Reference no: EM131676178

Identify three (3) problems regarding Zappos organization culture holacracy and teal and recommendations to solve the problems. Each problem will require a justified recommended solution at least a page each.

Zappos CEO Asks Employees to Commit to Teal, or Leave A Bit of History Zappos had modest beginnings. In 1999, shoesite.com was started by Nick Swinmurn to capture online shoe sales. Swinmurn reached out to Tony Hsieh (pronounced “shay”) and Alfred Lin, who were running Venture Frogs, a kind of venture capital group, for advice and funding. Shoesite soon changed its name to Zappos, a riff on zapatos, the Spanish word for shoes, but abstract enough to let the company offer products other than footwear. In 2000 Hsieh joined Swinmurn as co-CEO and then became sole CEO. Quietly charismatic, Hsieh gives quote-worthy interviews and for over a decade has served as the company’s public face and voice. (Swinmurn left in 2006.) Zappos has achieved great financial success. Revenue jumped from $1.6 million in 2000 to over $1 billion by 2008. This success led Amazon.com to purchase the company for $1.2 billion in 2009. And today? While Amazon does not separate Zappos revenues in its annual report, the division’s sales are assumed to continue at well over $1 billion annually. Hsieh told Jennifer Reingold, a Fortune reporter, that the company had achieved its highest operating profit ever in 2015.119 Tony Hsieh’s Vision for the Company Hsieh has long cared about employee welfare, as evidenced by his book titled Delivering Happiness. He asserts that employee satisfaction is essential for business success. Today, his goal is to turn Zappos into a “teal” company: teal represents a company “characterized by self-management, bringing one’s ‘whole’ self to work, and having a purpose beyond making money,” according to Fortune. To get there, Hsieh implemented an organizational structure he calls a holacracy. Moving to Holacracy Zappos historically favored an informal and flatter organization structure that probably best fits the horizontal form of organizational design discussed in this chapter. The company preferred this design because it felt bureaucracy and hierarchy might dampen the creativity and employee engagement needed to provide great customer service, a primary corporate goal. Although this design aided Zappos throughout its growing years, in 2013 Hsieh came to believe that Zappos’s organizational structure was limiting what employees had to offer. It was time for a change. Hsieh told The Wall Street Journal, “Employees have so much more to offer. They’re a full human being that has all these skills that, if they’re given the right context to collaborate with each other and be creative and help move the company forward, they will do that.”120 In a holacracy, the traditional hierarchical structure and reporting relationships are replaced by self-management. There are no job titles and no managers. “It removes power from a management hierarchy and distributes it across teams that have a clear set of roles, responsibilities, and expectations. Instead of being assigned to a particular job position or description, roles of employees are defined around the work. These roles are constantly being updated and employees fill several roles. Additionally, employees work within a team in which authority is equally distributed among its members," according to management blogger.121 These teams represent a hierarchy of work circles. A writer for Fortune noted that each team has a different purpose, and the circles “operate next to, and on top of, each other. … Lead links are the nominal managers—but they have little formal authority and can’t force employees to do anything they don’t want to do.”122 A writer from Forbes described the structure as a hierarchy of circles that operate according to detailed procedures outlined in the Holacracy Constitution. “Each higher circle tells its lower circle (or circles) what its purpose is and what is expected of it. It can do anything to the lower circle—change it, re-staff it, abolish it—if it doesn’t perform according to the higher circle’s expectations. The word customer or a reference to any feedback mechanism from the customer doesn't appear even once in the Holacracy Constitution. The Page 629arrangements are purely inward-looking and vertical,” according to Forbes.123 As of 2015, more than 300 circles covered the areas of customer service, social media, Holacracy implementation, and others.124 The Holacracy Constitution was developed by Brian Robertson, the software executive who proposed this form of organizational design. This document contains a language unique to this form of structure and detailed procedures for running governance and tactical meetings and expressing “tensions.” A tension is an employee concern or problem about something happening at the company. Circles are expected to resolve tensions. Employees are expected to use the language and procedural guidelines in the constitution. Hsieh notes this process makes everything explicit. In other words, holacracy creates bureaucracy and hierarchy. “The ironic thing is there’s actually a lot more structure and we have governance meetings. Each circle has its own governance meetings that list accountabilities and change purpose statements and so on,” he said.125 Employees are allowed to move from circle to circle if they believe their talents can be used more effectively elsewhere or they are unhappy in their current circle. The Outcomes of Holacracy at Zappos In attempt to optimize P-O fit, in 2015 Hsieh offered employees three months of severance pay if they did not like working in the new structure. About 14 percent of Zappos’s 1,500 employees took the deal. This is huge when you consider that the company’s traditional turnover rate has been about 1 percent.126 Hsieh isn’t overly concerned and even provided this positive spin: “Another way to look at it is that 86 percent of employees chose to walk away from the ‘easy money’ and stay with the company.” Zappos simply went out and hired more people. Fortune reporter Reingold concluded that holacracy creates winners and losers. On the positive side, it sparked new ideas and provided more opportunities for less senior employees because experience and expertise were de-emphasized in the new structure. It also benefited introverts in that they now are expected to speak up in meetings. It also helped dissatisfied employees such as Derek Noel. Noel was a customer service representative who wanted to transfer to the company’s culture team. His boss had blocked the transfer, but under holacracy, he was no longer allowed to do this. So Noel moved to the Fungineering circle, an events-planning/pep team.127 On the downside, the new structure is vague about how people receive performance evaluations and pay raises. Some are concerned about promotional opportunities because there are no managerial job tracks. Employees told The Wall Street Journal, “The new system has been confusing and time-consuming, especially at first, sometimes requiring five extra hours of meetings a week as workers unshackled from their former bosses organize themselves into ‘circles’ and learn the vocabulary of holacracy.”128 Now What? Hsieh wrote a 4,300-word memo to employees in 2015 called, “Reinventing Zappos: The Road to Teal.” (Remember that he earlier asked people to commit to a holacracy culture and 14 percent of the employees quit.) He then asked everyone to commit to teal or leave (with a nice severance package). He felt that nonbelievers needed to go. According to Fortune, “In the end, 18 percent of the 1,500 employees took buyouts, and another 11 percent left without a package.”129 All told, about 29 percent of Zappos employees quit the company as a result of instituting a holacracy culture in pursuit of becoming teal. Many remaining employees feel it’s time to refocus on organizational culture. It was suggested that circles include a “culture check” at every governance meeting. The company has also revised its recruiting process to assess whether applicants fit the new structure and philosophy of teal. In 2016, Zappos did not make Fortune’s list of Best Places to Work for the first time in eight years. Its scores on 48 of 58 questions had dropped.130.