Leadership & Management: Case Study Analysis of Zappos' Holacracy

This case study analyzes the Zappos company's implementation of Holacracy, a self-management system, and its subsequent failure. The report begins with an executive summary highlighting the key issues, including employee turnover and resistance to change. It then provides an introduction to Zappos and its business model, followed by a detailed analysis of the management challenges arising from the Holacracy approach. The case study examines how Zappos' unique selling propositions, such as customer service and free shipping, were affected by the shift to Holacracy. The analysis includes the identification of key management theories like Kurt Lewin’s Change Management Theory, to address the challenges of organizational change. The report also explores the impact of Holacracy on employee morale, productivity, and the overall organizational structure. The recommendations section suggests alternative approaches and best practices, drawing from other companies that have successfully implemented Holacracy. The conclusion summarizes the findings and emphasizes the importance of considering employee needs and the potential risks associated with radical organizational changes. The report is a comprehensive examination of Zappos' experience, offering valuable insights into the complexities of organizational change and leadership management.

Running head: CASE STUDY ANALYSIS
Case Study Analysis
Name of the Student
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Executive Summary
The report has thrown light on the overall analysis of the Holacracy approach of Zappos which
has been a huge failure for the growth of the company in the competitive business environment.
There have been different kinds of issues such as turnover among the employees and there was
different resistance to change among employees that affected the overall morale of the
employees and it affected the overall productivity of the organization. There were different kinds
of usage of management theories such as Kurt Lewin’s Change management theory which will
be beneficial in improving the overall process effectively. The recommendations have been
provided that has been helpful in enhancing the process appropriately.

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Table of Contents
Introduction......................................................................................................................................3
Key Management Challenge............................................................................................................4
Case Analysis...................................................................................................................................6
Recommendations............................................................................................................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................12

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Introduction
Zappos is one of the online hubs for shopping for the different customer brands which
ranges from electronics to fashion. Since the year 1990s, Zappos started and has grown in an
exponential manner through proper development along with appropriate control of the supply
chain of the company. Furthermore, Zappos began to the business with the idea for the platform
of different ranges of shoes available for the customers wherein only 5% of the sales of the
different shoes were happened to be in the online platform.
Furthermore, the company expanded its operations in the apparels department in the year
2007, and it was then acquired by Amazon in the year 2009. The unique selling propositions of
the company were relating to the ability provided to the buyers to purchase from a more
extensive selection of styles along with colours which helped them in experiencing profitability
in comparison to the Brick and Mortar stores. The other USP is the ability to receive the
overnight free shipping for the customers which helped the company in becoming more
competitive.
However, later on, the company Zappos underwent growing pains between the years
1999 and 2008 wherein the main issue which was faced by them was related to the supply chain
management related activities (Schreiber, 2019). The distribution of Zappos evolved from the
dropship model in order to compete with themselves and the inventory in the last ten years.
There were massive changes which were undertaken by the company in respect of the offerings
of the product along with expanding from the online store business to the seller of the other
accessories such as handbags of the women, electronics along with clothing which was made
available for both men and women (CATHY & Gollan, 2018).

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However, there were different problems began to occur due to the failing economy and
me such circumstances, the company had felt that the international expansion is not a viable
option, however they required to perform something to avoid the declining sales of the company
which will be helpful for them in increasing the overall profitability of the company. The leading
case facts of the Zappos include the following:
Firstly, Zappos has created philosophy along with the proper brand image on managing and
enhancing the experience of the customers even when the cost of the company is prohibitive.
From the case study, it can be identified that when the company wants to increase their profit
margins, they require to alter the different business practices, which will be appropriate for
making the customers feel unique and special (Pircher, 2017).
Furthermore, customers in the market are changing their ways for the online shopping aspects as
the economy slowed down. Therefore, it was the other issue which was faced by Zappos, and it
affected their brand image in a negative manner. Moreover, the trucks of the company which are
not running at the full capacity, it was causing the traffic jams, and it caused poor cost efficiency
of the company (Warrick, Milliman & Ferguson, 2016). Zappos has been officially using the
Holacracy instead of the traditional organizational design since January 2014 as the main motive
of Zappos was to ensure that the company is being able to lead to greater efficiency,
transparency along with flexibility which leads to better competitive positioning in the entire
competitive market (Viðarsson, 2017).
Key Management Challenge
Zappos and Tony Hsieh turned the approach of Holacracy were that the respective
company was found in the year 1999 and it was considered to be one of the Fortune Top 100

