Change Management and Leadership: Analyzing Zappos' Transformation

This case study examines the change management process implemented by Tony Hsieh at Zappos, focusing on the introduction of Holacracy to transform the organizational culture. The analysis delves into the reasons behind the change, including the need to address bureaucracy, improve employee engagement, and enhance the company's economic performance. The study explores the factors driving the change, such as market competition, inefficiency of the previous culture, and the desire to foster an entrepreneurial spirit among employees. It also investigates the challenges faced, including managerial issues, employee resistance, and potential customer failures. The study highlights Tony Hsieh's approach to change management, including the use of Lewin's three-stage model (unfreeze, move, freeze) and its alignment with Kotter's eight-step model. Furthermore, the case study assesses Tony Hsieh's effectiveness as a change leader in implementing the Holacracy structure, emphasizing its impact on reducing bureaucracy and promoting employee collaboration.

Running head: CASE STUDY ANALYSIS
Tony Hsieh at Zappos
Name of the Student:
Name of the University:
Author’s Note:

2CASE STUDY ANALYSIS
Executive Summary
This current report deals with the change management process in the context of Zappos. Tony
Hsieh is the current CEO of Zappos, who brought change in the existing culture of such
organization. He found that bureaucracy creates conflicts between the management and the
employees. In order to maximize the employee engagement he has introduced Holacracy
structure in this organization. Holacracy is a self-governing structure, which turns the
hierarchical structure into the self-management structure. Implementation of this change is
driven by various factors. The factors of change management include low profit, inefficiency of
the previous culture and poor relationship between the employees and the management, which
influence the change in this organization. Tony Hsieh has faced various challenges while
implementing this change in this organization. However, managerial issue, communication issue
and employee resistance are the major barriers of the change management. Therefore, Tony
Hsieh has followed three stages of change management that are unfreeze, move and freeze to
implement the change in a proper way. On the other hand, his change management process also
supports Kotter eight steps model of change management. Moreover, Tony Hsieh has
implemented the Holacracy structure effectively, which addresses him as an effective change
agent.

3CASE STUDY ANALYSIS
Table of Contents
Introduction......................................................................................................................................4
Reasons of the change that is made by Tony Hsieh in Zappos.......................................................4
Justification of the way, which is taken by Tony Hsieh to bring change in Zappos.....................10
Assessment of Tony Hsieh as a change leader..............................................................................15
Conclusion.....................................................................................................................................18
References......................................................................................................................................20

4CASE STUDY ANALYSIS
Introduction
Change management is a vital area of any business. In order to increase the number of
customers and maximize the growth of the organization, change management is crucial. Change
management is a discipline, which guides the management about how they equip and support the
individuals to adopt a change in their organization1. Change management provides a structured
approach to the individuals in an organization. This leads the individuals to move from their
current state to the future state. Tony Hsieh is an American internet entrepreneur and venture
capitalist. He is the current CEO of Zappos, which is an online clothing and shoe company.
However, in the early stage of the business, Zappos had been faced issues in their profit and
sales. During the time of Tony Hsieh, Zappos began starting to grow. He brought change in the
culture and system of this organization, which leaves a significant effect on the growth of this
organization. This study deals with the change management in the process brought by Tony
Hsieh in Zappos.
Reasons of the change that is made by Tony Hsieh in Zappos
Factors that bring change in Zappos
Zappos is a popular online shoe and clothing organization. Tony Hsieh is the CEO of this
organization. In the recent years, the business environment is characterized through a hyper-
competitive market. However, Tony Hsieh has been decided to moving towards Holacracy2. As a
result, he has introduced Holacracy culture in Zappos in 2013. It is important for an organization
1 Sull, D.N. Why good companies go bad. Harvard Business Review (1999): 42‐52.
2 Zappos.Com 2018. "Zappos". 2018. Zappos.Com. https://www.zappos.com/c/about-zappos (Accessed July 11,
2018).

