Instructor: David Schuff, Section 003

Zappos Flat Org Structure: The Good and the Bad

organization structure photo

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.

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2 Responses to Zappos Flat Org Structure: The Good and the Bad

  • Sean, I agree that Zappos is too large of an organization for this “holacratic” structure. I think that organizations of all sizes can be flat to some degree, but Zappos’ structure sounds like pure chaos. With so many employees, I believe that Zappos needs some degree of hierarchy to keep everyone in line and productive. I imagine that many employees don’t do much on a daily basis, and that communication between employees and project teams is stressful and inefficient. After reading more about Zappos’ structure, all I can think about is, what if, I was a relatively new employee working on a project and I needed someone else’s expertise. Where would I go? Who would I ask? Structure does exist for a reason, and I think that Zappos has completely discounted any and all merits of organization structure. I do not think I could work at or be successful at a company like Zappos.

  • Hi Sean! This was such an interesting read. Hsiesh’s end goal of promoting creativity and collaboration sounds great, however, it seems like he is still operating under a startup mindset. The 30% year-end turnover particularly highlights how the organization’s employees grew beyond that culture. While that type of structure does have its advantages, executives should consider the diminished productivity that comes as a result of unclear responsibilities and processes. This point brings me to the discussions we’ve had in class about be able to quantify virtually any figure. In this case, the cost of lost productivity is fairly simple to measure. Zappos should check in with a sample population of employees, inquiring as to how much time is spent defining tasks or assigning productivity to previously ambiguous work. Using that figure and the hourly wage of the sampled employees, Zappos can identify the cost of lost productivity. In this case, it sounds like this type of analysis is necessary to measure the success of this organizational structure for Zappos.

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