Zappos Just Pulled Off the Boldest Change Management Move Ever

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Corporate Change

Why aren’t we mad at the bad managers?

Have you heard that 210 people left Zappos at the end of April because they apparently don’t like the new flat management system called Holacracy® that the firm is moving to?

I’ll bet you have.

In the 12 days since that happened, have you heard that:

  • US Steel announced more layoffs, bringing them to 9000 people cut for the year.
  • Siemens cut another 4500 people, bringing their cuts to more than 12000 for the year.
  • Lenovo laid off 235 people.
  • Labinal Power Systems let 480 people go.
  • Manitoba Telecom and Mountain Iron both laid off 400 people.
  • Zynga cut 364 people, Conduit Global cut 592, Corrections Corporation of America cut 252, WMS Gaming cut 247, Jennie-O Turkey cut 230, General Motors of Canada laid of 1000, Mercedes-Benz laid off 259, Conoco-Phillips 200, WorleyParsons 2000, and Dow Chemical let 1750 people go.

That’s nearly 15,000 people that have lost their jobs in 12 days – it’s a bloodbath.  And I’m willing to bet that there are three primary reasons for those layoffs:

  1. The firms are looking for “efficiency gains” or,
  2. The upper management teams are incompetent, or,
  3. Both.

How many blog posts have been devoted to this corporate management problem? Any?

Here’s my question: how is possible that 15,000 people have lost their jobs due to bad management and we don’t hear a peep about it, but people have gone nuts over Zappos having 210 people volunteer to leave?

It’s as though we’re acting out this quote from John Maynard Keynes:

Worldly wisdom teaches that it is better for reputation to fail conventionally then to succeed unconventionally.

The issue isn’t whether or not Zappos is succeeding or failing, but rather that they are doing things unconventionally.

This is terrible.

A change management stroke of genius?

There are two important questions here, and the discussion around them is confused.  The first is: how do we effect major change within an organisation? The second is: is holacracy the best way to implement flat management principles?

The first question is the real story with Zappos.  Any time you try to change things, there are three groups within an organisation.  There will be the bunch that loves the new idea (usually around 20% of people).  There is another bunch that hates the new idea, or often any new idea (usually also around 20%). And the majority in the middle is usually indifferent.

Whether or not a change management initiative succeeds depends on which way the 60% in the middle decide to go.  This usually involves a long, drawn-out political process of negotiation, power, influence and everything else that goes into moving a bureaucracy.

Here’s what Tony Hsieh might have just accomplished at Zappos: knocking nearly all of the change-resistors out of the company in one quick action.

no dissent?

This is potentially brilliant.

The critical question is who makes up the 210 people that left? Are they middle managers that are unwilling to adjust to a new role (these are probably change resistors)? Are they people that are genuinely uncomfortable with lower levels of hierarchy (a mix of change resistors and the indifferent middle)? Or are they some of the best people, who are capable of easily finding other jobs, and just wanted the financial benefit of the buyout (these would be change drivers)?

Often, when firms have voluntary redundancies, the people that leave are the change drivers – which is a bad outcome.  Zappos has taken some steps to try to ensure that most of the people that left are either change resistors or in the indifferent middle.

If Zappos just knocked out the change resistors, it’s one of the boldest change management moves ever.

Holacracy does not equal Flat

An entirely separate question is whether or not holacracy is the best way to implement flat management principles.  I’m not so sure about the answer to this question.

First off, like Dave Snowden and Dan Pontefract, I am skeptical of the book being used to frame the change – it’s not well-supported by data, and it’s pretty fuzzy.  On the other hand, firms like UnderCurrent seem to be having some success with holacracy, after a tricky implementation.

I believe that we have to be moving to flatter management structures.  In that context, holacracy is important because it is the highest-profile version of flat management out there right now. My hypothesis is that the high level of bureaucracy that lies underneath it will ultimately make it really hard to implement holacracy, and that eventually we will settle on a model that looks more like that used at Morning Star Farms.

Digital transformation is real, and getting flatter management structures is an important part of the response to this change.

The important point is that holacracy is a version of flat management, but it is not the only one.