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places to work with until in the recent times. Hsieh turned the horizontal organizational style as
the company felt that it would be helpful in boosting the morale of the different employees and
there will be no such concept of having managers in the organizational culture (Velinov,
Vassilev & Denisov, 2018). However, the main issue which was being faced by Zappos after the
implementation of Holacracy culture in the organization, it was being noticed that within one
single year, there were more than 29% employees resigned which affected the entire productivity
of the company in the past few years. Having more than 29% of the turnover among the
employees showed and proved two things for the organization that there were employees who
did not want to part of the new system (Vaidya & Roy, 2018).
Due to the implementation of Holacracy, it reduced the control as there is no inclusion of
corporate hierarchy as the CEO did not have right to dictate the different departments and the
employees did not understand the entire process (Robertson, 2016). Furthermore, it has been
noticed that due to the distribution of the authority, the traditional job title holders found the
same difficult to change the course and make the different team members in the group focus on
the similar goal. More than 50% of the employees felt there was no such motivation provided to
them which affected their morale and they did not felt like working under the respective
Holacracy approach at Zappos. More than 29% of the employees were not able to cope with such
culture in pursuit of becoming teal (Robertson, 2015).
Furthermore, in the year 2016, Zappos did not make to the top company in the Fortune
list of Best Places to work for the very first time in the last eight years. From the above analysis,
it can be identified that Zappos has half of the respective culture and through imposing the
culture of Holacracy, it is the overall vision of the CEO as he intends the culture to be Holacracy
in nature. However, on the contrary, the different employees felt their vision was different from

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CEO as he did not support the respective idea and this was the main reason that there were
various employees who left the job at the Zappos company and it affected the overall brand
image of the company negatively in comparison to the other competitors present in the market.
In addition, there were different employees in Zappos who were not in favour of the respective
style as there were different employees of various age groups and they did not find the same
suitable (Reinmoeller, Ansari & Mehta, 2019).
Case Analysis
From the overall analysis of the management issue which was related to the adoption of
the Holacracy approach was that it affected the entire productivity of the organization in a
negative manner. With the adoption of the new structure named Holacracy, it was being seen that
it caused huge instability such as there was no trust with management and there was no such role
of the managers in the organization as well (Piezunka et al., 2018). In addition, from the case
study, it can be identified that the different employees were confused and demoralized by the
constant pace of the change which was taking place at Zappos and it affected the overall
production of the company to a great extent in comparison to the other competitors present in the
market. The respective strategy created uncertainty along with chaos, and it was a risk-taking
approach as it can create a negative impact on the brand image of the firm (Beech & MacIntosh,
2017).
Due to the change of the organizational structure, it created chaos among few employees
as the employees treated the change as a threat and the people became rigid and reactive in
nature in the midst of the process of change rather than open and responsive in nature. Due to the
Holacracy, it caused the people to quit their job, and the change carried both risks of failure

