Zappo’s Holocracy

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29 February 2016

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Introduction, Inc. (Zappos) is generally known for selling shoes and accessories; however it has now grown into much more than that. Established in 1999 and acquired by Amazon in 2009, Zappos has grown to become the world’s largest online shoe store. This company is not only known for its wide variety of shoes and accessories, but also for its unparalleled return policy. Zappos actually encourages its customers to buy shoes in multiple sizes and just send back the ones that don’t fit. This company prides itself on being a service industry, first and foremost, rather than just a mere retailer. Furthermore, this particular business can be described as timeless, because ‘shoe purchasing’ will essentially always be in demand. Zappos focuses on the customer experience, not just creating a better product. Zappos also has a unique culture, where staff members can be seen in comfortable clothes and tennis shoes, possibly mid-parade around the office premises, but rarely will there be someone in formal wear. Even so, Zappos aspires to always deliver superior customer service, which begins with employees, and the company’s CEO, Tony Hsieh, has always been extremely enthusiastic and passionate about this concept, and has worked tirelessly to bring this dream to fruition (Zappos Insights, 2014). In addition, Zappos has been rated one of the top companies to work for in America, because of its exemplary customer service policies and the company’s dedication to its employees (McDonald, 2011). Zappos has a unique selling platform that has taken online retail by storm, and has gone above and beyond the call of duty with respect to its management approaches. Toward the end of 2013, the company announced an effort to rise to the next level, with its intentions to overhaul its previous management structure. Zappos will now practice something called Holacracy in an effort to make employees more accountable and empowered. This strategy would entail a manager-free system that will enable Zappos to adapt and become one of the largest companies to implement this management system. The future of Zappos just might depend upon how well this innovative way of thinking is received, implemented and executed. Many industries will be observing this new management technique in action and its success rate, and if all goes well, Zappos could conceivably have a new management system to impart to other companies (Groth, 2013).

Innovative Managerial Practices

There are key components for having successful management skills. These components consist of planning, organizing, leading and controlling (Jones & George, 2009). Zappos is an organization that has incorporated these managerial skills in order to build a successful team oriented empire. Zappos works as a team, innovating and empowering both their employees and clientele. According to Jones and George (2009), “to further promote innovation, managers can empower teams and make their members fully responsible and accountable for the innovation process. Members of teams are likely to be more satisfied than they would have been if they were working on their own.” Zappos has been rated one of the top companies to work for in America due to their customer service policy and dedication to its employees (McDonald, 2011, p. 127). Tony Hsieh, one of the innovators behind the success of Zappos, is widely regarded as one of the most inventive Internet marketers of all time. He really cares about making Zappos’ employees and customers feel really good. Other business innovators work with software code or circuit boards or molecular formulas. Hsieh prefers to work with something altogether more complex and volatile: human beings themselves (Chafkin, 2014). Often times, management is more focused on product and functionality of an organization. In order to have a completely successful company, managers must remember that their employees are the key of overall successful growth. The more invested the company is in its employees, the better return on investment. All new hires at Zappos undergo four weeks of training, during which the company culture must be committed to memory. The second week includes dealing with customers by working with telephones. Only about one out of 100 applicants’ passes a hiring process that is weighted 50 percent on job skills and 50 percent on the potential to mesh with Zappos’ culture (Richards, 2010, p. 2). According to Jones and George (2009), the driving force behind the evolution of management theory is the search for methods to utilize organizational resources to make goods and services. Advances in managerial thought processes typically occur as managers and researchers find advanced methods to perform the principal management tasks of: planning, organizing, leading and controlling human and other organizational resources (Jones & George, 2009).

