Holacracy in Zappos: Advantages and Disadvantages

In June of 1999 with $150,000 Nick Swinmurn founded an online powerhouse called Shoesite.com. His main idea was to make the site different and propose shoes in all sizes, colors and styles. Nick also wanted the customers all over the world to have an opportunity to buy these products. In July of the same year, the site was renamed into Zappos.com and offered 100 brands. After a while, Swinmurn met Tony Hsieh, the representative of a capital group called Venture Frog. In 2000, Venture Frog invested $1,1million into the company. The following year, Zappos.com had become the largest shoe retailer in the world, offering more brands than any other store and providing a ‘bulletproof guarantee’: a one-year return policy with free shipping both ways (Burgos et al., 2010). In 2004, the company moved to Las Vegas, Nevada. Attention to details and dedication to customer service has made Zappos the most successful and highest rated online retailer. The majority of its customers have begun to trust the company after the first purchase and buy more products. The development of the company was rapid. From year to year, the amount of brands, styles and unique UPCs offered by Zappos.com. was increasing.

In 2009, another online retailing giant, Amazon, bought the company. The management and all employees were left in place. Tony Hsieh was always saying that the company owes its success to the culture within the organization and to the employees. For instance, Zappos employees use their own experience and ideas to solve problems. Their main task is to make the customer satisfied. Unlike other companies, this organization created a culture of giving and receiving respect, despite profits or losses. Zappos has created the best work conditions for its employees. When the workers are happy, the customers will also be happy. This strategy justifies the company’s achievement.

Holacracy

Brian J. Robertson (2006) states that holacracy, “includes a set of interwoven models, principles, practices, and systems that enable a fundamental transcendence of virtually all aspects of modern organizational dynamics”. In other words, holacracy changes the structure, decision making, and power distribution within the company. With the help of holacracy, the employees can be more self-organized and perform their strictly fixed roles with greater efficiency.

Holacracy has the following key elements:

· Organizational structure. The company starts to organize not the people but the work.

· Governance process. This element creates organizational clarity and distributes authority.

· Operations. This key feature includes tactical meetings and triage.

According to these key elements, there are the core aspects of holacracy. Brian J. Robertson (2006) states that they are circle organization, double linking, circle meetings, decisions by integrative emergence, dynamic steering, and integrative elections.

1) Circle organization consists of circles that are self-organized and semi-autonomous. It means that each circle has its own aim and is responsible for the process of achieving it.

2) Double linking. A lower circle and the circle above it are always connected. It means that two or more people from the lowest circle take part in the decision making of both circles.

3) Regular meetings are important for each circle. During these meetings, the policies and control for functional roles and areas are set.

4) Dynamic steering has a lot of benefits. Among them are higher quality, considerable efficiency gains, increased ability to concentrate on ideas and market

conditions, and more control.

5) After open discussion, through integrative election process the people are elected to the key roles.

Holacracy in Zappos

Zappos has ten core values, such as deliver WOW through service; embrace and drive change; create fun and a little weirdness; be adventurous, creative and open-minded; pursue growth and learning; build open and honest relationships with communication; build a positive team and family spirit; do more with less; be passionate and determined; be humble (Coffey, 2010).

The news about Zappos’ intentions to become holacric brought shock to the society. The thoughts were mixed. The essential mistake of media was the interpretation of holacracy. It was said that holacracy abolished the authority in the organizations and brought chaos. In reality, it is based on circles and specific roles. The circle above has the authority on the lower circle. When the lower circle does not perform its role correctly, the circle above has the right to eliminate the whole circle or a certain employee.

While implementing holacracy, Zappos can face some risks and challenges. So far, the company is the biggest adopter of this organizational management system, and without support it can fail. The qualified experts should provide constant guidance through implementation of the principles and rules of holacracy.

As it was said previously, the company is focused on excellent customer experience. Holacracy may not be effective for customers. Furthermore, the company’s exceptional record of customer loyalty can be put at risk.

Now Zappos employs 1,500 people. Due to holacracy, the structure of the company should be rebuilt into 400 circles. All employees should be given their specific roles. History has not known successful implementation of holacracy for such a big organization and for a long period of time.

On the other hand, there are also good chances for Zappos to gain success with holacracy. Atmosphere and culture within the company are extraordinary positive and cheerful. People are happy to work there. All employees are open-minded and talented; they all know that their contribution is significant for Zappos. The company managed to create a relatively flat structure and invent such a hiring process that has drawn group-oriented and experimental people. Zappos has a strong socialization process, which enables its employees to make their own decisions and solve problems without asking permission from a manager. That is a great advantage in adopting holacracy.

Traditional Fortune 500 Company and Holacracy

According to Business Dictionary, Fortune 500 Company is a “list of the largest 500 US manufacturing corporations, ranked by revenue. It is published annually in the

Fortune magazine with data on the firm’s assets, net earnings, earnings per share, number of employees, etc” ( “Fortune 500 Company”).

Implementing holacracy can be very difficult for a traditional company. The main reason is hierarchy. Employees often complain about bureaucracy, politics within the company, and fear of managers. Hence, such problems as communication issues, lack of engagement, overwhelment, and unclear objectives appear. Traditional companies manage people. There is a thought that if people are not fully controlled, they will not do their work efficiently. In other words, the companies are afraid of giving power to its ordinary employees. The basic problem of the traditional company is its focus on meeting its targets, increasing shareholder value, and improving internal efficiency. They use little innovative ideas and have little external focus. Implementing holacracy requires the absolute change of structure and culture. Many traditional companies are not ready for it.

Conclusion

Holacracy is an extremely innovative organizational management system with more advantages than disadvantages. It opens the new way for extraordinary thinking and effective work performance. Being highly trusted by its customers, Zappos.com. implements holacracy to achieve greater results and prove that an employee with more power is extremely motivated and efficient. With the help of holacracy, the company can become more flexible and innovative. If Zappos succeeds in implementing this new system, there will be many fundamental changes.

References

Burgos, J., Epperson, S., Ho, H., Suphorit, A., & Yeung, P. (2010). Zappos: A model of e?commerce business success.
Coffey, D. (2010). Zappos.com. Powered by service.
Fortune 500 Company (n.d.). Business Dictionary.
Robertson, J. B. (2006). Holacracy: A Complete System for Agile Organizational
Governance and Steering. Cutter Consortium Agile Project Management.