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along with the opportunity for success (Bernstein et al., 2016). There was resistance to change
among the different employees as CEO Tony Hsieh created the culture of Holacracy for making
the workplace more fun and interesting; however the same was not conceived by few employees
in a similar manner. Moreover, it was being noticed that there was no such encouragement
provided to the employees who brought in the respective change which affected their morale and
they did not feel encouraged in performing the tasks (Birkinshaw & Cable, 2017).
The change was the primary concern in Zappos as the different employees were not
aware of the approach of Holacracy. However, a similar situation can be handled with the
implementation of Kurt Lewin’s Change Management Strategy which will be beneficial in
managing the overall efficiency of the organization accurately (Bohrweg, 2018). The respective
model will be helpful in handling the change in an accurate manner at Zappos in a precise
manner. The respective model is frequently being used in the case of organizational change. The
respective management theory could have been used by Zappos in bringing out the mentally
change among the different employees along with creating awareness of the advantages of the
change which will play a vital role in improving the morale of the employees regarding the
change in a positive manner (Eremina & Puhakka, 2017).
From the case study, it was being analyzed that the employees were demoralized with the
constant pace of change and it affected their productivity. In such a scenario, the management
could have implemented the change along with letting the employees relating to the different
positive aspects of the change process (Golden, Pandey & O’Rourke, 201&). Furthermore, after
the proper training and development among the different employees, the company could have
further analyses the desired level of change and solidifying the new behaviour is the norm which
will be appropriate for the overall success of the firm. Therefore, these are the significant issues

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which were faced by the company Zappos due to the adoption of the Holacracy culture, and it
affected the entire productivity of the firm along with creating different issues in the overall
morale of the employees in managing the various tasks in the organization as well (Gouveia,
2016).
Recommendations
From the complete analysis of the case study of the Holacracy culture followed by Zappos, it
can be recommended that there are different kinds of other options which can be adopted by the
other companies which will be appropriate for the overall success of the other companies. For
instance,- California based agency named Phelps has been practising the Holacracy since 1981
wherein the company has been able to reap the different benefits appropriately. In Phelps, it was
being noticed that the various employees were no longer worried regarding the different layers of
approval (Kumar & Mukherjee, 2018). There was no such corporate title compensation, and
there were different kinds of performance-based compensations. In order to adopt the Holacracy
culture in an appropriate manner, the companies require to adopt the lifestyle wherein the
different employees should be aware of the change which should be implemented as to improve
their morale.
In implementing the Holacracy culture, the different companies can make their business
future proof, and it will be creating the huge success of the company. With the effective
Holacracy system, there is the involvement of the reliable pathways which will be beneficial in
resolving the issues, and when the issues arise, all the different employees will be receiving
proper access to solve the problems and in an appropriate manner (Lee & Edmondson, 2017).
There will be freedom when the different tasks are performed by the different individuals, and

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CASE STUDY ANALYSIS
there will be sharing of the authority to organize along with re-organizing themselves in an
internal manner to achieve the various goals, and it will be a huge success for the company as
well. However, while implementing the respective process in the organization, the management
of the company needs to consult with the different employees working in the team as they are the
significant part of the process.
In addition to the same, there should be proper training and development practices which
should be built by the company in order to improve their mindset and make them understand that
the respective change is mandatory and needed for the overall success of the firm. The Holacracy
approach helps in increasing the agility, efficiency, transparency along with showcasing
innovative capabilities within the organization. The manager or the higher officials while
discussing the respective strategy with the employees, they should share the application of the
goal wherein Holacracy approach is required as it will ensure that the entire responsibility is
within the individual who is performing the activities and it will be appropriate for making the
Holacracy approach successful.
From the instance of Phelps, it can be identified and analyzed that the company is reaping
the different benefits from the process of the Holacracy approach which has been implemented
by them and it increased the morale of the employees in performing the various activities in an
accurate manner. While adopting the Holacracy approach, there are significant things wherein
the primary focus should be on such as:
 Personal Responsibility- It is the first aspect which should be followed by the other
companies who have failed the Holacracy approach in which there should be adoption of
the self-management style and it will be beneficial in enhancing the overall independent