One argument that seems to be being made is:

Zappos is implementing holacracy, 14% of people have left because of it, so holacracy has failed and flat management is clearly bad.

This is wrong.

The 210 people leaving doesn’t tell us anything about whether or not holacracy or flat management is good.  It tells us that Zappos figured out how to get rid of the change resistors.

This is important, because now if holacracy fails there, it won’t be because of internal sabotage – the potential saboteurs are gone.

If it works, then that tells us something about holacracy and flat management.  If it doesn’t, it is a pretty good test of holacracy, but we still need to test other versions of flat management.

Regardless, people need to stop freaking out just because the approach is unconventional.  Zappos will be fine. I’m much more worried about Siemens, Dow Chemical and all the others that are in trouble right now.

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Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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38 thoughts on “Zappos Just Pulled Off the Boldest Change Management Move Ever”

  1. Tim- I really like the post- its two destinct “steaming” parts- the constant cutting out people and Zappos implementing holacracy and what this seems to raise in people, scared of change, determined to hang on to old established order.

    Both need watching. The bloodbath as you say needs examining more. The destructive nature of markets, competition old and new, the incredible inefficiences built into large organizations is attacking everywhere.

    There is a significant shift taking place, seismic yet to be seen but speed, scale, technology, global, digital, big data and all things social all are going into this mix at a pace and driving the chase and race for a different growth and rapidly changing set of business models and employee’s are being caught up in this incoming tsunami that we are not equipped to resist just react too!

    • Thanks Paul. The contrast in the (non) reaction to the bloodbath versus that to the Zappos move is pretty mind-boggling to me.

      With regard to the changing work environment, I strongly believe in the value of flatter org structures (and I’ve got some got research data to back this up coming out soon) – but I’m not as convinced in holacracy as the way to get there…

  2. Intriguing analysis of plausible interpretations along a few different dimensions.

    It will be very interesting to see how holacracy evolves (in theory & practice).

    I’m reminded of my most recent re-reading (and blog post about) George Orwell’s 1984, particularly Emanuel Goldstein’s characterization of the 3 kinds of people in the world, in his banned book, “The Theory and Practice of Oligarchical Collectivism” (“the book” that shall not be named throughout most of the novel):

    Throughout recorded time, and probably since the end of the Neolithic Age, there have been three kinds of people in the world, the High, the Middle and the Low. … The aim of the High is to remain where they are. The aim of the Middle is to change places with the High. The aim of the Low, when they have an aim — for it is an abiding characteristic of the Low that they are too much crushed by drudgery to be more than intermittently conscious of anything outside their daily lives — is to abolish all distinctions and create a society in which all men shall be equal.

    Also, FWIW, I had to read the 2nd-to-last paragraph in “A change management stroke of genius?” section, as the ordering in that paragraph (and the preceding paragraph) is different from – and in some ways orthogonal to – the implied ordering in the evocative image.

    • Thanks Joe. That’s an interesting angle from 1984 – and thanks for the link to your post, it’s a good one.

      Thanks also for the feedback on the wording of those sections – I see what you mean and I’ll try to fix that.

  3. Tim you may have a chance to case study Holacracy real soon in Brisbane, mail me if you want details

  4. Hi Tim,

    Like you, I believe that “ripping off the bandage” is the best thing that apps could have done. It made it impossible to ignore or otherwise resist the change.

    In the case of Nearsoft, we looked at Holocracy and very quickly decided against it. It trades a hierarchy of people for a hierarchy of “circles.” We are happy with our freedom-centric, organic approach to running by growing a flat organization. In our case, we have a governance structure driven by Values/Vision/Cause but still leave it up to people to interpret and implement what works for them at a given point in time.

    cheers — matt

    • Thanks for that Matt – very interesting to hear your thoughts on it. I do think that it’s probably over-structured. I was talking with Mike Arauz from UnderCurrent last week, and he pointed me towards the employee agreements that they use at MorningStar. I had known about them, but it made me revisit them, and I do think that’s a pretty good model.

