Zappos Flat Org Structure: The Good and the Bad
Online clothing retailer Zappos is viewed as an IT startup success story, given that the firm was founded in 1999 and grew to $1 billion in annual revenue by 2008. One thing the firm is most notable for is its unique workplace environment and flat organizational structure. In 2013, CEO Tony Hsieh began officially promoting a new organizational structure called holacracy. This structure eliminated the existing hierarchy, and replaced it with loosely-defined “concentric circles of responsibility”. Employees can choose which circle they belong to and what projects they want to work on; no one has a permanent role or job title. There is a large emphasis on self-management and self-responsibility, and the intention is to promote collaboration and creativity. It is difficult to quantify the positive impact this increase in employee freedom has had for Zappos. On the other hand, there are some clear issues that have arisen. Unsurprisingly, there has been a great deal of confusion over who is responsible for what work, and how to complete certain processes, since roles and procedures are now loosely defined. Also, since everyone has an equal voice, meetings tend to ramble on forever. In late 2015, Hsiesh offered employees the opportunity to take a generous severance package if they did not enjoy working under the new holacratic structure. The offer resulted in a year-end turnover rate of 30%. The silver-lining in this situation is that all the remaining employees are supposedly in favor of the new structure and will do their best to drive the company to success. In my opinion, a firm with 1500 employees is too large to successfully operate under a flat structure. Even though Zappos is an IT firm that succeeds through innovation, there needs to be some amount of order and hierarchy for things to get done properly. As an employee, I would find the ambiguous governance structure of Zappos very stressful and confusing.
Source: https://www.nytimes.com/2015/07/19/business/at-zappos-selling-shoes-and-a-vision.html and https://www.theatlantic.com/business/archive/2016/01/zappos-holacracy-hierarchy/424173/