Hundreds of Employees Leave Zappos as CEO Moves Towards Holacracy

By: George Hancock Jr.  |  May 13, 2015

Amazon-owned Zappos is known for utilizing different, and sometimes controversial, management styles. CEO Tony Hsieh took over the company in 1999 knowing that his progressive principles would create the momentum to keep it going. The business itself  appeared to be nothing out of ordinary. It started as an online shoe store and eventually expanded to accessories and clothing. What made it stand out was the service. Service and employee satisfaction are as important as the bottom line at Zappos. Delivering “wow”, as they put it, is at the core of the culture. It has been the driving force behind the profits, creating media buzz and a motivated group of employees. Several years ago, Tony did something that’s rare in the United States. He made his salary comparable to that of all his subordinates, setting it at $36,000 per year. At that time, the company had around 3,000 employees.

The organizational model at Zappos has become about more than just salaries, though. “Holarchies” don’t designate levels of power in the organization, as hierarchies do. In holarchies, every employee has the same level of influence, although some may not be as visible or need to be as outspoken as others. Essentially, there are groups, or “circles”, that decide how business functions will be carried out. Sometimes a person will find himself in multiple circles, to keep the communication flowing between them, but that person doesn’t have more power than anyone else. Everyone lost their title when Zappos became a holarchy, because titles contain too much hierarchical meaning.

Hsieh’s decision to turn Zappos into a holacracy has prompted conflicting responses from management experts all over the world, most of them being pessimistic and critical. It also led over 200 of his employees to leave the company (they received severance packages). Hsieh may have been successful until now, receiving 30,000 resumes a year (for about 300 total positions) and expanding to new product lines, but is losing 200 employees worth the media buzz or the potential benefits of holacracy?

Mr. Hsieh has not given up on his dream throughout the difficulties. The employees that left probably did so because he asked them to. In a long, exceptionally well-written email to his employees, he explained that the company was not where it should be, regarding the holacracy plans. He explained that anyone who’s not on board should leave the company with a 3-month severance package.

Had Tony become too confident in his people, in their ability to deal with change, before he lost 210 of them? Is it too big of a jump to make for those employees? How long will it take to fully convert to the new system and will more employees be lost? Is the company too large to become a holacracy? Will the new model improve Zappos’ ability to deliver “wow?” I don’t know, but I would put my money on this: If a holacracy can be successful on such a large scale, Tony Hsieh is the architect and the outspoken propagandist behind it.

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