The evolution of modern management began in the closing decades of the 19th century, after the industrial revolution had swept through Europe and America. In the new economic climate, managers of various organizations, whether political, educational, or economic entities, have been attempting to discover alternative ways to satisfy customers’ needs (Jones & George, 2009, p. 38). Many companies seek alternative ways to satisfy customers’ needs through, incentive programs, such as for purchasing a certain number of products, incentives such as tickets to a sporting event, and even gift certificates to various high quality and retail stores. “The behavioral management theory is the study of how managers should behave to motivate employees and encourage them to perform at high levels and be committed to the achievement of organizational goals” (Jones & George, 2009, p. 51). This theory is being used within Zappos. Effective leadership increases an organization’s ability to meet all challenges, including maintaining a competitive advantage, the need to foster ethical behavior, and the need to manage a diverse workforce fairly and equitably. Managers at all levels and in all kinds of organizations have their own personal leadership styles that determine not only how they lead their subordinates but also how they perform the other management tasks (Jones & George, 2009). Managers must create an organizational setting in which people are encouraged to be innovative. Typically innovation takes place in small groups or teams; management decentralizes control of work activities to team members and creates an organizational culture that rewards risk taking. Based in Las Vegas, this location was not the most cost efficient locale, however it proved to be a wise decision. Relationships among Zappos’ employees became deeper, as they worked together, played together and sometimes lived together (McDonald, 2011, p. 128). Zappos is a refreshingly authentic, culture driven success story (McDonald, 2011, p. 128). Today more organizations are realizing that people are the most important resource and that developing and protecting human resources is the most important challenge for managers in a competitive global environment (Jones & George, 2009). What Zappos has done was to incorporate a real-life humanistic approach with that of the boom of an online shopping experience to encourage their constituents to feel welcomed and a part of the overall Zappos “family experience” as well as managing their personnel to provide and maintain such high quality standards. They have made this personable experience infectious where their brand is innovative and a cut above the rest.

Management Structure: Zappos Holacracy and Theory Y

Based out of Las Vegas Nevada, Zappos is a very productive and relatively new corporation. Zappos has been in the media lately because of its revolutionary management style named Holacracy, which is a dispersed managing system that decentralizes management controls. In this model of management everyone can become a leader. The conventional style of top-down and bottom-up management is abolished, so at any given time any employee can become a manager of a particular process (Robertson, 2013). Management power is constantly shifting based on field of expertise and the task to be completed. This management style utilizes the previous Theory Y of Douglas McGregor, who was an evolutionary social psychologist that analyzed motivational theories of employees. Douglas McGregor published his career-defining book “The Human Side of Enterprise” in 1960. In this text Douglas McGregor had proposed two contrasting theories of about the organizational behavior of employees and the managers that supervise them. McGregor termed these opposing theories as theory X/Y. These theories are deeply rooted in the motivational construct of employees in an organization. Theory X proclaims that employees are slackers, inept with regards to independent work behavior, and have little if nothing to add to problem solving in an organization (Davis, Kopelman, & Protass, 2008). Theory X is the conventional style of management that assumes employees must be closely monitored by management in order for them to have any efficacy in an organization because of the stereotype of employees’ inherent lack of motivation.

In contrast, Theory Y is a participatory style of management in which management is decentralized and employees are happy to assume greater responsibility within the company (Mindtools, 2014). This form of management style puts managing decisions into the hands of every employee within the company because it states that every employee is self-motivated and willing to accept responsibility. Theory Y’s management style requires less monitoring because employees are perceived as highly motivated and eager to perform at a high level within the organization. Theory Y is a laissez-faire management approach that puts decision and management power into the hands of its “employees” which is very similar to Zappos’ Holacracy management philosophy. At the heart of the Holacracy management philosophy is a great degree of involvement of each employee in all aspects of business within the company. Regarding Zappos’ Holacracy, Harvard business historian Koehn said, “Everyone pitches in, and everyone is responsible for solving the next problem or putting out the next bonfire” (O’Leary, 2014). This analysis statement by the Harvard business historian sums up how Zappos’ Holacracy is comparable to McGregor’s Theory Y. Similar to Theory Y, employees in Zappos assume more responsibility in the company and are heavily involved in finding solutions to problems that arise in the company. Zappos’ Holacracy has a management system of self-governing which requires little if any monitoring by a manager. The essence of Theory Y is less monitoring of employees and Holacracy has almost no supervision.

