An Inside View of Zappos (and the Mysterious Holacracy Experiment)

In the months before our arrival, we studied Zappos in more depth by doing online research and talking to various (former) employees. After being highly inspired at first, our level of inspiration declined in the weeks prior to our visit. And to be honest, before we enter their office we feel we are somewhat biased. Over time, we started to feel that the culture of Zappos had become a caricature of itself. But we didn't like our biased feeling one bit. We wanted to visit the place with an open mind as to develop an objective view of what makes Zappos so special. So, when we entered the office we tried hard to leave our biased views on the sunny streets of Vegas.

An awkward start

Unfortunately, the first part of the Zappos tour immediately got our bias back in the building. While our tour guides started to perform a dance (yes, really), we got to see this 'happy chappy' video on their company culture:

Awkwardness level? Through the roof..

After the short introduction, the group split into smaller groups and we each got our own tour guide. We walk around the office to learn more about the Zappos culture. The more we toured and the more the guide explained, the more we started to feel at ease. Lots of information was shared while the unique way of working was intensively explained. Even though the tour doesn't add much to the book in terms of content, nothing beats actually walking through the office and experiencing the culture first hand.

And to be honest, our biased views felt more and more inaccurate. The way people interacted wasn't the fake and happy chappy we expected it to be. It felt inclusive, diverse and pleasant to walk around the office and encounter Zappos employees interact in an authentic manner. A quote from one of the former employees came back to mind: "At first it can feel very awkward, but try to look past that. It's more authentic than it seems to be at first sight." During the tour, these words became more and more true.

The Zappos way

For many years, Zappos has some pioneering practices in place. For those of you already familiar with Zappos' way of working, skip this text box and directly dive into the Holacracy part. If not, here's what excites us about the online shoe retailer.

A special culture

Zappos is not your typical company. CEO Tony Hsieh helped start Zappos in 1999 as an online shoe store and always had a strong focus on creating a culture of happiness. He decided that the entire organization should revolve around one topic: delivering happiness. However, in its early days, and after a period of rapid growth, Tony Hsieh started to wonder how he could preserve Zappos' unique culture and work environment while so many new people joined his organization. He knew he could not solve this problem by himself and decided to ask his employees for help. They ended up with a list of 10 core values; a list that hasn't changed since then. Zappos' core values include things as "Deliver WOW through service, "Create fun and a little weirdness" (we definitely experienced the weirdness during the introduction dance) and "Be humble". Every year Zappos produces a culture book around their values in which a variety of employees share stories about their culture and work environment.

"We pay you to quit your job"

In order to get all new Zappos employees aligned with their special culture they all receive intensive training in the way of working before they start with their actual job. Zappos gained worldwide attention with the invention of a very special and innovative training practice. Before new employees start with their job, after a 4 week training period, they are offered a fairly big amount of money (last we heard it's $ 5.000) to quit. By paying new hires to quit, Zappos gets rid of the employees that are not happy and aligned with their culture. Remarkably, in the long-term this practice actually seems to save Zappos money. Besides, the employees that refuse the payment make a strong statement of commitment to their new employer, organization and culture.

The 10 hour record call

During our tour around the office we came across plenty of other practices they have in place. A Zappos employee can, for example, give away a $50 bonus to any colleague who, according to him or her, is living one of the core values. Besides, call center employees are focused on actually helping customers, not on selling stuff. They are actively encouraged to connect with customers by talking about any subject they like, with no time limit in place (the Tony's book, we will not go into further detail on them here.

The big Holacracy experiment

Currently, Zappos receives worldwide attention due to their implementation of Holacracy. For those of you not familiar with Holacracy, here is our earlier blog post on it: Assessing the bold claims of Holacracy. People are looking at Zappos and their implementation of this new 'organizational operating system' as a make-it-or-break-it for transforming to Holacracy. The lack of communication from either Zappos or Holacracy on the results of the experiment seems to stir rumors around the world.

At the same time it feels like two groups are hungry for a final verdict: evangelists of Holacracy are waiting for proof that it works, while skeptics are waiting for it to fail with a nasty I-told-you-so look. In this blog post, we do not intent to please either of them. We will provide you with an insight view based on several interviews we conducted.

To come to a balanced view, we spoke to several (former) Zappos employees over the last months. We talked to a couple of long-time Zappos employees, fairly new recruits and people that have already left the company for a while. All of them were (some more than others) involved in the implementation of their new organizational model over the last couple of years. Of the people we spoke to, several are highly experienced and have extensive knowledge of organizational design. By the way, all the people we spoke to wanted to remain anonymous, we respect that and therefore will not reveal any names.

