Zappos Ceo Asks Employees to Commit to Teal, or Leave

Final Case Study:

”Zappos CEO Asks Employees to Commit to Teal, or Leave”

Synopsis of the case 

In 1999 Zappos began as shoesite.com. (Fugate, 2016) Nick Swinmurn first started shoesite.com to capture the possibilities with online shoe sales, believing in the high possibility of success. But, the company wanted to be able to focus on shoes and still offer other products. This is what led to the name change. Zappos was derived from the Spanish word for shoes: “zapatos”. Prior to the investment of Zappos, Swinmurn sought financial advice from Tony Hsieh and Alfred Lin. Hsieh and Lin were running Venture Frogs, “…a kind venture of capital group.” (Fugate, 2016) In 2000, Hsieh became Co-CEO of Zappos. Since 2006, Hsieh has been the sole CEO of zappos. (Fugate, 2016)

Zappos saw huge financial success. In just eight years, the revenue grew from $1.6 million to over $1 billion. Due to the high success rate Zappos was experiencing, Amazon.com decided to purchase the organization in 2009 for $1.2 billion. The company could achieve its highest operating profit in 2015, leaving many to believe that the company is still processing more than $1 billion in revenue. (Fugate, 2016)

        Hsieh believes that employee welfare should be the top priority of an organization, so much that he even wrote a book, Delivering Happiness, on the importance of employees and their satisfaction. Since he believes that employee satisfaction can bring the most success to organizations, he wants to turn Zappos into a “teal” organization. A teal company “represents a company “characterized by self-management, bringing one’s ‘whole’ self to work, and having a purpose beyond making money’”. [excerpt from Fortune] (Fugate, 2016) To get to this “teal” company Hsieh knew that the traditional hierarchy structure, like a functional or divisional structure, would limit employee’s abilities to innovate and contribute to the company. Even saying that “employees have so much more to offer. They’re a full human being that has all these skills that, if they’re given the right context to collaborate with each other and be creative and help move the company forward, they will do that.” (Fugate, 2016) This began the implementation of the hollow structure. The holacracy structure allows for more self-management, dismissing job titles and designated responsibilities. This eliminates the traditional “boss man” feeling because it allows employees to form groups, who then can determine goals (which would have been viewed as tasks), but the eagerness to accomplish their goals allows them to complete them faster than assigning a task from manager to employee.

The major motivation behind the holacracy is to give the employees a sense of independence. To do this, Hsieh decided that allowing the employees to form “teams” to work with would bring the most success. These teams develop based off what their personal interest are. Like the individuals who enjoy helping people would develop a customer service team, who would focus on serving customers to bring satisfaction to both the employee and consumer. This complex way of running a business came from the “Holacracy Constitution” developed by Brian Robertson.  (Fugate, 2016)

Once the decision was made to being the implementation of the Holacracy system into the Zappos business, Hsieh knew that there would be employees who did not agree with the change. To ensure that the employees who were not comfortable with the new system were able to walk away instead of staying in the organization (as they would be considered a hindrance) he offered a three-month severance package. In the past years Zappos had a turnover rate of less than one percent. When the severance package was offered, 14% of the employees chose to accept it. But, Hsieh’s main goal was not to achieve a Holacracy structure, it was to achieve “teal” by using the Holacracy ways. So, in 2015, Hsieh “wrote a 4,300-word memo to employees asking them to commit to teal or leave” (Fugate, 2016) Again he offered a severance package. In the end, 29% of employees left, most taking a severance package but not all.

Many employees are concerned about the opportunity to promote within the organization or receive pay raises. Since there is no real structure for either, there is a lack of opportunity for both. This could be one of the reasons that” Zappos did not make Fortune’s list of Best Places to Work for the first time in eight years.” (Fugate, 2016)

Problem #1 

The immediate problem is the intense shift to Holacracy.

Cause of Problem

Hsieh, as CEO, did not do his required responsibility to protect the company and employees. There was no testing of the system, adequate research wasn’t done, and there was no slow implementation. The opinions of any rank or role management was not taken into consideration.

Recommendation #1

For a business, especially a large corporation, to make a change in the way it is conducted and conducts business, it is a large and important decision. The sudden change can not only cause internal issues but it can create mayhem among customers, which could affect revenue and growth. The responsibility of the CEO is not to do what he thinks is best for himself, but it is to do what is best for the organization, shareholders, and employees. This decision was far from that. The CEO should have conducted a meeting among the top management to discuss what the Teal structure was, what the holacracy was and how he thought the two should be implemented and most importantly, why. Research should have been done to see if there were any other organizations who have tried this, and what their outcome was. If this research proved there was still a chance of success with this structure change, a survey of the employees could have revealed what they thought.