At Zappos, every employee has a high level of responsibility and accountability, with each employee happy to assume this greater responsibility in the company without the need for supervision by a manager. Theory Y is not identical to Holacracy because Theory Y requires some management and supervision. Even though Holacracy is not exactly the same, Theory Y is the predecessor of Holacracy and many aspects of this modern management style can be traced back to McGregor’s revolutionary management philosophy on motivation. Holacracy is a more radical form of Theory Y in that it seeks to abolish all management but the two managing styles are very similar in that both put more managing power in the hands of lower level employees while increasing the employee’s responsibility and accountability. Holacracy, a decentralized style of management has been very successful for Zappos as it is one of the most productive companies in the U.S.

As per the matrix, Theories X and Y can be categorized in the degree to which each manager exercises control or allows autonomy with regards to the subordinate employees. In the matrix there are two disparate extremes. On one side there is Theory X, which is authoritarian/dynamic (tightly controlled), and on the other side there is Theory Y, which is laissez-faire/democratic (loosely controlled). As previously stated, Zappos’ Holacracy management approach is on the extreme end of Theory Y in that it has no management control at all. Each employee can be considered a manager of his or her own process within the company. The degree of management is tied to each employee individually and they themselves are held accountable for their work. This type of management is controversial and time will tell if it will be extremely productive in the Zappos organization.

The Task Environment

According to Jones and George (2009), the task environment can be defined as the “set of forces and conditions that originates with global suppliers, distributors, customers, and competitors; these forces and conditions affect an organization’s ability to obtain inputs and dispose of its outputs” (p.167). Managers are directly and immediately impacted by these forces, which influence them on a daily basis (such as through media exposure or internet access), and are therefore highly likely to discover issues in need of resolution, due to conditions that may have changed in their company’s task environment; this in turn has a drastic effect on short-term decision making (Jones & George, 2009, p.167).

Two Direct Forces from the Task Environment

Of the aforementioned four forces (global suppliers, distributors, customers, and competitors), the two forces that will be addressed in this analysis are customers and competitors. These forces are specifically relevant to, and would be directly impacted by the implementation of Holacracy as a management style. The use of Holacracy as a corporate structure for one of the largest companies that has ever implemented this management style will be a both social and business experiment, and can potentially reinvent many other organizations in the future. The changes can be so impactful, that they may revolutionize the way business is done, as we know it today. Customers. When an organization produces goods and services, it is the customers who purchase these items. Customers may be categorized as individuals, small companies, large organizations, or government agencies and educational institutions. Opportunities and threats may arise when there are changes in the number and kinds of customers, or when their preferences and necessities are modified. Furthermore, responsiveness to customers is vital to the success of a company because the company must be
able to satisfy customers’ needs (Jones & George, 2009, p.171). If Zappos were to implement Holacracy, customers would be significantly affected by this radical change. On the plus side, for an employee to have relative decision-making power, this could streamline problem solving for the customer, by eliminating the ‘bureaucratic’ chain-of-command approval style required in a more traditional hierarchical structure. This could allow processes to run more smoothly, quickly, and efficiently, provided that employees are competent, well trained, and fully engrained into the company’s culture of providing superior service and value for its customers. On the other hand, Holacracy could potentially have negative effects for the customer if the decision-making employee makes the wrong choice; this is neither in the best interest of the customer nor the company in the long run. Customers unfamiliar with this decentralized organizational structure could become frustrated and dissatisfied if they feel their problem has not been resolved. Organizational structure pertains to the span of control within a company, examines how the structure of a company affects customer value, and addresses the importance of employees at the lower level having the ability to be responsive to customers and make independent decisions (Weinstein, 2012). Customers are essential stakeholders, and Zappos should seek to implement this management style with appropriate safeguards; it would have to operate within certain boundaries, adhere to preset guidelines, and there should also be an additional form of recourse in place, for the customer to feel valued and appreciated.

