holacracy is implemented, work is actually more structured than in an conventional company. There's a clear set of rules and processes for how a team divides its work and roles with clear responsibilities and expectations are defined.  

Holacracy at Zappos

Unfortunate consequence of that change, is that almost 20% of the entire Zappos team has left the company since March 2015. Lots of them were probably deterred by the freedom the new way of working involved.   

Why the switch? 

Research shows that every time the size of a city doubles, innovation and productivity per resident increases by 15%. When companies get bigger, innovation and productivity goes down. Tony Hsieh went looking for a new way to structure Zappos and make sure the company becomes more like a city. In a city, people and businesses are self-organizing, so why can't a company be like that? That's why Zappos switched from a normal hierarchical structure to a Holacracy. The system enables employees to act more like entrepreneurs and self-detect their work instead of reporting to a manager who tells them what to do.  

If employees are free do work in a way that they want. They will feel happier. And that's exactly what Zappos wants, for their employees but also for their customers. Why? Wowing your customers starts with a great company culture where employees are ultra happy.  

A blunder or a success? 

According to me, it's always good to accept change. Since digital has become a part of our lives, customers reign. Their behavior changed, so why would a company be able to survive without changing? Of course change is difficult. But Rome wasn't built in one day and so isn't your company success.  

And in the case of Zappos, they decided to introduce the change and let their employees choose whether they want to keep working for the company or not. Only 18% of all employees have left. That's kind of a success, isn't it? 

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By Neil Davey
24th Feb 2016 14:57

Interesting piece, Leslie. 18% attrition does seem quite high, and the cost on hiring/training/onboarding new staff would be fairly punchy considering the process that Zappos put employees through. But ultimately the proof is in the pudding - which in this case is the impact on customer satisfaction, etc. I wonder: has there been any indicators from Zappos of CSAT etc since the switch to holocracy?

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