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Zappos: Happiness in a Box

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5.1 A Motivating Place to Work: The Case of Zappos

A box from Zappos!

Robert Sinnett – Zappos! – CC BY 2.0.

It is unique to hear about a CEO who studies happiness and motivation and builds those principles into the company’s core values or about a company with a 5-week training course and an offer of $2,000 to quit anytime during that 5 weeks if you feel the company is not a good fit. Top that off with an on-site life coach who also happens to be a chiropractor, and you are really talking about something you don’t hear about every day. Zappos is known as much for its 365-day return policy and free shipping as it is for its innovative corporate culture. Although acquired in 2009 by Amazon (NASDAQ: AMZN), Zappos managed to move from number 23 in 2009 on Fortune magazine’s “100 Best Companies to Work For” list to 15 in 2010.

Performance is a function of motivation, ability, and the environment in which you work. Zappos seems to be creating an environment that encourages motivation and builds inclusiveness. The company delivers above and beyond basic workplace needs and addresses the self-actualization needs that most individuals desire from their work experience. CEO Tony Hsieh believes that the secret to customer loyalty is to make a corporate culture of caring a priority. This is reflected in the company’s 10 core values and its emphasis on building a team and a family. During the interview process, applicants are asked questions relating to the company’s values, such as gauging their own weirdness, open-mindedness, and sense of family. Although the offer to be paid to quit during the training process has increased from its original number of $400, only 1% of trainees take the offer. Work is structured differently at Zappos as well. For example, there is no limit to the time customer service representatives spend on a phone call, and they are encouraged to make personal connections with the individuals on the other end rather than try to get rid of them.

Although Zappos has over 1,300 employees, the company has been able to maintain a relatively flat organizational structure and prides itself on its extreme transparency. In an exceptionally detailed and lengthy letter to employees, Hsieh spelled out what the new partnership with Amazon would mean for the company, what would change, and more important, what would remain the same. As a result of this type of company structure, individuals have more freedom, which can lead to greater satisfaction.

Although Zappos pays its employees well and offers attractive benefits such as employees receiving full health-care coverage and a compressed workweek, the desire to work at Zappos seems to go beyond that. As Hsieh would say, happiness is the driving force behind almost any action an individual takes. Whether your goals are for achievement, affiliation, or simply to find an enjoyable environment in which to work, Zappos strives to address these needs.

Based on information from Robischon, N. (2009, July 22). Amazon buys Zappos for $847 million. Fast Company . Retrieved February 28, 2010, from http://www.fastcompany.com/blog/noah-robischon/editors-desk/amazon-buys-zappos-807-million ; Walker, A. (2009, March 14). Zappos’ Tony Hsieh on Twitter, phone calls and the pursuit of happiness. Fast Company . Retrieved February 27, 2010, from http://www.fastcompany.com/blog/alissa-walker/member-blog/tony-hsiehs-zapposcom ; Happy feet—Inside the online shoe utopia. (2009, September 14). New Yorker . Retrieved February 28, 2010, from http://about.zappos.com/press-center/media-coverage/happy-feet-inside-online-shoe-utopia ; 100 best companies to work for. (2010, February 8). Fortune . Retrieved February 26, 2010, from http://money.cnn.com/magazines/fortune/bestcompanies/2010/snapshots/15.html .

Discussion Questions

  • What potential organizational changes might result from the acquisition by Amazon?
  • Why do you think Zappos’ approach is not utilized more often? In other words, what are the challenges to these techniques?
  • Why do you think Zappos offers a $2,000 incentive to quit?
  • Would you be motivated to work at Zappos? Why or why not?

