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The Zappos story: Is holacracy a proven structure for improving customer experience?

13th Feb 2017

Tracking the rise of holacracy means immersing yourself in the annals of philosophical thinking.

Early traces can be found in the 17th century writing of German polymath Gottfried Wilhelm Leibniz, who suggested that the world was reliant on people developing their own personalities for the benefit of a greater whole.

Then in the late 19th and early 20th century, philosopher Hans Vaihinger built the theory of ‘As if’ and fictionalism – hypothesising that fiction was at the core of all personality, and that humans were able to create their own rational construction of a reality around personally-perceived fictions; choosing their own roles within, in order to help drive them towards a “higher comprehension of their work”.

However, it was in Arthur Koestler’s 1967 book, The Ghost in the Machine that the concept of holacracy truly started to take form. Koestler suggested that all hierarchies embodied ‘holons’ – entities that were simultaneously both a ‘part’ and the ‘whole’ of any given structure.

This premise was adopted by Brian Robertson and his US company, HolacracyOne, in the mid-2000s. His new system was seen as a holistic catalyst for “self-organisation”. Job roles for all employees in a business were to be defined around the work, not the people, and were updated regularly. No longer would a business be able to run on the premise of top-to-bottom hierarchy – all people would self-manage to the benefit of the greater ‘whole’ and move between groups or ‘circles’ to get things done.

The Zappos effect

For Jordan Sams, the introduction of holacracy couldn’t have come at a worse time. Having joined Zappos in 2012, Sams had worked his way up through the internet retailer’s corporate structure.

“I started in our customer service department, and my goal after six months of working in that department was to become a leader in the team and get promoted to supervisor. I worked towards this for a couple of years and then got promoted to lead, which was a major step towards my goal. That’s when the email went out to the company that said ‘we’re moving towards a self-management organisational structure and we don’t need people managers anymore’.”

Founded in 1999 and acquired by Amazon ten years later, Zappos had, up to this point, been seen by many as the darling of the US’s burgeoning internet retail sector, and regularly topped customer and employee satisfaction polls, thanks to the unique yet steadfast outlook of CEO, Tony Hsieh. Yet, in 2014, Hsieh and his leadership team decided to do away with the foundations it had built this success on, completely flattening its hierarchy and introducing the principles of holacracy.

Many media reports suggest that staff were left disgruntled by what some called a “social experiment”, and the company dropped out of the Fortune 100 Best Companies to Work For list, in 2016 – for the first time in eight years. 
Yet this only tells part of the story. Whilst the same media reports hone in on the fact that around 18% of the 1,500-strong workforce have left the company, plenty of staff – including Jordan Sams – have stuck around, resisting the company’s offering of a huge buyout "offer” to all employees, as a sweetener for those that felt their jobs had become untenable.

And after the initial shock, Sams says the benefits of the new system were clear; himself becoming part of a team helping to train fellow employees in holacratic principles. His belief is that the hyperbole that surrounded the switch was a distraction from the long-term rewards it could offer.

“My experience is that the shift felt far more radical than it was. It felt like we were changing everything we’d done up to that point, but that was really a miscommunication. The perception at the time, both internally and externally, was that this was a much bigger shift.

“When you looked behind the curtain, the ‘why’ of the transition was to make us more innovative as a company, which in turn would make us more innovative in the eyes of our customers. We had to become faster and more frequently innovative than we’d been in the prior few years, and holacracy was seen as a route towards being able to do so.”

Customer experience

Yet, Zappos has always previously prided itself on innovation when it comes to customer service. Stories of support staff being given licence to go above and beyond in order to please customers have long become folklore. Tony Hsieh himself once famously summed up the Zappos approach: “We asked ourselves, ‘What do we want to be when we grow up? Do we want to be about shoes or do we want to be about something bigger and more meaningful?’ That’s when we decided that we really wanted to build the Zappos brand and be about the very best customer service and customer experience”.

If this is the case, what was holacracy’s role in maintaining the company’s status as a customer service innovator?

“I think the process and the tools that holacracy offers gives every single employee the opportunity to make changes if they think there’s a newer or better way of doing something,” says Sams. “The process allows for that – the challenge is to give employees the confidence and skillset to do so.

“There are still a lot of people doing their primary job – they’re not moving around all the time or switching between different circles. That’s a common misconception. The reality is that the system allows employees to self-manage themselves a little more. Within that process it’s about finding better ways to do a job that they’ve been doing for a long time, which is in turn helping us innovate better for our customers in the future. Giving employees the ability to identify those aspects and make those changes is the key factor in holacracy.”