5CASE STUDY ANALYSIS
to bring changes in their existing structure to maximize the growth and to enhance the sale3.
Holacracy is a philosophy, which focuses on the self-supported structure. This philosophy leads
the organization towards the self-engagement. This change is brought by Tony Hsieh to improve
the structure and bring a new culture in the organization. Various reasons are associated with this
new change in Zappos. Both external and internal reasons are associated with the change
management. Dynamic failure is a big internal reason that leads the organization to bring
changes in their existing system. However, dynamic failure occurs due to the poor strategic
framework, process, relationship, and values.
One of the major reasons of this new change is the huge competition in the market. In the
recent years, the global market includes huge competition. In order to survive in the global
market, an organization needs to modify its existing system and organizational structure4. Online
marketing is a common and popular trend in the recent years. Many fashion organizations are
involved in improving the feature of their online marketing. This creates a huge competition in
the global market and it brings a threat for this organization. As a result, they have faced high
competition in the global market, which leads Tony Hsieh to introduce Holacracy culture in their
organization. The strategic framework of Zappos was strong, which facilitates this new culture
in this organization. This is the major strength of this organization. This culture encourages the
employees to do their work properly, which brings an opportunity for this organization to boost
their employee engagement. On the other hand, such Holacracy culture is a unique culture,
which makes Zappos unique in the competitive market and this organization is able to bring
success.
3 Sull, D.N. Why good companies go bad. Harvard Business Review (1999): 42‐52.
4 Hofer, Charles W. "Turnaround strategies." Journal of Business Strategy 1, no. 1 (1980): 19-31.

6CASE STUDY ANALYSIS
Poor shopping experience is another reason that leads Zappos to as well as Tony Hsieh to
introduce Hocracy culture in their organization. The operating process was not effective in
Zappos, which hampers their growth. In the year 1990, Zappos had faced a frustrating shopping
experience in their organization. This left a negative impact on this organization. This is due to
the less employee engagement in this organization. Tony Hsieh has identified in order to
improve the organizational culture and to maximize the growth employee engagement is crucial.
Based on the previous experience Tony Hsieh has decided to change their organizational
culture5. Another reason of establishing Holacracy structure is to encourage the employees. Tony
Hsieh wanted that employee should act more like an entrepreneur instead of doing what their
managers say. However, Tony Hsieh wants to ensure that productivity and innovation still take
place as the company grows. This is the major key driver of implementing this model in this
organization. For an organization, it is important to encourage their employees while bringing a
change in an organization6. This factor leads Tony Hsieh to implement Hocracy structure in
Zappos.
In Zappos as the sales continued to grow the company has established its warehouse in
Kentucky to manage their own inventory. Zappos is considered as the Amazon of shoes.
However, the customers are more delighted and they received their order within a couple of
days. Despite this effectiveness, the profit of this business is very low, which is a growing pain
of this business. This organization failed to give value to their stakeholders and to maintain a
proper strategic framework. In order to deal with this situation more employee engagement is
5 Thecasecentre.Org 2018. "Printer-Friendly Version Category Winner: Tony Hsieh At Zappos: Structure, Culture
And Radical Change". 2018. Thecasecentre.Org.
https://www.thecasecentre.org/educators/ordering/selecting/featuredcases/CompetitionWinners/zappos (Accessed
July 11, 2018).
6 Schmitt, Achim, Vincent L. Barker III, Sebastian Raisch, and David Whetten. "Strategic renewal in times of
environmental scarcity." Long Range Planning 49, no. 3 (2016): 361-376.