Organizational Behavior Copyright © 2017 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Zappos: Delivering Happiness, Powered by Service

case study zappos

A story of the unwavering focus on exceptional customer experience.. and the success that follows

As an online retailer, Zappos brings the in-store shopping experience to customers in their homes, initially with shoes, and now with a wide array of other products as well. The business model of Zappos is built on providing an exceptional customer experience, and in doing so, building customer loyalty and driving word-of-mouth marketing. [1]

A few key components of this customer promise include:

  • Free shipping and returns on all orders , regardless of order size, enabling customers to order multiple items to try on in the comfort of their own home
  • 365 Day Return Policy
  • 24/7 Customer Service

case study zappos

While delivering happiness may be a competitive advantage, the cost of doing so is high. In 2008, 37% of purchases were returned ($379 million worth of goods) as a result of the lenient return policy. While some might balk at this number, Zappos views this expense as an investment in marketing, believing that happy customers are the best marketing channel. Indeed, Zappos has found success with this model, reaching over $1.1 billion in gross revenue by 2009, at which point it was acquired by Amazon. [4] Today, Zappos has annual revenue of well over $2 billion. [1]


Pathways to Just Digital Future

The success of this business model is the result of an effective alignment with its underlying operating model. The unwavering focus on service that we see in the business model is also the driving force behind many key operating decisions.

Operating Model

Inventory and Warehousing

When founded in 1999, Zappos was originally designed as a “middleman,” operating based on the “drop ship” model. It held no inventory and simply connected customer orders with manufacturers who filled the orders. In 2003, however, with many e-commerce companies going bust in the dot-com crash, Zappos decided to differentiate itself through providing exceptional customer service.  This was not possible under the drop ship model, as Zappos had no control over the delivery times of manufacturers and never had perfect visibility into their inventory. As a result, Zappos terminated its drop ship business and began buying inventory and storing it within their own warehouses. By moving the fulfillment of orders in-house, they could own the entire customer experience. [3],[4]

Call Center Operations

Relocation from SF to Vegas

Zappos understood that call center interactions were a critical part of customer service. However, when headquartered in San Francisco, it was difficult to find the right type of committed, service-oriented people with whom to staff its call centers. With its high cost of living and tech-heavy culture, the Bay Area was not a place where call center jobs were taken seriously. As a result, many of the call center employees were temps who did not deliver the desired level of quality. [4]

To address this issue, Zappos moved its headquarters to Las Vegas. In addition to its lower cost of living, Vegas was also chosen for its unique culture. As a city with a heavy emphasis on hospitality, its citizens were more likely to view a customer service job as a way to start a legitimate career. Furthermore, with the city’s pervasive “all-night” culture, people were more willing to work odd hours, enabling Zappos to provide a 24/7 customer service line. [4]

Emphasis on Quality Interactions

While other companies focus on reducing the issue resolution time on customer calls, Zappos does not limit the amount of time that customer representatives spend on the phone with each customer. Instead, Zappos encourages its employees to spend as much time as needed to really understand the customer’s issues and go above and beyond in helping the customer. To this end, Zappos also does not have a script for its call center reps, and encourages them to be authentic and build a personal emotional connection (PEC) with each customer. [4]

Looking Forward: Holacracy

As Zappos grows, it continues to look for new ways to stay innovative in optimizing the customer experience. Lately, this has taken the form of holacracy, a new organizational structure which eliminates bosses and comprises of many self-managed “circles.” The idea is to prevent the bottlenecks that come with bureaucracy and to structure Zappos more like an incubator in an attempt to attract talented employees with an entrepreneurial bent. [5],[6] Furthermore, as part of the holacracy structure, when a customer issue arises repeatedly, a different team is assigned to address it each time, resulting in the generation of many different innovative ideas for solving the problem. These ideas are then reviewed to develop a sustainable solution. [1] In doing this, Zappos widens the ideation phase of the design funnel in order to stay innovative in maximizing customer happiness.

Holacracy is a radical approach that isn’t for everyone though. Since its implementation last year, 14% of Zappos employees have already left as a result. [5] However, the long-term financial and cultural impact remain to be seen. For now, the one thing we do know is that Zappos remains as steadfast as ever in its commitment to delivering customer happiness.

