Zappos’ Holacracy: Would it Thrive in Bezocracy?

Zappos’ Holacracy: Would it Thrive in Bezocracy?

“Darwin said that it’s not the fastest or strongest that survive. It’s the ones most adaptive to change.”¹

– Tony Hsieh, CEO, Zappos.com

Zappos.com (Zappos), the online footwear category leader, is all set to embrace the paradigm of the legendary King Arthur’s round table. As the legend goes, King Arthur’s knights congregated around the round table where no one headed the assembly. In other words, all assembled were equals. What Zappos contemplates to implement would be a contemporary practice – holacracy – of structuring organizations, characterized by the presence of self-managed teams.

There have been instances of companies embracing a self-managed style of organizational structure – Semco SA, Nucor Corporation, The Morning Star Company, W.L. Gore and Associates, and Medium, to name a few – yet the news of Zappos adopting holacracy created ripples in the media world and management circles as it would be the biggest company till date to be run on the lines of holacracy. The decision to adopt holacracy by a company often hailed by business academics for its unconventional organizational culture and outstanding customer service/experience indicates the latent meritocracy of the model and as expected several unanswered questions and challenges linger:

• • Would the proposed model affect organizational communication, decision-making and most importantly the accountability?
• • Will the new structure/model bring in a new meaning for all the external stakeholders, especially the vendors, customers and investors?
• • How would Zappos’ ‘holacracy’ model fit into Jeff Bezos’ old fashioned style of managing?
• • How would the new model improve Zappos’ well-talked about organizational culture and team dynamics?
• • Will the model of holacracy affect the morale and motivation levels of employees positively?

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Exhibits

Exhibit I: Management’s Three Concentric Circles

Exhibit II: Self-Management Model of ‘The Morning Star Company’

Exhibit III: The Four Dimensions of Culture

Exhibit IV: Zappos’ 10 Core Values That Drive Its Culture, Brand and Business Strategies

Exhibit V: How Holacracy Works

¹ Steve Denning, “Making Sense of Zappos and Holacracy”, http://www.forbes.com/sites/stevedenning/2014/01/15/making-sense-ofzappos-and-holacracy/, January 15^th 2014

Zappos’ Holacracy: Would it Thrive in Bezocracy?

Prerequisite Conceptual Understanding

Prerequisite Conceptual Understanding (PCU) material is the background material that would aid immensely in mapping the decision areas of this case study and bring a synthesis amongst the relevant concepts. The participants/students should be encouraged to read this material to benefit from the broader perspectives outlined in the case study.

• 1. To understand the concept of organizational structure, organizational culture and self-managed work teams – Stephen P. Robbins, et al., “Understanding Work Teams”, “Foundations of Organization Structure” and “Organizational Culture”, Organizational Behavior, 12^th edition, Pearson Education, 2007
• 2. To understand the process of organizational restructuring at Semco SA – Ricardo Semler, “Managing without Managers”, Harvard Business Review, September-October 1989
• 3. To understand Semco SA’s organizational structure – Kelly Killian, et al., “Ricardo Semler and Semco S.A.”, Thunderbird, 1998
• 4. To understand Nucor Corporation’s entrepreneurial organizational structure – Thomas M. Box and Warren D. Miller, “Nucor Corporation 2008-2009”, Association for Small Business & Entrepreneurship 35^th Annual Conference, 2008-2009
• 5. To anaylze the culture of working without managers at The Morning Star Company – Gary Hamel, “The Big Idea: First, Let’s Fire All the Managers”, Harvard Business Review, December 2011
• 6. To study the impact of national culture on work-related aspects – Herminia Ibarra, “National Cultures and Work-Related Values: The Hofstede Study”, Harvard Business School, January 31^st 1996

Synopsis

This case study enables an engaging discussion on the concept of ‘holacracy’ or the culture of having self-managed teams at organizations. The case study focuses on the case of Zappos.com, the largest online shoe retailer that has decided to adopt holacracy and implement it completely by December 2014. How is holacracy different from the traditional tiered organizational structure? To have an indepth understanding of the concept of self-managed teams, the case study discusses the examples of Semco S.A., Nucor Corporation and The Morning Star Company that have been successful with self-managed teams. It, however, questions if self-management can be successful in various settings. Will self-management prove to be successful across cultures, industries and variously sized organizations? This case study also helps identify a relationship between organizational structure, organizational culture and decision-making.

Expected Learning Outcomes

• • Zappos’ proposed model of organizational realignment – from hierarchical organization to having self-managed teams
• • Comparison of the traditional tiered organizational structure with self-managed and title-less organizational structure in the light of Semco’s, Nucor’s and Morning Star’s experiments
• • The relationship between organizational structure, organizational culture and organizational performance

Positioning and Setting

This case study can be used in the Organizational Behavior course to teach the following concepts:

• • Self-managed work teams
• • Organization structure
• • Organizational culture

Before the Classroom Discussion

• • The participants were asked to read the articles given as PCUs
• • They were also asked to visit the websites of Semco, Nucor, The Morning Star Company, Zappos and HolacracyOne to get acquainted with the companies and the concept being discussed

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Exhibits

Exhibit (TN)-I: A Comparison of Semco, Nucor and Morning Star

Exhibit (TN)-II: The Level 5 Hierarchy

Exhibit (TN)-III: Importance of Culture for an Organization

Exhibit (TN)-IV: Relationship between Organizational Alignment and Decision-Making

Exhibit (TN)-V: Relationship between Organizational Alignment and Nature of Business

Exhibit (TN)-VI: Relationship between Organizational Structure and Decision-Making