7CASE STUDY ANALYSIS
crucial7. Therefore, this organization needs to improve their communication process with the
customers. To do this Tony Hsieh has introduced the Holacracy culture, which gives right the
employees to carry out direct communication with the customers through telephonic
conversation. One of the vital reasons of implementing the new change in Zappos is the
inefficiency of the previous culture of this organization. Organizational culture plays an
important role in fulfilling the business objectives8. However, the previous culture of Zappos was
not effective to maximize its growth and establishing a good relationship between the managers
and the employees. The previous culture in this organization is weird.
In the call center of Zappos, there is no incentive for the employees and no upselling is
encouraged in this culture. On the other hand, the employees were forced to maintain the
management direction and they did not take part in the decision-making process. The
relationship between the employees and the managers was not good in the previous culture. In
an organization, the employees need to take part in the organizational decision-making process to
improve the business9. Tony Hsieh has found out the necessity of establishing a personal
emotional connection between the employees and the management. To do this he has introduced
Holacracy culture in the organization. Holacracy is considered as the self-governing structure10.
In this structure, the employees do not have any fixed job and they have to carry out a simple and
temporary role. On the other hand, the employees are more flexible in this structure. Therefore,
7 Garvin, David A., Amy C. Edmondson, and Francesca Gino. "Is yours a learning organization?." Harvard business
review 86, no. 3 (2008): 109.
8 Schmitt, Achim, Stefano Borzillo, and Gilbert Probst. "Don’t let knowledge walk away: Knowledge retention
during employee downsizing." Management Learning 43, no. 1 (2012): 53-74.
9 Battilana, Julie, and Tiziana Casciaro. "The network secrets of great change agents." Harvard Business Review 91,
no. 7 (2013): 62-68.
10 Ibarra, Herminia, and Mark Hunter. "How leaders create and use networks." MTI Foundation Day 35, no. 1
(2007): 101.

8CASE STUDY ANALYSIS
the employees are not forced to follow the management rules and they do their work
independently. It can be said from the above analysis that poor employee relationship and
inefficiency of the previous culture are the major weaknesses of Zappos. In order to overcome
these weaknesses, Tony Hsieh has established the Holacracy structure in this organization.
This structure helps the employees to utilize their full skill and work collaboratively.
Holacracy structure reduced bureaucracy from the organization, which was the major problem of
the previous culture of Zappos. In the previous structure if of Zappos the employees had to do
their work according to the management’s instruction. To change this process Tony Hsieh has
introduced Holacracy structure, which leads the employees to think as an entrepreneur. The
external factors include political, social economic and technological factors. In the context of
Zappos, the stable political and economic environment of USA is good, which facilitate the new
change in this organization. On the other hand, the social life of Las Vegas includes high-class
people, which support the Holacracy culture. Moreover, emerging technology also facilitates the
Holacracy structure by improving the skill of the employees.

9CASE STUDY ANALYSIS
Sources of the change
Force-field analysis can be done to identify the sources of the change. Force-field
includes binding force and driving force to bring change in an organization11. In the context of
Zappos, the binding forces or restraining forces resist the changes in the organization. This
includes managerial challenges and employee resistance. On the other hand, the driving forces
are the positive forces that facilitate the changes in this organization. In the context of Zappos,
the driving forces are the accountability and strength of Tony Hsieh, who brought change in this
organization.
Challenges associated with the changes
Change management includes some challenges as well as some barriers. In order
to bring change in an organization the manager or the leader has to face various challenges12.
One of the major challenges is the declining situation of an organization that occurs during the
change management. In the context of Zappos Tony Hsieh wanted to improve the economic
performance of the organization. Hence, recovery of a firm’s economic performance follows a
declining situation of this organization. The implementation of Hocracy structure in this
organization leads the firm to face a declining situation of their existing system. This is often
difficult for an organization to overcome. Poor employee morale, major customer failure are
the major indicators of the decline. Change management can create major customer failure if the
customers are not happy with the new changes13. This is a big barrier to change management in
11 Bruch, Heike, and Sumantra Ghoshal. "Unleashing organizational energy." MIT Sloan Management Review 45,
no. 1 (2003): 45.
12 Cialdini, Robert B. "Harnessing the science of persuasion." Harvard Business Review 79, no. 9 (2001): 72-81.
13 Cascio, W. Strategies for Responsible Restructuring. Academy of Management
Executive, 19(4), (2005): 39‐50.