[1] “Zappos and the Connection Between Structure and Strategy.” Harvard Business Review, June 3, 2015. < https://hbr.org/2015/06/zappos-and-the-connection-between-structure-and-strategy >

[2] Zappos website. Accessed Dec 9, 2015. < www.zappos.com >

[3] “Tony Hsieh: Redefining Zappos’ Business Model.” Bloomberg Business, May 27, 2010. < http://www.bloomberg.com/bw/magazine/content/10_23/b4181088591033.htm >

[4] “How I Did It: Zappos’s CEO on Going to Extremes for Customers.” Harvard Business Review, Jul-Aug 2010 issue. < https://hbr.org/2010/07/how-i-did-it-zapposs-ceo-on-going-to-extremes-for-customers >

[5] “Tony Hsieh got rid of bosses at Zappos – and that’s not even his biggest idea.” Washington Post, Dec 1, 2015. < https://www.washingtonpost.com/news/on-leadership/wp/2015/12/01/tony-hsieh-got-rid-of-bosses-at-zappos-and-thats-not-even-his-biggest-idea/ >

[6] “Zappos and the search for a better way to run a business.” Fortune, Jan 29, 2014. < http://fortune.com/2014/01/29/zappos-and-the-search-for-a-better-way-to-run-a-business/ >

Student comments on Zappos: Delivering Happiness, Powered by Service

So true – Zappos is king when it comes to customer service! After reading about the call center moving to Vegas, that decision makes a ton of sense. I wonder if other companies have followed suit to build up call center capabilities there because it seems of the unique culture there.

Also, I’m interested to know how the decision to focus on customer service has evolved over time. While Zappos has certainly earned itself a name on that competitive advantage, have consumer preferences changed over the years such that customer service is not always the top factor for purchasing online? In particular, retail over the past few years has become more and more a price play. Has that had any impact on how Zappos has had to compete to get purchases? It’d be an awesome and really powerful case study if Zappos has largely been immune to this trend!

Thanks for sharing Wendy! I’m glad you brought up the recent implementation of halocracy, as it does seem that it creates an incredible opportunity to develop new solutions to ideas. My question is how Zappos will maintain it’s current quality of service under this new operating structure? It seems like Managers are key for quality control and maintaining some semblance of best practices even if Personal Emotion Connection is a crucial piece of service. Will leaders still emerge without actual titles who will then drive their own agendas? Also, Amazon is known for it’s top down management model, how was Zappos able to convince their parent company that this change will improve satisfaction and drive growth?

I have personally been very impressed with Zappos and its culture with a strong focus on customer service. While at my last startup, we tried to learn a lot from Zappos’ customer service and gave agents a lot of freedom. What I would want to understand better is how do they maintain any sort of control over the call centre agents to prevent malpractices? Also, how does the model allow for disproportionate amount of spending over customer service?

Big time Zappos customer here – VIP member. It’s interesting to me that the retention rate fell once they implemented the new “circles” staffing model. Perhaps hospitality-minded people, focused on making customers feel satisfied, need the structure of a formal working environment with a manager, etc. to be productive. I’m curious to know if once they implemented this, did effectiveness at solving challenges decrease because people had to now work together in a less structured way more than before? Working well in teams and being successful in team-based problem solving are a different set of skills from the soft ones required to be good at customer service. In a way, people that work customer service at a place like Zappos (where time on the call isn’t important) likely involve a lot of personality into what they do – personality they likely feel is a critical part of they ability to do their job so effectively. When you tamper with that, it’s likely some employees will feel marginalized. Good article!

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The Zappos Holacracy Experiment

Ethan Bernstein, Harvard Business School professor, and John Bunch, holacracy implementation lead at Zappos, discuss the online retailer’s transition to a flat, self-managed...

