Week 5 Assignment - Zappos Case Analysis

Week 5 - Zappos Case Analysis
Zappos Case Analysis
General Motors, General Electric, IBM, U.S. Steel, and ITT were all once the giants of
American industry just 50 years ago. Year after year these names were amongst the top 10
annual revenue producing companies in America. Flash forward to 2020 and only one, General
Motors, is still in the top 25 of the Fortune 500 list, with General Electric currently sitting in the
top 50, and IBM in the top 100. U.S Steel, ITT, and countless other former Fortune 500
companies have dropped out of the list completely, providing a question for CEO’s and business
leaders in todays world; Why couldn’t these massive companies sustain growth?
The answer varies from company to company, but Tony Hsieh, CEO of Zappos, believes
that as companies grow, their productivity declines. Corporate structure provides a road block to
innovation, company culture dies, and as a result productivity and the bottom line start to suffer.
This has led Tony and Zappos to attempt to to find a successful way to see continual growth in a
large company. From its early days Zappos was known as firm with a weird culture and a
strategy focused on customer service. After posting revenues of $635 million dollars in 2008,
Zappos had established themselves as one of the largest online retailers in the world and they
were about to get much larger as Amazon acquired Zappos in the summer of 2009. Tony and
Zappos had to start thinking outside of the box to deal with this problem; sustaining growth in a
large company. “We want Zappos to function more like a city and less like a top-down
bureaucratic organization. When cities double in size they become 15% more productive, but
when companies double in size, productivity declines…companies tend to die and cities don’t.”
explained Tony Hsieh.

Holacracy
In 2013, Tony and Zappos became the largest company in the world to adopt a new
organizational form known as Holacracy. Holacracy is a self-governing structure that provides
flexibility to companies by relying on temporary functional roles focused on projects and tasks as
opposed to fixed job titles and traditional job descriptions. Power within an holacratic
organization no longer comes from the top, rather the power in the organization is decentralized;
no managers, no hierarchy. The goal of holacracy is to help employees improve innovation and
collaboration by eliminating the traditional workplace bureaucratic roadblocks. Employees are
encouraged to make decisions themselves right at the point of origin instead of wasting time
waiting for approval from a superior.
Why Holacracy at Zappos?
Holacracy is a radical change from the way companies normally operate. But Tony Hsieh
and Zappos believed a radical change was necessary to see their now large organization continue
to grow. Zappos was once known for it’s weird culture allowing employees to be themselves at
all times. This combined with their obsessive focus on customer service helped Zappos become
an online retail giant in a short amount of time. Unique culture and exceptional customer service
are easier to achieve at a smaller operation. How can a company still feel small in these
important areas while growing and becoming a bigger and bigger operation? Tony and Zappos
believed that embracing a holacracy structure was the best way to keep their small business feel
while sustaining growth.

Key Stakeholders
As CEO of Zappos, Tony Hsieh has been the driving force behind Zappos’ to move to a
holacratic structure. However, there are multiple key stakeholders involved in Zappos’ decision
making. Tony’s partner at Venture Frogs, Alfred Lin, was COO and CFO at Zappos at the time of
the Amazon merger. Together, Tony and Alfred were the first fund to invest in Zappos, founded
by Nick Swinmurn. Even though Swinmurn has stepped down as CEO of the company, he was
still chairman of the board when the merger took place. In addition to these three power players,
Sequoia Capital was another large stakeholder in Zappos following a large early investment into
Zappos. And now Amazon was entering the stakeholder group with their acquisition of the
company. As you can imagine, this many stakeholders in an organization can lead to differences
of opinions. Where Tony and Alfred may be hyper focused on creating a unique corporate
structure and vision for the future, investment stakeholders and parent companies may be more
focused on bottom lines and returns on investment. These stakeholders may have varying
degrees of daily involvement in Zappos, but they all have a large vested interest and each deserve
to be involved in the future decisions of the company.
Recommendations
My recommendation to Tony Hsieh and Zappos would be continue moving forward with
implementing holacracy at the company, but to not be 100% married to the idea. Zappos is a
unique company and grew successful in large part thanks to its special sauce; embracing weird
culture and exceptional customer service. Maintaining those core competencies should take
priority over fully committing to a new organizational structure. Meaning, if shifting to a
holacratic system starts to effect the special sauce, Tony needs to be flexible and accept that
Zappos structure may not end up being fully holacratic and instead may be a special blend of
organizational structures that is unique and works for Zappos.

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Week 5 - Zappos Case Analysis

Zappos Case Analysis

explained Tony Hsieh.

organizational form known as Holacracy. Holacracy is a self-governing structure that provides

collaboration by eliminating the traditional workplace bureaucratic roadblocks. Employees are

waiting for approval from a superior.

Why Holacracy at Zappos?

while sustaining growth.

to be involved in the future decisions of the company.

priority over fully committing to a new organizational structure. Meaning, if shifting to a

organizational structures that is unique and works for Zappos.

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