According to Weinstein (2012), maximizing value over time should be management’s objective, which addresses how information and economic value are created and utilized throughout the company, in order to provide superior value to its customers. Furthermore, management must anticipate and respond to relevant values of all stakeholders, such as customers, employees, competitors, and society in general (Weinstein, 2012). In acknowledging that customer values have a major impact on business performance and business processes, this approach provides management with a different perspective on how to effectively compete in a changing and unpredictable marketplace (Weinstein, 2012). Competitors. Businesses that create and sell products or services that are similar to those of another company would qualify as competitors. Essentially, these companies are vying for the attention of the same customers, and this rivalry can be considered the most threatening force with which a manager has to contend. Extreme rivalry can bring about price competition, and prices that fall too low can diminish revenues and profits. In addition, the potential threat of new competitors entering the market is another factor to consider, because this even further increases competition and decreases prices and profits (Jones & George, 2009, p.172). There is competition from all sides and even from abroad. The implementation or change in any part of an organization, including the structure, impacts the entire organization and its abilities. Significant changes such as the within structure will impact the company, can be far reaching, and likewise change the tide positively or negatively. An organization like Zappos can benefit from this type of organizational change by adding and giving new life to the entire structure from bottom to top. Such changes are made to aspire toward creating additional momentum and competitive edge, in order to gain the upper hand on any current and future competitors.

The General Environment

Jones and George (2009) also define the general environment as including “the wide-ranging global, economic, technological, sociocultural, demographic, political, and legal forces that affect the organization and its task environment” (p.167). The opportunities and threats that managers encounter from changes in this environment are often more problematic to recognize and respond to than the previously mentioned task environment and its events. Nevertheless, changes in this environment can have a significant impact on both managers and their organization.

Two Direct Forces from the General Environment

For Zappos, two general environmental forces to be further examined will be that of technological and sociocultural forces. Zappos, like many other companies these days, depends greatly on the technology and the ability to adapt and evolve as necessary. This can occur with tools, machines, computers, skills, information and knowledge that are used to design, product, and distribute goods and services (Jones & George, 2009, p.175). Technological forces. Zappos deals in both goods and services with each customer that comes to them and returns to them. Without the goods and
service, customers would not return and Zappos would become a thing of the past. Changes in technology could make a company grow and give an established company competition that was not expected. A company that challenges itself to seek to innovative technologies will have an automatic advantage. An organization can always improve itself with respect to the service or product it has to offer, and any such improvements can also create threats if competitors capitalize on these technologies first. Opportunities for one organization can also be a threat for another organization. Once again, this points out the importance of being on the cusp of technological advancements. Nevertheless, being too innovative also has it dangers, as being first can sometimes be an expensive proposition. Letting others try the waters first can be a less risky and more profitable proposition. Learning from others mistakes can help lessen the pains that are part of the learning process. Therefore, all companies have to be cognitive of the environment in which they compete on a daily basis, and look vigilantly at all times toward the horizon to see what is coming next. Sociocultural forces. The sociocultural forces also apply pressures to an organization. These forces involve organization as both the customer and employees are part of this force. It is a force to be reckoned with should an organization expect to remain competitive. This force is comprised of social and national culture. The social takes into account the traditional system of relationship establish between people and groups in a society whereas the national is the set of value that a society considers important and the norms of behavior that are approved or sanctioned in that society (Jones & George, 2009, p.175). These two sub-factors also differ across societies, and over time they tend to change as society evolves. So once again, the customers and employees are ever evolving and changing.

Analysis of the Four Selected Forces within Zappos

Customers. Zappos’ main goal is customer satisfaction; it was built and launched based on Zappos CEO’s difficult shoe quest at a local mall. He started the company to make shopping easier for consumers. Zappos offers services that hardly any other company offers such as free shipping to and from consumers (in case of returns), fast processing and shipping within 24 hours or less, and a wider than normal variety of merchandise than any one store can offer. “Due to the overwhelmingly large amount of styles online retailer Zappos offers (over 125,000), it was recently forced to rethink the way it offers the over 1,000 brands various merchandise” (Kreamer, 2013). That was just an example of the lengths the company takes to please its consumers. Zappos even performed a survey to ascertain who their customers are, in order to better meet their demands. This survey showed that 65% of their consumers were females and were 35% males, that the average age of their shoppers were 21 years old, and over 90% were single, never married (Anaza, 2014). Such statistics can give Zappos a true sense of their customer demographic, and thereby allow the company to provide appropriate products for that group of customers. The key for any successful company is the ability to draw in customers and to turn those customers into repeat customers. At Zappos, when a customer calls their call center, they are routed to someone who is in their area of who has lived there at one point in time, so the employee can relate to the consumer in order to carry on a discussion while the order or issue is being handled (McNeal, 2013). When a relationship is established with the customer, he or she will feel more valued and special, and are more likely to return. Zappos calls them their VIP consumers, which is not hard to obtain such a status, but the title is special nevertheless. Weinstein (2012) states that the lifetime value of a loyal customer is not only measurable, but also in numerous cases, has proven to be quite substantial. Zappos has strategies implemented to obtain its status of what it is today. This is done by delivering “WOW” services by offering the “365-day return policy with free shipping both ways, 24/7 customer phone lines, live online help with products, and customer product ratings” (Richards, 2010).