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Ethan Bernstein, Harvard Business School professor, and John Bunch, holacracy implementation lead at Zappos, discuss the online retailer’s transition to a flat, self-managed organization. They are the coauthors of the HBR article “ Beyond the Holacracy Hype. ”

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CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch. Admit it, bosses are the best. Even when we don’t enjoy taking orders from someone, there is something so comforting about having a supervisor. There is a safety in knowing there’s somebody whose job it is to go to bat for us, to develop us, to shield us, and when they fall short or when we do in our work, it’s easy to blame them.

Blaming the boss is no longer possible at Zappos. The Las Vegas online shoe and apparel company is undergoing a bold experiment to topple classic organizational hierarchy. Today, on HBR IdeaCast, holacracy. And here to talk about this new form of the self-managed organization is John Bunch, the Holacracy Implementation Lead at Zappos. John, welcome.

JOHN BUNCH: Thanks for having me.

CURT NICKISCH: And sitting next to him is Ethan Bernstein, Assistant Professor of Leadership in Organizational Behavior at Harvard Business School. Ethan, thanks for talking with the HBR IdeaCast.

ETHAN BERNSTEIN: Thanks, Curt. It’s great to be here.

CURT NICKISCH: John and Ethan are both co-authors of a new article in the latest edition of Harvard Business Review. The title is “Beyond the Holacracy Hype.” So let’s dig into the hype. John, let me start with you. What does this look like for an employee? Like what does this actually mean to somebody who shows up on a Monday?

JOHN BUNCH: So what it really looks like is throwing away the traditional org chart that we’re all accustomed to where we fit in one place in the organization. And instead, having a way that we can come together to define what work needs to be done, and then allow people the agency to figure out what work it is that they are most connected to. So as an employee of Zappos, you fill multiple roles across the organization. You might be working on multiple different types of work throughout any given day.

CURT NICKISCH: This doesn’t sound, maybe right now at least, completely different from showing up to work where I have things that I want to be working on, things that I know I have to do, and also people I can lobby to take on different roles. What’s different here?

JOHN BUNCH: I would say that there’s a couple of things. One is getting more clear on what that work is. So when we think about traditional organizations, you exist in one place in the org chart, defined by a job description, which you probably don’t look at that often. And so we’re trying to get better at defining what the work is and getting clear on what that work is. The other thing I would say is that much more so in this type of organization, you have the ability to chart your own course. So to be proactive about saying, I’m interested in doing this work or that work, more so than you do when you fit one specific place in an org chart.

CURT NICKISCH: OK, so how does this work?

JOHN BUNCH: Well, there are different roles that define the work that needs to be done. And we have tools and systems to help people chart their course through that. So we have tools like Role Marketplace which helps show what work is there that we need help on. We have tools for understanding what work should we be prioritizing over what other work. We have tools to help us understand how successful are we being at the work that we are doing.

CURT NICKISCH: OK, I’m still not totally clear. If I show up on a Monday and there’s this Role Marketplace, how do I actually do this? Do I just go on my phone or on my computer and say, yes, I want to do this role?

JOHN BUNCH: Yeah, so what you might do is if you were looking for work to do, there’s transparency around what work we are doing so you can look on a tool to help see all of the organization’s work. What are all of the roles? What people are currently doing– maybe there’s somebody you’ve worked with in the past that you really like to work with and you want to do more work with them –you can see what work they’re doing. And you can go and pitch yourself for roles through the Role Marketplace. You can pitch yourself and say, I really have interest in this role that’s out there. But really what it looks like on a day-to-day basis is there’s clarity around what roles you have, what those roles are accountable for, what purpose are you trying to achieve with those roles, and then it’s really up to you to unpack that work, to get that work done.

CURT NICKISCH: Who decides– I mean, I can pitch myself to a role but who decides if I actually do it?

JOHN BUNCH: Yeah, so in holacracy, there is a role who is leading the efforts of any given team. That role is called the Lead Link role, and one of the things that they’re responsible for is finding the best fit for any given role. And so across the organization, there are these Lead Links that are leading efforts. In our old structure we had about 150 managers. And now, with things more distributed and more different, diverse areas of work happening, we have over 350 Lead Links.