10CASE STUDY ANALYSIS
Zappos. On the other hand, employees often show resistance towards the new change, which is
another barrier of change management. In the context of Zappos, some employees have shown
their concern regarding this new change, which creates difficulties to implement the new
structure in this organization. Apart from this managerial challenge is another barrier to change
management. Changes in the managerial behavior, managerial bias, and CEO orientation were
the major challenges that were faced by Tony Hsieh during the change management in Zappos.
Justification of the way, which is taken by Tony Hsieh to bring change in Zappos
Three stage process:
Tony Hsieh has introduced the Holacracy structure in Zappos to maximize the employee
engagement and to enhance the economic performance of the business. In order to bring the
change in a proper way, the leader can follow Lewin’s change management theory. This theory
includes three stages that are unfreeze, move and freeze. To implement the change in a right
way these three steps need to be followed. In the unfreeze stage individuals realize the
importance of the change in an organization. In this stage an effective communication is
required, which highlights the importance of change in an organization14. In the context of
Zappos, Tony Hsieh has made a clear communication with the employees. He has sent a long
mail to the employees regarding the proposed change and has given detailed information about
the change. This communication highlights the importance of change in the context of Zappos.
However, the communication process of Tony Hsieh was good but not effective. Tony Hsieh has
used written communication but he needs verbal communication to create a urgency among the
employees regarding the change.
14 Cialdini, Robert B. "Harnessing the science of persuasion." Harvard Business Review 79, no. 9 (2001): 72-81.

11CASE STUDY ANALYSIS
By using verbal communication such as an open discussion could be helpful for
Tony Hsieh to make an effective communication with the employees regarding the change. This
could create the urgency among the employees and they could understand the importance of the
Holacracy structure for Zappos. The next step is the moving stage, which needs to follow to
implement change in an organization. In this stage, the change is implemented within a short
period of time15. The employees can increase their awareness in this stage and they can
understand the importance of the change for this organization. To implement the Holacracy
structure Tony Hsieh has created a circle by replacing the team. A strict governing process is
used to design the circle. Hence, it can be said that the Tony Hsieh has involved the employees
successfully in implementing the Holacracy structure. Besides implementing the Holacracy
structure Tony Hsieh has removed the team, which could affect the overall performance of the
organization as the team works based on a common goal. However, implementation of the circles
is effective to increase the employee engagement in an organization. Thus, the second stage of
change management is carried out properly by Tony Hsieh.
The third stage of change management is the refreeze stage. In this stage, the change is
established properly and solidified16. Tony Hsieh has established the Holacracy structure in
Zappos. Therefore, he has tried to stabilize this change. However, the shift of Holacracy is
combined with the software project, which is known as Super Cloud. This does not include any
effective business strategy, which makes the employee confused. Implementation of the
Holacracy structure replaces the bosses and the hierarchies with the self-management17. This
15 Bruch, Heike, and Sumantra Ghoshal. "Unleashing organizational energy." MIT Sloan Management Review 45,
no. 1 (2003): 45.
16 Ibarra, Herminia, and Mark Hunter. "How leaders create and use networks." MTI Foundation Day 35, no. 1
(2007): 101.
17 AlManei, Mohammed, Konstantinos Salonitis, and Christos Tsinopoulos. "A conceptual lean implementation
framework based on change management theory." Procedia CIRP. 72 (2018): 1160-1165.

12CASE STUDY ANALYSIS
process is done successfully but the employees get confused about how to work in this structure.
Hence, proper monitoring could be helpful for Tony Hsieh to gain success in this new structure.
Figure 1: Change management steps
(Source:18)
18 AlManei, Mohammed, Konstantinos Salonitis, and Christos Tsinopoulos. "A conceptual lean implementation
framework based on change management theory." Procedia CIRP. 72 (2018): 1160-1165.
MoveFreezeUnfreeze