To do all of this, the company focuses on company culture in order to deliver excellent customer service. Company culture includes hiring the right people; this is a hard and rare quality to obtain but not impossible. For instance, “one out of a hundred applicants passes a hiring process” which is weighted on “job skills” and “potential to mesh with Zappos’ culture” (Richards, 2010). There is a step-by-step protocol of the hiring process that takes four weeks. Competitors. Zappos is the number one shoe seller online. Its competitors are Footlocker, Inc., J. C. Penny Corporation, Inc., and Inc. Zappos has achieved this status due to its excellent customer service. Zappos provides services that none of its competitors offer such as free shipping to their consumers and for returns regardless of the amount spent, over a 1000 brands of shoes, and 3 million products (shoes, handbags, apparel, and accessories) (Hoovers, 2014). Even competitors that are not available online cannot match their services; although returns at shopping malls are refunded in full, one still has to make time to travel to physically return unwanted items.

Zappos, on the other hand, can save you time and money if you are unsatisfied with the product. Unlike most online companies, Zappos has a 100% return policy; they not only offer full money back guarantees on returned items, but they also offer one year return policy, as well as free shipping, no matter how large or small the order (Pei, 2014). This is very appealing to consumers because it encourages them to purchase items without having to worry about losing money on returned items or on shipping. They have made shopping easy for customers from the comfort of their own home or mobile device, and their items come to them with no extra shipping costs. If for some reason you are unhappy, a simple trip to the UPS store to drop off the box will take care of it, again at no cost. Zappos does not really have a plan or protocol against their competitors. The company feels that if they truly focus on their consumers and products, then they are bound to be the top e-commerce sellers. Their products, services, and confidence have allowed them to achieve their top status. They truly offer services no other company can offer, and it makes consumers want to shop there, knowing that they will truly get the best no matter what the prices are. Because the company is their main focus, rather than concentrating on beating the competition, this draws in more customers (Richards, 2010). Technology. Zappos is able to meet consumer’s needs due to its low costs to the company; because the company is online there are no additional costs to maintain stores. Zappos does not spend much on advertisement, because they are known through word of mouth.

The company also relies on social media such as Facebook, Twitter, YouTube, and Corporate blogs. Because Zappos functions online, there really are not high costs to technological factors, other than a call center, computers, and the use of the Internet. Zappos ensures that they are available for their customers twenty-four hours a day, seven days a week. They do this by providing their contact information at the top of every Zappos webpage, where other companies hide their contact information in hard to find locations or provide a number that make it hard to reach the company and discourages consumers to use it (Kopelman, 2012). Their employees always want to leave the conversation with the customer happy, whether it be shipping out a replacement, giving them a discount, or some sort of incentive to show their consumer that business it greatly appreciated. For Zappos, “social networking is not about farming followers, it’s a way of cultivating relationships” (Schoultz, 2013). The company has nine key marketing strategies: customer service, market segmentation (e-commerce), execution (has a main product), social media, adaptation and innovation (marketing and consumers), customer relations (builds current relations to obtain work of mouth), customer engagement, sharing (buy one get one), and customization (Schoultz, 2013). Sociocultural. Cultures and societies change over time and it is important that businesses transition their services and product to meet the ever changing demands of their consumers. Zappos set out a 10 year goal when it first launched, and it was to reach sales of one billion dollars and to become on the best place to work for on the fortunes top 100 list in 2000, they met this goal a year earlier than expected in 2009 and were 23rd on Fortune’s top 100 companies to work for (Kreamer, 2013).