CURT NICKISCH: So are there more meetings happening too?

JOHN BUNCH: Meetings happen when they need to happen on whatever cadence makes sense. So some groups meet frequently, some groups meet very infrequently. And so, just like in a traditional organization, meetings happen when they need to.

CURT NICKISCH: OK, what if I don’t want to do something?

JOHN BUNCH: Nobody can force you to do anything. You can always–

CURT NICKISCH: In life generally.

JOHN BUNCH: Yeah, in life generally. I guess what we’re trying to do is structure our company more like cities are structured. Research shows that every time the size of a city doubles, productivity per resident goes up by 15%. But when companies double in size, actually the exact opposite thing happens, productivity per employee goes down. And part of the reason why we think that is is that in cities, you are self-organized, you’re self-directed. And you have a certain level of freedom and autonomy to do what you think is right.

The same thing is true within our organization. We want to be able to give people the freedom to work on things that they think are really going to help the company forward. And on top of that, we need systems and processes to make sure that every employee is bringing enough value to the organization to keep them employed. And so, while there’s not somebody telling you exactly what to do, you need to make sure that you’re adding value to the organization.

CURT NICKISCH: Cities can be really chaotic though. And this sounds somewhat, at least for somebody who hasn’t been in this situation, this sounds kind of confusing. It sounds like there’s a lot of pitching and selecting and trying to decide between what sounds like a lot of different roles. And I just wonder what that’s like for somebody? Are they spending a lot of their time just figuring out how to manage this system and to manage the selection of roles without even talking about actually doing those roles?

JOHN BUNCH: There are different types of people within the organization. There are some people who really enjoy being able to flexibly move across different work and try to find new areas. And there are other people that just want something stable, they just want to come in every day and do what they’re accustomed to and know what that is. And both types of those people can work in this environment.

There are some groups that are very, very stable. For instance, we have a large group answering customer phone calls, and that’s very stable work. We know that there are customer phone calls that are going to be coming in every day, we know how much work we need for that, and so if you’re the type that just wants certainty, you might just stick in that area. But also, there are new and exciting opportunities happening all the time. So I think this can work for both people that want safety and security, and also people who want to be entrepreneurs and try new things.

CURT NICKISCH: How do you advance in this organization? If you want a raise, what do you do?

JOHN BUNCH: So I think when we think about traditional organizations, obviously there’s a job ladder. Where you want to go in the organization is usually the position that your boss is in currently. You want to move up. How we reframe that is it’s a job jungle gym at Zappos. So you’re looking around at where you’re at today and what are all the other opportunities that exist. And you get to chart your own course through that jungle gym of work. What we’re really trying to do is being very transparent about what does it look like if you move in this direction, or if you move in that direction? What are the impacts on you, your compensation, your progression, depending on the decisions that you make? But ultimately it’s up to you to figure out where you want to go.

CURT NICKISCH: I’m thinking about the jungle gym in my schoolyard playground and there were a lot of kids having fun on it. There are also a lot of kids who fell off and bruised their knees and were crying. And it’s an interesting image to see people navigating around this organization and moving to different parts. It also sounds a little– can I say Darwinistic?

JOHN BUNCH: Well, part of what we’re trying to do is have evolutionary design, emergent design built into our organization so that we can always be adaptable. So in the article we talk a lot about adaptability, and that’s definitely one of the goals that we have. Also, by the way, you can fall off a ladder as well.

CURT NICKISCH: Oh true. And people do.


CURT NICKISCH: How do people get paid in this organization? Because there may be nobody else who’s doing exactly the job you are in there. I don’t know, are there actually dollar figures next to roles?