"Our CEO is very heavy on Holacracy"

The decision to start working with Holacracy at Zappos has been a top-down decision. As most of the founders and CEOs we've met, this is not a rare thing to do. The major decision to start working in a radically new way is often made by them. However, in the organizations we've visited, the founder or CEO tries to get out of the way of the employees as much as possible. At Zappos, this doesn't seem to be the case.

As one of the employees mentions to us: “Our CEO, Tony Hsieh, is very heavy on Holacracy and we can therefore barely talk certain ideas out of his mind. We don't feel that the way we experience Holacracy is taken into account, and we can't be transparent about what we think of it. The whole world is watching us so it feels that this experiment needs to succeed. Most of the teams were working fine before the implementation. Some have struggled very much with the new way of working, others picked it up quite fast. But it is just nonsense to think that this one model will work for all the teams in an organization of this size.

Especially teams dealing with IT and development tend to hate it. People dealing with more a rigid and less creative kind of work, like finance and accounting, seem to pick it up easier. But honestly, not everyone is trained in Holacracy. There are colleagues in the call center only working the graveyard shift [night shifts] that can never attend any training because they are usually held during the day. Especially some newer people have probably never even heard of any process or procedure related to Holacracy. So it is wrong to say that the entire company is using Holacracy.”

No proof of success

One of the major reasons Zappos implemented this model is the reasoning that in cities innovation tends to increase when the amount of people increase. In most traditional organizations we see an opposite trend; innovation tends to decrease when the amount of people increase. Zappos tries to solve this problem by implementation of Holacracy.

Zappos employees, however, seem to struggle with the fact that there is no proof whatsoever to convince them to keep working in this new way. “The problem is that the leadership never communicates, or communicated, about the level of innovation before and after the implementation of Holacracy. There is no data or proof whether or not it is working for Zappos."

Source: Samantha Lee/Business Insider

It's a shame Zappos doesn't seem to have the answers to whether or not Holacracy works for them. Especially, as some of the employees are clearly frustrated with the way Holacracy works. "Another claim that there would be no formal hierarchy with Holacracy is misleading. We still experience similar hierarchy as we had before, it is just not so clear and official anymore. The main issue we are trying to deal with is why we should continue working this way if the majority of the employees doesn’t even like it?”

Tony Hsieh's claim that "it's actually a hierarchy of purposes" also seems to be prettier than reality.

Waiting for a more human system

Employees directly involved in the implementation of Holacracy told us they hoped the Holacracy hype to be over better sooner than later.

“We are waiting for this period to be over and something new will be initiated by our CEO. Even the people that are supposed to introduce and implement Holacracy are waiting for this moment. We joke about it all the time. More and more teams find ways to beat the system and have adjusted the processes in such a way that they feel more comfortable with it. For example, meetings are not as rigid anymore as they were initially implemented and how we are supposed to hold them. Most of us are just trying to make the system more human.”

High levels of loyalty

Even though some of the employees we talked to are somewhat frustrated with Holacracy, they still show high levels of loyalty towards the company. It’s amazing to witness how deeply the employees of Zappos care about the organization and its (original) culture. Most of the longtime Zappos employees are fighting to protect the culture from being kidnapped by Holacracy’s processes and procedures.

“We love working for this place, some of us for plenty of years already. We will not give up easily. We see the implementation of Holacracy as an intermediate step to further organizational innovation and liberation. But my honest opinion? I would have never chosen this one-size-fits-all approach. We should have just started looking for our own way towards self-management and less hierarchy. I’m sure everyone at Zappos is capable of finding the right way of working for them.

One size does not fit all

While drawing our conclusions on Zappos, we are once again strengthened in our belief there is no one-size-fits-all model. For an organization like Zappos, it's a significant gamble to use a fixed and rigid system like Holacracy on its way towards self-management. Also, we think that a predefined and off-the-shelf system replaces a proper dialogue between employees.

When it comes to other aspects of Zappos, we spoke to employees that still highly value their work environment. They feel valued, show high levels of loyalty, and are committed to helping the company succeed in the long run. Let's just hope that Zappos' leadership will value their efforts in return. And let's hope their loyalty will be strong enough to overcome this, for them, frustrating Holacracy period.