Question

There are many different ways in which firms can organize themselves: There are flat organizations and there are tall organizations. There are organizations structured by products, divisions, and geography. But one thing nearly all structures have in common is a chain of command, or hierarchy.

Do companies have to set up that way? Tony Hsieh doesn’t think so. Hsieh is the CEO of Zappos, the online seller of shoes. Hsieh is a guy who thinks outside of the box. When he started Zappos in 1999, no one was selling shoes online. It seemed like a crazy idea—you can’t try on shoes online to see if they fit. But Zappos made the business work by offering good product, free shipping and returns, and great customer service.

Hsieh believes it’s not just the Zappos business model that has led to its success. Employees and their satisfaction are, too. To keep workers happy and passionate about their jobs, the company offers top-of-the-line and unusual perks: Good pay, free health care, and employees can bring their dogs to work if they are well socialized. Quirky celebrations and parties are the norm at the company, which routinely makes Fortune’s “Best Places to Work” List.

Happy Zapponians and a booming business weren’t enough for Hsieh though. He had noticed that most companies on the Fortune 500 list in 1955 were no longer on it today. In fact, many of them no longer existed.

Hisieh figured it was because as firms grow, they become slow and lose touch with their customers. Executives at the top make the decisions, but they don’t really understand what customers want, how products can be improved, or have a lot ideas for transforming the business. Lower-level employees—the people closest to the work— often do, but their suggestions rarely make it up the food chain. He didn’t want that to happen at Zappos.

So what did Hsieh do? In 2014, he instituted a new type of self-management system. There are no managers at Zappos anymore. Everyone is an equal, and no one can tell anyone else what to do.

Employees at Zappos don’t have job titles. They have “roles” and their coworkers are their “partners.” They work together in “circles” (or teams) of their choosing. The members of a circle meet regularly to talk about improvements and ideas. A “chit chat” is held at the beginning of each meeting. Everyone is required to speak, which ensures even the quietest employee is heard. A software system then tracks the circle’s goals and who agreed to do what and when. “Really what we’re trying to do is turn each employee into a mini entrepreneur who has the ability to sense ideas and do something about it,” says John Bunch, who oversees the Zappos self-governing system.

There are also no performance appraisals at Zappos. If you’re doing a poor job, your coworkers will let you know. Each employee gets 100 “people points” to distribute to the members in their circles. If an employee doesn’t get enough points, the person may get booted from a circle—like contestants get voted off of the island in Survivor. And if the person has no circle to work in, he or she is out of job. Pay raises are based on new skills a person develops, a system called “badging.” For example, a person might earn a badge for Java coding or merchandising.

If ditching the old corporate structure for something new sounds simple, it turned out to be anything but that for Zappos. First, there were all kinds of rules and meetings required to set up the system: “Tactical” meetings focused on the workflows, and “governance” meetings focused on hashing out processes and eliminating roadblocks. Second, employees had trouble understanding the new system and weren’t sure what they were supposed to be doing. Former managers felt diminished. They no longer had any power or status, and they never would. So much for having climbed the corporate ladder. Writer/editor Roger Hodge referred to the new Zappos organizational structure as “a radical experiment … to end the office workplace as we know it.”

Hsieh knew the transition wouldn’t be easy, so he offered employees who didn’t like the new system a buyout, which amounted to about 5 months’ pay. Eighteen percent of the workforce, or 1,600 employees, took it. Another 15 percent or so quit later. Morale fell, and Zappos dropped off of Fortune’s “Best Companies to Work for List” for the first time in its history.

Does Hshieh have any regrets about implementing such a radical change at an already successful company? No, although he admits he was surprised how hard it was for people to leave their bureaucratic baggage behind. “In retrospect, I would have probably ripped off the Band-Aid sooner,” he says.

Employees say Zappos is running more smoothly now and that things improved after their coworkers who didn’t like the system left. The company also implemented a program to better screen and prepare new employees to manage themselves. And reportedly the firm’s profit margins are holding up.

Derek Noel, an employee with Zappos, says the new system has let his ideas be heard and allowed him to take on a more substantive role in the company. “My worst day at Zappos is still better than my best day anywhere else,” he says. “I can’t imagine going back to traditional hierarchy anymore.”

Discussion Questions

1. Is a self-managing organization a good idea? Why or why not?
2. Could Zappos have done anything to make the transition to the new system smoother? If so, what?

Answer 1

Self managing Organisation is a good idea. Traditional Structures were good for the past where people were used to follow a pre determined line of command and only wanted to focus on their job. Today Companies like Zappos are implementing self management to promote individual entrepreneurship and creativity. In this generation of milennnials , people want their voice to be heard and their ideas to be implemented. This gives immense boost to work for the company and perform beyond their ease of comfort. In this type of Organisation, their is no manager who can control a task and perform it according to his/her way. Everybody is equal and everyone has the right to make decisions. Traditional Structures had very less communication from the low level Employees to high level managers. There was just too much hurdles to cross but a self management empowers each and every employee to present ideas and innovate . The importance of status is gone and achievement of target is eradicated. Here people are more committed to solve problems . They are more focused on process rather on Goals.

Zappos could have done something to make the transition better. Hsieh ,ceo of zappos admitted that it was very difficult for people to leave the transition behind and do things of their own. He could have implemented it step by step. Hsieh unleashed this idea in one go whereas he could have done things step by step such as giving employees couple of hours daily to give an input so that they get accustomed to this new process. He could have at first not diminished entire Managers ..He could have lessen it but had a manger whom people report to. Hsieh could have asked the Employees at first and the percentage who were not reday to do this could have been released with enough compensation and new talent could have been hired given their role. Transition of Employees before hand asking them was just too much change for them. The old generation could have less Acceptance because of their long career followed in traditional Structure and the youmg millennials could have accepted the change much more faster. More emphasis should have been given to retain the young Employees.