JOHN BUNCH: Not next to roles. But what we’re really trying to do and understand is what skills each and every individual has at the organization and what skills they’re using for the work that they’re doing. And then figure out what’s the right way to compensate that. I will say that it can be more challenging. Because in a traditional company where you’re pigeonholed into a single task or a single type of task, it’s a little bit easier to figure out that market compensation. And when you’re doing various different things, that becomes a more challenging question. But at the end of the day, we think that that’s the right thing for our employees and also for the company.

CURT NICKISCH: Ethan Bernstein, I want to ask you now, because at Harvard Business School you study self-management, you study transparency. When you heard about Zappos doing this, were you skeptical?

ETHAN BERNSTEIN: Well, as a professor, I’m skeptical of most things. But that said, this is actually, to me, a logical step in an evolution we’ve seen over the last 60 or 70 years toward self-management. First in the form of self-managed teams, and now increasingly in the form of self-managing organizations. If you think about what John said earlier in this discussion, Zappos has decided to leave the org chart behind and create a work chart instead. On the view that individuals become more productive because they’re more passionate about being able to select the work they want from the work chart, as opposed to selecting a role or a job description from the org chart.

So if a traditional organization is like a pre-fixed restaurant, where you just walk in and get an Italian meal, they’re now giving their employees the chance to select all the different roles, the appetizer, the main course, the dessert, on a fairly regular basis on the assumption that that’s the sort of individual who will help Zappos succeed in the future. That, I think, has a lot of logical sense, especially in a world that’s increasingly in need of adaptability, which we know comes from the front line and from workers being engaged.

CURT NICKISCH: I know some people have called this system the “bossless” office, I’m getting the picture as I hear about this though that it sounds like the workers are taking over the management. Or they’re taking over the decisions about how best to apply resources and what they should be doing with their time because they maybe feel like they know it better.

ETHAN BERNSTEIN: One of the key myths we wanted to dispel when we titled this article “Beyond the Holacracy Hype” was the fact that management is not involved in making the system work. You may not take a person and put a job description against them and say this person is a manager. But there is a lot of management going on, in fact, perhaps management is even more important in an organization with a work chart, as opposed to an org chart, because there is more to manage. There are more roles in John’s organization today than there were people and job descriptions in the old Zappos, which means, logically, there is more to manage.

CURT NICKISCH: So that said, that management is filtering out through the workforce at an organization, this whole transition still seems like a lot to manage, so to speak. John, how much did this cost? How much time is it taking the company to actually put this in motion?

JOHN BUNCH: Yeah, so there were definitely some hard costs associated with the transition, but also a lot of other costs as well. So the hard costs are we had to have consultants come in and help us with this transition. We’ve started to build up the apps, the systems to help us run this, all of that cost money. But also, I would argue probably a bigger cost is the amount of time that we’ve all invested, all of our employees have invested, to learn this system.

Learning this system is not super easy, it takes some time. And additionally, we’re investing time in a dip in productivity. As you learn something new, you’re always going to go through a dip. We’ve definitely been going through that dip and that’s a time investment, a productivity investment, that we’re making in the future of Zappos, the future innovation, the future ability for our organization to thrive.

CURT NICKISCH: When do you think you’re going to realize that investment?

JOHN BUNCH: I think it’s a long-term play. So this is something we see as keeping our organization healthy long-term. I love the quote from Darwin, “it’s not the strongest or the fastest of species that survives, but it’s the most adaptable to change.” And what we’re trying to be is adaptable to change.

CURT NICKISCH: Zappos is a company that’s kind of famous for being irreverent, different, a lot of people thought Zappos would lose that culture when it was bought by Amazon. What was it about Zappos that made it the company that’s undergoing this experiment at a scale and level of investment that we’re talking about here?

JOHN BUNCH: Well, we’ve always seen our number one focus and commitment as the commitment to our core values. So we have 10 core values that we really live by day in and day out. And as we looked at self-management and as we looked at holacracy, we really saw it as an opportunity to deepen our commitment to our core values. So as an example, one of our core values is to build open and honest relationships through communication. And this is a framework for us to have more open conversations with one another about what works should we be doing and what are the right decisions in that work.