Indeed, whilst customers remain at the heart of the Zappos vision, its shift to holacracy was based on a three-pronged approach that at no point even mentioned customer experience:

1. To make meetings more efficient.
2. To give Zappos better documentation of company-wide policies and accountabilities to reference back and ensure it is always adhering to its values.
3. To create a process that allows everyone in the organisation to make changes and feel empowered to innovate.  

We had to become faster and more frequently innovative than we’d been in the prior few years, and holacracy was seen as a route being able to do so

Yet, as Sams attests, each of these points is central to modern thinking around customer experience. Numerous studies, including 2012 research published in the Journal of Occupational and Organizational Psychology, point towards employee engagement being a leading, overriding factor determining customer experience success in businesses. The top three drivers of employee engagement are said to be leadership, meaningful work and relationships with co-workers, all areas holacracy tackles, head-on.

And the idea of holacracy as a ‘tool’ rather than a philosophy is further exemplified by Zappos’s use of GlassFrog – software that helps employees track holacracy efforts across the organisation.

“There are fewer hoops to jump through,” Sams explains. “An employee on the customer service frontline can take a suggestion from a customer and bring it up to the top of a circle straight away. It’s a clearer process. We’re not suggesting this sort of thing wasn’t possible before, it’s just a whole bunch easier now. They don’t have to go through a chain of command to get an idea in front of a wider audience. This is massively empowering for staff and shortens the distance from conception of an idea from our employees, to roll-out.”

In hindsight

Already the holacratic spirit has led to a number of new initiatives being taken on at Zappos, ranging from a programme around the holiday period in which the company sponsored pets for their customers, to a new customer reward initiative designed to foster improved loyalty. Despite this, reports as recent as last year suggested a continued discontent amongst ‘Zapponions’, and indeed, Tony Hsieh had to deliver an ultimatum to staff yet to get onside with the structural shift, in order to be able to move forwards. Echoing Hsieh’s own thoughts, Sams states this was more about the approach Zappos took in rolling holacracy out, than it was about the effectiveness of holacracy as a whole.  

“I don’t think a lot of the challenges that have come up were specifically about holacracy, as such. It was more because it was entirely new to the company and was rolled out to the company at such pace.

“We over-complicated things in the early stages and have learned from those mistakes and simplified things to make holacracy less of a burden on our employees. If you teach holacracy in a simple way, it really does make employees’ lives easier – the problem was we introduced too much in the beginning and too much of the nuances and complications of the holacracy constitution.

“The two things we’d have done differently are – 1) we’d have looked into the skillsets that are actually required in employees in order to be able to feel empowered to present ideas and pitch new things to groups, as there was an assumption that that would happen organically but actually these are skills that needed to be trained into employees. 2) We should’ve introduced holacracy to the company in a much simpler way. We gave too much information to everyone too quickly, which meant everyone over-analysed what the whole process meant for them.”

We should’ve introduced holacracy to the company in a much simpler way. We gave too much information to everyone too quickly.

So with these changes in place, is holacracy a viable option for other large-scale organisations looking to address how they implement changes for the benefit of their customers?  

“I wouldn’t say that holacracy, specifically, is the route for all businesses; but if large businesses want to continue being innovative and continue putting customers first, there’s no doubt that they have to shift their thinking away from traditional, siloed structures,” Sams adds. “You just don’t have the pace and the capacity for innovation in overly-siloed structures.

“I’d say it’s benefitted our own culture, and given people the opportunity to grow within the company. The hope is that in the future we can move faster to make more real-time changes that improve the customer experience.”

At last glance, Zappos customer service is ranked second out of the 923 companies that have a rating, suggesting service and experience remain the company’s leading attributes. And despite being steeped in ideological thinking, Sams also hopes that, in time, holacracy will become known as a tool that employees use at Zappos, rather than the philosophy many still recognise it as currently.

Replies (3)

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By HolAdrien
24th Jul 2017 10:40

Hi ! I just read your article and i find it very interesting ! First, it breaks some myths abouth Holacracy : the fear of chaos and loss of leadership is an recurring fear for many companies, but it's often because distributed leadership is a completely different paradigm than their actual way of working. As a co-worker in holaSpirit, a platform that ease Holacracy implementation and practice, we do agree that transparency is a necessary condition to make a transition like that ! This article reminds me another one which could be an interesting further readings of this one :

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Chris Ward
By Chris Ward
25th Jul 2017 21:15

Thanks - glad it was of interest.

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By Clean Carpet Ottawa
20th Nov 2018 12:25

Unfortunately holacracy is one of those concepts that is like fine wine, not everyone has a taste for it, but those who tend tend to be the cream de la creme, and zappos is a perfect example of that! Lori

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