DAM762 - Zappos' Holacracy: Strategic Operational Management Analysis

This presentation delves into Zappos' strategic shift towards Holacracy, examining the reasons for its adoption, its successes, and its failures. It discusses the impact of Holacracy on Zappos' organizational structure, culture, and employee responsibilities. The presentation also analyzes Zappos' differentiation strategy and the importance of a 'fun at work' culture. Furthermore, it critiques the functional aspects of Zappos' approach, suggesting a greater focus on customer acquisition, product line diversification, and employee support during the transition. The presentation concludes by highlighting the benefits of adopting a lean philosophy, drawing parallels with the Virginia Mason Hospital's successful implementation, and emphasizing the importance of waste reduction, efficiency improvement, and value enhancement.

Tony Hsieh at Zappos: Structure,
Culture and Change
Holacracy and Zappos: The strategic
change

Reasons for adopting Holacracy
• The major reason for adopting holacracy is to utilise the full potential of the
employees and not just restrain them to one particular department.
• The main unit of holacracy is the “circle” which is nothing but a group of
employees coming together with a common goal or a project
• Holacracy, helps to make decisions at the point of origin and not push the decision
making up the hierarchical ladder. This helps in time saving.
• The attention or focus of an individual in a circle is bounded by the limitations of
each project. The individuals constituting the circle keeps changing depending on
their potentials, skill sets and project requirements.

Reasons for adopting Holacracy contd....
• The management of Zappos wanted the employees to operate more as an
independent and self managed individuals.
• They also was desirous of making Zappos function like a city, going by the logic,
that when a city flourishes, productivity increases by 15%. In contrast when an
organization doubles up in size, the productivity declines.
• A company might die but a city lives forever and Zappos management intended to
give Zappos and its employees, a chance to flourish and survive by adopting the
principle of Holacracy.

Holacracy – Success or Failure?
• Holacracy brought upon immense responsibility on individual employees. For e.g.
They even had to find out their own worth in the industry and corresponding salary,
which in a traditional scenario would be worked upon by the Human Resources
Department.
• Self management at the organizational level can be difficult for many people. The
sudden confrontation with self management where the individual is solely
responsible for his/her thoughts and actions, proved to be difficult for many
employees.
• Acceptance of the outcome of the actions and disappearance of hierarchy to settle
difficult decisions became a very slow and steep learning curve for many.

Holacracy – Success or Failure contd...
• The management’s decision to speed up the process of Holacracy, kept the
organization standing with a void of 14% of its employees.
• The high level of attrition also affected the ongoing and upcoming projects, which
cannot be accounted towards the success of the organization through holacracy.
• However, holacracy, in this case, may not be the sole reason for the downturn. It
was tagged along with the unreasonable speed and anxiousness of the management
for the implementation of holacracy.

Strategy by Zappos
• In the case of Zappos, one could easily observe that they are following
Differentiation strategy at a large scale, when it comes to generic business level
strategy.
• Zappos was a first of a kind concept of offering a wide variety of range of shoes on
an online platform.
• The consumers had access to all major brands and a wide variety on a single portal.
Along with a wide variety, the company also offered speedy and often free delivery
and an unique return policy, unheard of in the industry.
• These differentiation strategies provided Zappos with an edge over its rivals in the
same industry.

Strategy by Zappos contd...
• The management, not only, differentiated the products, they also implemented a
“fun at work” culture. The logic behind the action was, more happy the employees
are at work, further the increase in productivity.
• The CEO resorted to Twitter to build up a closer connection with the consumers
and increase transparency.
• He also maintained a low profile to engage with employees and make himself more
approachable.
• The moves taken up by Zappos was very different from a traditional point of view
and helped the company to keep itself differentiated from its competitors.

Doing right – the functional way?
• Zappos, initially was balancing culture with productivity and functioning of the
organization but later on, it seemed that concentration was more on the cultural
aspect of the company rather than the productivity.
• Most individuals need a sense of direction and support for the regular functioning.
Entrepreneurship, the basis of holacracy, is not always the right commodity of an
individual’s personality.
• Zappos, ideally should have concentrated on the growth of the organization through
positive word of mouth through employees as well as customers. The focus should
be more on the acquisition of new customers along with the retention of old
customers. Also, another option could have been the initiation of different product
lines.
• The company could also develop a product line with focussed differentiation to
cater to a niche segment of consumers. However, the major focus of the company
was on the change of structure and culture of the organization.

Doing right – the functional way? contd...
• Accelerating a major change, without providing the employees breathing time to
understand and cope with the change, is also a major flaw towards the functional
aspect of any organization.
• Once the attrition level goes up, the anxiety and discontent among the remaining
employees also rises. In this scenario, the functioning of the organization at the full
potential, can take a back seat.
• The management should have helped the employees to cope with the changing
scenario and helped them through the process, instead of providing them with a
incentive to leave.
• Zappos, could also have done a survey to understand the opinion and thoughts of
the employees, instead of hard hitting infliction of the decision on them.
• This method, ultimately leads to the hierarchical bureaucratic decision making on
the part of the management. This is in contrast to the principles of holacracy at the
very initiation.

Why adopt Lean Philosophy?
• The major benefits of an organization adopting lean philosophy are reduction of
waste, increase of productivity and improvement in the level of efficiency.
• Once the waste is reduced, it is also observed that cost is reduced at the same time
through lean philosophy and improve the innovative aspects of an organization,
since the level of efficiency also gets enhanced.
• Lean method also highlights the need to stock enough material to meet the
requirements but not to stock material at a large scale, pushing up the cost of
inventory.
• A major aspect of lean philosophy is to increase the value of a product or service at
a lesser cost.

Outcomes of lean philosophy at Virginia
Mason Hospital
• Inefficiency at all major levels at the hospital were recognized and removed.
• Delays due to a doctor’s referral to a specialist and the patient’s first appointment
with a specialist were also reduced by eliminating the requirement of a secretary.
Thus the wastage of time and labour were reduced paving the way for the reduction
of cost.
• The key was to understand the inefficiency and wastage in terms of both cost and
time and eliminating them from the system.
• However, to understand and identify the inefficiency and wastage, one needs to
examine, each and every step of the work flow. This enables one to identify the
cause behind any delay or lack in the value addition of a service or product.
• Value of the patient’s treatment and the patient satisfaction increased manifold due
to the reduced time of waiting to meet specialists and initialization of treatments.

References
• Castaldi, M., Sugano, D., Kreps, K., Cassidy, A., & Kaban, J. (2016). Lean
philosophy and the public hospital. Perioperative Care and Operating Room
Management , 25-28.
• Stott, R. N., Stone, M., & Fae, J. (2016). Business models in the business-to-
business and business-to-consumer worlds – what can each world learn from the
other? Journal of Business & Industrial Marketing , 943-954.