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CASE STUDY ANALYSIS
strategy can be introduced which will be beneficial for the overall success of the firm
(Lee & Edmondson, 2017)
 Honest along with Timely Collaboration- It is the second aspect wherein the companies
need to focus as the timely collaboration can be useful in sharing the reasonable
approaches towards the tasks which are being performed by them and it will make the
employees feel responsible towards the functions which have been performed by them in
an appropriate manner.
 Openness to Feedback- There should be a generation of transparency in the process of
feedback as it is the other approach that will make the overall success of Holacracy.
There can be proper training and development of the employees who will encourage the
approach related to Holacracy as it will be beneficial in managing themselves and
performing the tasks in an accurate manner (Lee & Edmondson, 2017).
 Embracement to Core Values of Holacracy- The Holacracy is the not governance
process of the people, for the people and by the people. It is the governance for the
organization wherein the engagement of employees plays a beneficial role in improving
the scenario, and they will feel that they are the major part of the organization as well.
From the overall analysis of the recommendations, it can be identified that there are
different kinds of suggestions which can be adopted by the other companies which are planning
to adopt the Holacracy approach in their organizational structure and culture as it will be
beneficial for gaining productivity and improve the efficiency level of the organization and
employees in an appropriate manner.

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Conclusion
Therefore, from the above, it can be concluded that there were different issues faced by Zappos
while implementing the approach of Holacracy in the organization. It was being noticed that
there was no such engagement among the various employees and the employees were not aware
of the process of change. In addition, the employees were resistant to the change as they feared
of threat and it affected the overall productivity of the organization. As there was a lack of
employee engagement in the organization, there were different issues such as hard to get
everyone on board which affected the overall effectiveness of the company negatively. However,
the whole aspect can be changed through engaging the employees while implementing the
process of change and it will be a success for the overall organizational effectiveness.

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References
Beech, N., & MacIntosh, R. (2017). Managing change: Enquiry and action. Cambridge
University Press.
Bernstein, E., Bunch, J., Canner, N., & Lee, M. (2016). Beyond the holacracy hype. Harvard
business review, 94(7), 8.
Birkinshaw, J., & Cable, D. (2017). The dark side of transparency. McKinsey Quarterly, 88-95.
Bohrweg, N. (2018). Implementing Holacracy™: Exploratory research into practising and
performing Holacracy™ in organizations and their effect on the organizations' IT and
security.
Eremina, A., & Puhakka, V. (2017). Comparison of Organizational Structures–Case
Zappos. International Business Management.
Golden, B., Pandey, A., & O’Rourke, J. S. (2017). Zappos: An experiment in holacracy. The
Eugene D. Fanning Center for Business Communication, Mendoza College of Business,
University of Notre Dame.
Gouveia, L. B. (2016). Holacracy as an alternative to organisations governance.
Kumar S, V., & Mukherjee, S. (2018). Holacracy–the future of organizing? The case of
Zappos. Human Resource Management International Digest, 26(7), 12-15.
Lee, M. Y., & Edmondson, A. C. (2017). Self-managing organizations: Exploring the limits of
less-hierarchical organizing. Research in organizational behavior, 37, 35-58.

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Piezunka, H., Lee, W., Haynes, R., & Bothner, M. S. (2018). Escalation of competition into
conflict in competitive networks of Formula One drivers. Proceedings of the National
Academy of Sciences, 115(15), E3361-E3367.
Reinmoeller, P., Ansari, S., & Mehta, M. (2019). The Re-Adoption of Management Ideas. The
Oxford Handbook of Management Ideas, 251.
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Robertson, B. J. (2016). Holacracy: ein revolutionäres Management-System für eine volatile
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Velinov, E., Vassilev, V., & Denisov, I. (2018). Holacracy and Obliquity: contingency
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Viðarsson, E. R. (2017). Learning Holacracy Fundamentals Through Play (Doctoral dissertation,
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CATHY, X., & Gollan, P. J. (2018). Implementing sustainable HRM: The new challenge of
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