When it comes to raising and testing radical ideas for retailing, Zappos ranks among the most active firms. Consider some of its best known and unique policies. If new hires, after undergoing training, decide the company is not for them, Zappos pays them a substantial amount, rather than trying to hold on to dissatisfied employees. It was among the first to offer free return shipping and even to encourage customers to order multiple sizes of their preferred shoe styles, then send back the ones that didn’t fit. Zappos is big on employee empowerment as a way to achieve customer satisfaction too. It allows and encourages customer service representatives to find the products that customers want, even if that means sending them to another retail site.

Its latest creative idea is similarly revolutionary, though the success of the initiative is yet to be determined. Noting the criticisms that hierarchical corporate cultures can stifle creativity and effectiveness, Zappos dismantled anything resembling a hierarchical structure. There are no job titles, and job roles are fluid and shifting, according to what needs to be done at any particular moment. Rather than “bosses,” the holocracy system relies on networks of self-managing teams that overlap in their responsibilities and interactions.

In keeping with Zappos’ philosophy that it is less expensive to pay a fee to those who don’t want to stay than to force them to remain on staff, it offered severance packages to any employees who chose to leave rather than work in the holocracy. The packages offered at least three months’ pay, or one month of pay for every year the employee had been with the company, whichever amounted to more.

In response to this relativley generous offer, an estimated 18 percent of the company’s staff chose to leave. External reports accordingly have suggested that the experiment is failing, such that too many staffers appear to have rejected the innovative notion. But the company disputes that claim, noting that its average annual turnover already was about 20 percent. Furthermore, Zappos’ charismatic CEO Tony Hsieh argues that most of these departures did not constitute indications that people were unhappy with the holocracy. Rather, he asserts that it implies that the severance offer was so good, they could not pass it up the opportunity to have a few months’ salary in the bank, as a cushion while they “pursued their dreams.”

Still, some reports suggest that the new structure increases inefficiencies, such that it leaves decision-making authority unclear. It also requires substantial resources to implement, considering that it represents an untried and unfamiliar way of working. One anonymous call center worker complained that the launch of the holocracy involved a wealth of time-consuming, unproductive meetings, as the company worked to explain the new concept and ensure that it was functioning as intended.

Thus, the success of the holocracy appears to depend on the perspective. Should the summary assessment be that 18 percent of people left rather than work under a holocracy, or should it emphasize (as Hsieh suggests) that 82 percent of people, when offered a generous severance package, chose to stay?

Discussion Questions:

1. What is holocracy?
2. Under which circumstances do you believe it will work? Fail?
3. Would you like to work in a holocracy?

Source: Matthew Stern, RetailWire, January 19, 2016. See also Gregory Ferenstein, “The Zappos Exodus Wasn’t About Holocracy, Says Tony Hsieh,” Fast Company, January 19, 2016