Socioculture includes their mission statement, “deliver WOW through service” and “do more with less,” adaptability “embrace and drive change” and “pursue growth and learning,” involvement “create fun and a little weirdness” “be adventurous, creative, and open minded” and “be passionate and determined,” consistency “build open and honest relationships with communications” and “build a positive team and family spirit” (Schoultz, 2013). Zappos has been known for its speedy delivery, excellent and effective customer service, and their free shipping to and from their shoppers (in case of returns), this is said not from the company but from their consumers. There is nothing better than a good reputation for a company. In fact, Zappos hires employees that they are sure will know how to deal with customers to keep them happy. In 2013, “the company broke the record for the longest customer service call, clocking a 10.5 hour conversation that resulted in the sale of a $45 pair of shoes” (McNeal, 2013). Zappos also has a policy that it makes to its new trained employees, they are willing to pay them $4000 plus wages earned to quit on the spot if they feel that cannot give customers their all, thus leaving only confident and loyal employees (Kopelman, 2012). This demonstrates the length to which Zappos will go through to deliver satisfaction and assistance to its customers. Unlike other customer service call centers where there is a protocol or a basic script on how to deal with consumers, even if the customer does not leave the conversation happy, it all comes down to how well their employees are trained.

Zappos’ customer service representatives do not follow a script and are not operating under a time limitation or requirement. The company’s environment and culture instills confidence in employees, which leads to happy employees, happy customers, and ultimately long-term, sustainable business (McNeal, 2013). From the beginning, Zappos only hires those who they believe are the best of the best – and those who they feel can handle stress as well as have good judgment. This is because Zappos likes to rely on their employees in handling sales and issues that customers bring up, thereby making Holacracy a natural transition for the company, as a management approach. Customer satisfaction increases by lowered telephone hold time and fewer transfers; furthermore, the employee feels empowered and is more likely to treat the customers as if the company is their own. Owners of Zappos recognized that maintaining the company’s culture could prove challenging, had concerns for its stability; since they had reached their 10 year goal earlier than planned, they got an offer and sold it to in 2009 (Hsieh, 2009). Because is a large and stable company, it would be better able to take control of the Zappos and handle any changes that come its way, including adopting Holacracy as a management technique. Forces That Impact Zappos

One of the forces that impact Zappos is also a value adder this force is the sociocultural element of Zappos, which is the crux of what forms the company’s philosophy, and has increased the company’s market share. Zappos’ focus on customer centric service is evident in its corporate management hiring and training model. Every manager hired does not begin their new career at Zappos settling into their management responsibilities; instead, their first month at the company is spent on the phone lines at the call center as part of their customer loyalty training. Zappos is known for having a company culture that focuses on the well being of its employees. Management at Zappos wants the company to revolve around two core values: company culture and customer service. Unlike other companies, Zappos does not measure its success purely by sales. Success at Zappos is determined by how happy its employees and customers are, and the company uses a ‘happiness survey’ to measure that success. The results from the survey are reviewed and if it is clear that a department or an individual needs to feel more like an essential part of the team and the company, that team or individual would go through a program designed for employees to learn how important their work is to Zappos. Having a great social culture at work attracts superior talent, which has led to Zappos to obtain a more dedicated work force. Happier workers are more productive, and this idea of having a good work relationship is a value adder for Zappos. Another force that impacts Zappos is technology. Zappos uses numerous marketing tools, such as ‘word-of-mouth’ marketing; but viral marketing is Zappos’ main source of revenue.

With the explosion of different social media like Facebook and Twitter, Zappos’ revenue continues to grow. Zappos status updates on Facebook in a short three months encouraged 85,000 visits to Zappos’ website, according to Kenshoo a digital marketing specialist that works with the retailer. Zappos has 419,000 fans for its Facebook Page. Kenshoo found that 42% of Zappos’ status updates during that three-month period led to purchases. The other 58% didn’t lead to sales, but prompted other activity like “Liking,” shares and comments that could eventually lead to more customers and future sales (Wasserman, 2013). In addition to Facebook, Zappos has also been successful on Twitter. Zappos’ CEO, Tony Hsieh was interviewed on why the company uses Twitter: We started getting the entire company more involved with Twitter because we saw it as a great way to help build our company culture. But then we discovered it was also a great way to connect with customers as well. For Twitter, we don’t really view it as a marketing channel so much as a way to connect on a more personal level, whether it’s with our employees or our existing customers. (Rose, 2008)

