Like most CEOs, Zappos CEO Tony Hsieh is a pretty busy guy. In addition to running the e-commerce giant, and committing over $350 million to developing downtown Las Vegas, he has completely rethought Zappos’ management structure using a new practice called holacracy, all while living in a trailer park with his pet llama.
With the help of Brian Robertson, the founder of holacracy, Hsieh eliminated Zappos’ traditional vertical management structure and adopted a new way of organizing. Business units, direct reports, and amorphous job titles are replaced by circles and domains. Everyone has the same level of responsibility for accomplishing goals outlined in a job description, and managers still exist within holacracy, but they’re more like entrepreneurs who guide their team’s mission, rather than managing them in the traditional sense.
Giving Structure to Management Philosophies
At first glance, holacracy seems hokey. It’s filled with plenty of ‘soft science’, and lacks any real metrics for success. The fact that its rule book is called a constitution seems more than just a little pretentious.
Only in use by a few hundred companies, its principles bear a striking resemblance to Hsieh’s management style as an entrepreneur. What it has really done at Zappos is formalize entrepreneurial gut instincts, and turned years of trial and error into structured methodologies.
For example, Hsieh baked in the ethos of ‘hire slow, fire fast’ at Zappos with the explicit intention hiring the best people specifically for Zappos. In doing so they’ve hired thousands of employees whose beliefs align with the company’s core values, resulting in a culture focused on making Zappos a better company, versus a strictly profitable company.
Hsieh famously stated in 2010 that “bad employees had cost Zappos $100 million in lost revenue.” The thinking behind this is straightforward – misalignment of values and principles can lead to poor performance that erodes team morale, creates delays due to conflict, and hurts the company’s bottom line.
The transition to the new corporate dogma hasn’t been exactly smooth. 210 (or 14%) of employees opted to leave the company when Hsieh offered them a controversial ultimatum to adopt the principles, or leave. No one is sure if the exiting 14% were managers, ‘fast-tracked’ employees who suddenly had the rug pulled out from underneath them, or employees eagerly awaiting a promotion. In any case, Hsieh’s statement weeded out those who weren’t aligning with company values, further driving home his point of ‘hire slow, fire fast’.
That’s really all holacracy is – it isn’t a revolutionary management structure so much as it provides managers and team members with the tools to more effectively manage themselves in the pursuit of organizational objectives.
If you’re a happy Zappos employee, holacracy provides more of what you what you already love about the company – increased satisfaction and purpose. If you’re Tony Hsieh and Zappos management, holacracy provides a series of processes to quickly solve problems in a way that only lean startups can. That’s a powerful hack for a 1,210 employee company to leverage.
Like the American Constitution, holacracy is the summation of many similar management philosophies articulated into a clear set of rules allowing for constant and frequent internal revision. The result: employees are happier and more productive, and leadership is more involved in guiding the employee satisfaction that affects Zappos’ bottom line.
If there’s No Victor, Who Gets the Spoils?
Hierarchy still exists at Zappos, but it’s a streamlined, stripped down version, and far more similar to what you see at an early stage startup. To anyone coming from a corporate background it would seem like chaos, but it’s more similar to an organized chaos that is reflective of the reality that companies are run by people, not processes and structures. Within holacracy, teams and individuals are organized into circles, and have almost complete autonomy over daily operations – from salary budgets to who owns various parts of projects.
A manager still ‘runs’ the team, but there is far less manager buy-in required, allowing for shorter meetings, which in turn drives productivity. The more productive a team is, the more time they have to focus on their lives away from the office or take advantage of Zappos’ long list of employee perks. The great thing about this approach is that it leverages all sorts of positives like intrinsic motivation, which in the long-term should make the individual teams within Zappos much more autonomous in their pursuit of customer satisfaction.
For Zappos this is just more of the same – from the very beginning they put the customer first. For example, instead of dealing with customer problems, call center employees were first empowered to help customers find deals on shoes by removing hurdles to that end goal. Holacracy now provides the structure, rules and external resources for employees to continue to do so at scale.
Employees win big time, but so do customers, and latter is an important part of how Zappos will generate an estimated $97 million in profits in 2015.
Purpose, Passion, and Fun.
At the end of the day Zappos places a huge emphasis on purpose, and satisfied employees are a crucial part of a purposeful company. They also place emphasis on fun. Countless studies have been conducted on what playtime does for productivity by stimulating regions of the brain that normally lay dormant during periods of intense focus. Researchers like Dr. Stuart Brown have spent years researching how play, or having fun, actually makes us smarter.
Zappos is no different. On their insights blog there are countless posts emphasizing the importance of work-life balance, and frequent breaks. This approach not only makes for smarter employees, but for more social employees who take more pride in their collective work, and who are more likely come up with better solutions to problems after an Oreo eating contest.
While holacracy is a refreshing approach to management it really isn’t as groundbreaking as many would lead managers and HR professionals to believe. What is brilliant about it is how it condenses effective management styles into clearly outlined principles that will allow thousands more to grow their organizations in a similar fashion, without subjecting themselves to reading yet another autobiography. What’s even better is that holacracy leaves much of the company’s culture and spirit, as spearheaded by its founders, intact. So for anyone looking to replicate Tony Hsieh’s relentless focus on customer experience, it’s as close to a formula as they’re likely to get.