  6. This is an interesting read, but it’s also assuming that the majority of the 210 who left Zappos actually left because they disliked the holacracy structure. When you take a look at Tony’s offer, which I don’t know off the top of my head but which I believe was 3 months of severance + an additional month of severance for every year that the employee had been at Zappos beyond 4 years, and then also tell employees that “we don’t know what your salary will be next year,” I can imagine that an offer like that would be quite tempting to many employees, especially those who had been with the company for a long period of time and who had been unhappy long before holacracy was implemented. This article is assuming quite a lot about the reasons the employees left without actually having asked any of them why.

  7. Why the noise around Zappos? People love to jump all over those who are succeeding, don’t they?! All too human! Not right – yet, that is what makes us human!

    It is about time there are bold moves to move from leadership styles from the archaic military models which seem to have dug their heels into far too many industries. Someone has to try it – glad that it is yet again Zappos trying something bold and new.

    • Sigh. These things are generated by a new generation of middle managers needing promotions, B-school professors needing tenure, and consultants needing money. From that unholy trinity has come downsizing, outsourcing, 6 sigma, and countless other fads. Now ‘Holacracy’, with the requisite load of slogans, buzz-terms, and academic papers. Twenty years later, Columbia does a study to determine how useful it all was, and inevitably they find that firms that did NOT downsize/outsource/sigmafy/holacrate performed just as well as those that DID.

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  10. I work for Zappos and have friends who have taken the offer I want to clarify something. To say that all of the 15% employees who took the offer for reasons of being against Holacracy or Self-organization or no-manager is competely false. The offer was 1 month for every year of service and for some who’s been in the company for quite some time it’s a chance to do something new and have some financial upside… We have a lot of reasons for taking the money, and it’s not all because of being anti-self-organizing.

    • Thanks for dropping by, and thanks for your comment. I agree that this is an important point – it is what I was trying to explain in the paragraph right after the drawing.

      • What you say in that paragraph doesn’t necessarily equal what the guy taking the pay-out says. There’s another group of workers and it may be beneficial for both the company and the worker for them to leave – they MAY be the pro-change people who can rush out and get a job, or they may have been in the company for along time and be stagnating there – change can be good for both parties if that were the case. Also, if they’ve been there a long time, they get a bigger pay-out. Bonus. On the other hand, keeping people who have experience can be really good for a company. Sometimes I think that companies forget that people aren’t assets of a single type. They shouldn’t be regarded as “we need to lose 20%” but rather, “let’s talk about a better structure, with the right people in it, to achieve what we want to do.” Uncomfortable if you don’t fit.

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  14. Hi Tim,
    I always think of this article when I hear about flatter org structures of any kind; Tightening the Iron Cage: Concertive Control in Self-Managing Teams, James R. Barker, Administrative Science Quarterly
    Vol. 38, No. 3 (Sep., 1993), pp. 408-437http://www.jstor.org/stable/2393374?seq=1#page_scan_tab_contents
    ” In this paper, I provide an ethnographic account of how an organization’s control system evolved in response to a managerial change from hierarchical, bureaucratic control to concertive control in the form of self-managing teams. The study investigates how the organization’s members developed a system of value-based normative rules that controlled their actions more powerfully and completely than the former system. I describe the organization and its members and provide a detailed account of the dynamics that emerged as concertive control became manifest through the members’ interactions. This account depicts how concertive control evolved from the value consensus of the company’s team workers to a system of normative rules that
    became increasingly rationalized. Contrary to some proponents of such systems, concertive control did not
    free these workers from Weber’s iron cage of rational control. Instead, the concertive system, as it became
    manifest in this case, appeared to draw the iron cage tighter and to constrain the organization’s members more powerfully.”