Value Driven Management

The basic purpose of Value Driven Management is quite simple: when considering making a decision or taking actions, employees must consider the impact these proposed actions or decisions will have on the value of the organization over time. This can only be done by considering sets of values
held by relevant constituents of the organization. These include the world culture that is developing, national culture and subcultures; organizational culture; the values of employees; suppliers; customers; competitors; and third parties such as unions and regulators; and last but certainly not least, owners. Organizations must create an environment that embraces this philosophy to be successful over the long term. (Pohlman, 1997, p. 3) There were two different values driven management assumption used at Zappos Assumption III and Assumption V. Assumption III is evident in the way the employees are treated with respect everyone is treated with the same level of respect as they would the executive, the new managers have to train by handling phone calls in the call center. There is also a library onsite for employees to learn new things and there is a book club where each employee has to read a business book and discuss it in the company meeting so the team will learn something new at each meeting. Assumption III: The creation of knowledge and its appropriate use leads to value creation. One of the imperatives of the global economy is that both individuals and the organizations they belong to must be lifelong learners if they are to remain competitive.

Organizations must abandon authoritarian, fear-based managerial practices—or what Rensis Likert called “System 1” management—and practice participative management that empowers all the members of the organization—or what Likert called “System 4” management (Likert, 1961, 1967). Likert’s research demonstrates that more participative firms consistently outperform less participative ones, especially when time is factored in as a variable: authoritarian organizations may do well in the short run, but in the long run they usually run into trouble (Gardiner and Pohlman, 2000). The second force Assumption V is a value adder used at Zappos because one of Zappos’ core values is to be fun and weird at work. Zappos employees are happy employees they are encouraged to have fun at work, which in turn allows employees to get better aquatinted, thus improving the work environment where employees are more engaged in the work they do. Happy employees are usually more productive and provide superior customer service, which will also benefit the company financially in the long run. Assumption V: There are value adders and destroyers. Employees are a major source of value creation when they are happy and productive, and when their values are in sync with high-performance values in the organization (Preziosi, 1997). They can also be a major source of value destruction when they are unhappy and out of sync with their organizations. Highly successful organizations like Koch Industries and Southwest Airlines have invested a great deal of time and money in developing methods of identifying potential employees’ values during the screening process, to ensure a high degree of value congruence (Gardiner and Pohlman, 2000). According to Weinstein (2012), organizations consist of value providers, and a positive net transaction will result if the value that employees deliver exceeds customers’ expectations, which in turn brings about continued satisfaction, greater customer loyalty, and long-term relationships. The company must strive toward channeling the energy of value providers to ultimately provide excellence in all its undertakings (Weinstein, 2012).


Holacracy might be a new word but the thinking that goes behind it and the premise that surrounds it have been around since management theories came into existence. How to get the most out of a limited resource has always been the driving force behind management thinking. Many companies have kept one management style while others have changed from year to year, in the same way that companies have come and gone. The proper implementation of a different management system available can be different from organization to organization. Even organizations with similar products or services may differ when it comes to their management styles. The customer, competition, technology, and sociocultural aspects all impact whether and how a management system will be used. Regardless, at the end of the day it is the culture in the organization that plays out, and how well a system is followed is dependent on the follow through of those in charge of the company. So there will also be a need for management and a system to manage an entire organization. Some systems have been shown to be a better fit in certain circumstances. Which system works, will all depend on the individuals that make up this system. So in the case of Holacracy and Zappos, only time will tell what the future holds for this old line of thinking.


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"Zappo’s Holocracy" StudyScroll, Feb 29, 2016.

"Zappo’s Holocracy" StudyScroll, 29-Feb-2016. [Online]. Available: [Accessed: 29-May-2023]

StudyScroll. (2016). Zappo’s Holocracy. [Online]. Available at: [Accessed: 29-May-2023]

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