As reported on a couple of occasions last year – http://beyondphilosophy.com/new-zomm-zappos-organizational-management-model-might-mean-employees-might-mean-customers/ and http://customerthink.com/holacracy-at-zappos-if-there-is-no-room-for-voc-is-legendary-customer-loyalty-at-risk/ – Tony Hsieh, the CEO of Zappos, has put a unique management and HR model into place. It’s called holacracy, an approach to organizational redesign. This is a project he began in 2013. Holacracy, long story short, eliminates most formal titles and management levels, replacing them with self-organization and self-management.
Holacracy, as a day-to-day enterprise operating approach, is also both controversial and uncomfortable for some. Even in a very progressive company like Zappos, this change has not gone down particularly well (Hsieh recently sent an email to employees advising all Zappos staff that they had until the end of April to make a stay/go decision), as close to 20% of employees have left the organization (http://www.cbsnews.com/news/zappos-does-away-with-bosses-and-not-everyone-likes-it/). One customer experience research and consulting company believes that these departures will not hurt employee engagement, and by extension their role as ambassadors inside and outside of the company (http://www.peoplemetrics.com/blog/14-of-zappos-staff-quits-which-is-just-fine-for-employee-engagement); but, that said, it’s challenging to see how there’s anything particularly positive for customers in this move.
My issue isn’t so much that Tony Hsieh has made the decision to morph the company culture, architecture and operational platform. It’s that the effect, or potential effect, on customers because of this change has not been studied or discussed and has yet to unfold. Further, there’s little evidence that this issue, i.e. customer behavior impact, has been taken into consideration at all. CEOs sometimes make major unilateral moves like this, and and there is probably something in their personalities that leads them to assume they can anticipate the marketplace reaction and cultural impact. Sometimes they’re right, sometimes they’re wrong. Earlier this year, Howard Schultz, CEO of Starbucks, pushed forward with his “Race Together” concept (http://www.npr.org/blogs/thetwo-way/2015/03/22/394710277/starbucks-will-stop-writing-race-together-on-coffee-cups). This was met with so much resistance, rather quietly from inside the company (as might have been expected) and more vocally and more negatively from customers, that the initiative was quickly withdrawn. Schultz claimed that the objectives he’d defined had been met, but that explanation felt more like backfill for an idea that was questionable at best and controversial and image-threatening at worst.
In the case of Zappos, the “pay to quit” deal has long been offered to new employees if they feel they don’t fit with the culture, or the culture isn’t right for them. They receive one month’s pay if they select this option. Normally, only about 1% to 3% of new hires make the choice to leave the employ of Zappos. At close to 15%, the “holacracy or resign”, i.e. my way or the highway, edict may have much more lasting and serious impact on the culture and on customers.
Many management scientists are skeptical about holocracy. Often, holacratic corporate systems have failed, and they have also been proven difficult to scale. In unilaterally moving his company to an arguably more utopian style of operations, an initiative some have felt is open to question (http://www.zapposinsights.com/about/holacracy), observers feel that Tony Hsieh has put his highly successful enterprise at some risk, and maybe more than he’d like to believe. What is the real price, to employees and customers, of such a massive culture change?