  15. Tim – I’m very surprised that people like you, Dave Snowden and Dan Pontefract are rather negative regarding Frederic Laloux book ‘Reinventing Organizations’, because of being not well supported by data, AND disregard the data concerning Jean-François Zobris of FAVI (France) and Jan de Blok of BUURTZORG (Netherlands). Both companies have created a rather FLAT thriving organization since years now (FAVI since 1983 and BUURTZORG since 2006) without claiming that they are TEAL nor having followed the Holacracy(r) philosophy. They did it on their own (and independently) following a natural transformation process called Creative Interchange, the best kept secret of the US. Both stories are rather well covered in Laloux book. The word TEAL is not important, the underlying process is!
    Indeed amazing that you do NOT mention those two living examples in your column.
    Creatively,
    Johan

    • Thanks for the comment Johan. Personally, the Laloux book doesn’t work well for me, even though I am HIGHLY supportive of the goals of his approach. I’ve written about the importance of flat organizations here: https://hbr.org/2013/11/hierarchy-is-overrated/ and Dan has written a whole book about it himself: http://www.danpontefract.com/the-book/ – so we’re certainly not anti-flat!

      My view is that we will see more and more flat organisations in the near future, but that we haven’t yet found the best way to build/manage them. All of the current discussion and debate that we can have (and, more importantly, the more data we can gather!) will help us along that path.

      • Thanks for your reply Tim. The last thing I wanted to do was communicate that I think that you and Dan are anti-flat. I’m aware of Dan’s book ‘The Flat Army’. What I do want to convey is that I was surprised that you, and Dan, are not mentioning the cases of FAVI and BUURTZORG. And in your reply, you are not addressing this.

        What’s more, you all seem to see Fred Laloux’s book as a book about Holacracy®, a manager-less system to support self-management and self-organization, whilst disregarding the cases of FAVI and BUURTZORG. who have indeed nothing to do with Holacracy®. All the data Fred Laloux has gathered in those two cases are precious AND prove to me, far more than Zappos, the Force of Creative Interchange!

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  17. I cannot speak to exactly who left Zappos. I don’t know. However, I have a suspicion about something I haven’t seen mentioned in the bulk OMG THE SKY IS FALLING style media coverage about all this thus far.

    I suspect that many of the people that left found themselves in a position/role where their entire role could no longer be a pure manager of people and delegator/broker of work to those people from other people/processes. That would no longer be necessary. In other words, they had to do something besides just funnel work to other people. You know, pick/pack products, write code, crunch research, do the books, run marketing programs, etc. Whatever needs doing by the roles that have been defined at Zappos. People who haven’t had to do anything like that in a long time and have been brokering work might not have much to do in the new organization so, rather than re-skill, they left and took the package. It’s not that they could not do what needed doing. They just might have preferred to be managers and brokers of work which would technically no longer be required. That’s my hypothesis more so that removal of naysayers. I suspect a lot of those that left we not the NO crowd so much. No doubt at all that some of them were though. I look forward over time to learning more if it can ever be told about the real deal.

    I think a pure manager of other people’s work in a Holacratic organization is an ephemeral rarity. The role for managing people or brokering work can pop into existence from time to time as needed. But, it’ll only be for a very specific duration and purpose then it will go away. Even then, when a need for a role like that does pop into existence for some reason (like a blown deadline perhaps) it is far more likely to be filled by a subject matter expert and doer from the circle in question who just steps up and carves off a bit of their time to course correct and get back on track until that’s no longer needed.

  18. I had to look up what Holacracy meant assuming it to be some welcoming form of government. But it’s self-organising teams. Kind of like bees.

    This has been done before – two eminent examples are WholeFoods and WL Gore. Both successful companies; but quietly successful. They don’t get a lot of press.

    Zappos have got themselves a lot of attention because they’ve drawn attention to changing themselves from the accepted “world order” in many corporate organisations to adopting what amounts to radicalism. Giving power to employees. Heresy.

    The one comment i’ll make on Holacracy is that decision making or “action” without analysis is simply reaction. I like Active Critical Analysis focused on outcomes – not just talk.

    It will be interesting to watch what happens at Zappos – they’ve certainly drawn the “eye of Sauron” to their change endeavour.

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  20. All I know is that I have been buying from Zappos for years, absolutely flawlessly. I just recently made a purchase and everything about it was painful. An entirely different experience than I’d grown accustom to. So I Googled whether there had been some change in management or structure lately (a sure harbinger of changes in service, usually bad, to come) and found your article. Figures. Whatever changes in management have taken place, they have surely had a negative impact on the customer experience.

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