CURT NICKISCH: Ethan, I want to ask you, it’s so interesting to hear about Zappos making a long-term commitment to this, which is too early, it sounds like, John, to really know whether it’s paying off. But Ethan, where does Zappos fit in to what’s happening in management today? Because a lot of what he’s talking about does sound like an institutional commitment to what many of us as workers know out there. We want to be self-actualized, we want more autonomy in what we do, we feel like technology sometimes gives us the tools to work the way we want to or when we want to.

ETHAN BERNSTEIN: It certainly fits with our image of the trend towards the millennial generation. Other organizations may not be there in terms of strategy, but I think the general trend we’re seeing in all organizations is in this direction. Not every organization, obviously, is going to take the large step that Zappos has taken, but I do think that if you look over the next 10 or 20 years, most organizations are going to take a small step or several small steps this way. And the real challenge for all of them is going to be able to figure out the answer to your question, what’s the return on investment on being able to be more adaptable? Because that’s a relatively hard thing to measure.

CURT NICKISCH: John, you’re in this day in and day out. Sounds like you’re hopeful about what’s going to come out of this. But if this fails at Zappos, what will be the chief reason?

JOHN BUNCH: One of our main challenges has really been how difficult of a system it is to pick up. When you think about coming into the workplace, a normal, traditional, hierarchical workplace, nobody needs to tell you the rules of the game. It’s just something that’s understood in our culture and our work culture today. But we’ve invested a lot of time and energy into training and educating everybody on not only how to do the system, but why we’re doing it. And so I think that’s the big challenge that organizations have when thinking about moving to this.

CURT NICKISCH: What’s the biggest misconception about holacracy that you want to take this opportunity to clear up?

JOHN BUNCH: I would say maybe that holacracy is chaotic. There’s actually probably more structure in a holacratic company than there is in traditional companies. So the work is very well-defined, what work is going on across the organization is very well-defined, it’s transparent. You can look it up anywhere across the company. And so it’s actually fairly structured.


ETHAN BERNSTEIN: So for me, it’s the word “bossless.” This is a extremely managed system. Just because management is shared doesn’t mean it’s nonexistent.

CURT NICKISCH: If a company came to you and said, we want to do this or go in this direction, what would you be looking for in those companies? Is there something that organizations that are good candidates for adopting holacracy or parts of it that they have in common?

ETHAN BERNSTEIN: I’d actually go one step further. There’s something in common across all the organizations that adopt some form of self-organization. So if I think back to when Gabe Newell, the founder of Valve software, one of the organizations that’s not holacratic, but is very well-known for being self organized. When Gabe came to speak with us at Harvard Business School, he explicitly said to the students, this is not about copying what Valve does, this is about being just as deliberate as we are about thinking about your organizational structure.

And I do think that that’s a generalizable lesson for all. That organizations who are increasingly thinking about structure as an advantage and a form of making their employees more productive, will continue to evolve and innovate in this direction. And that’s something I think we’ll see across all organizations, regardless of whether they are trying to deliver “wow” to customers, or trying to do something very different.

CURT NICKISCH: I want to thank both of you for taking us into this evolution. Ethan Bernstein, Assistant Professor of Leadership in Organizational Behavior at Harvard Business School, thanks for joining us.

ETHAN BERNSTEIN: Thank you, it’s great to be here.

CURT NICKISCH: John Bunch is the Holacracy Implementation Lead at Zappos. John, thanks so much for sharing your company’s experience with the HBR IdeaCast.

JOHN BUNCH: My pleasure.

CURT NICKISCH: You can find this article, “Beyond the Holacracy Hype” in the July/August 2016 issue of Harvard Business Review and more at HBR.org.

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This article is about organizational restructuring, partner center.

Why Are So Many Zappos Employees Leaving?

Last year, the company’s turnover rate was 30 percent.

case study zappos

The online shoe retailer Zappos has always stood out for its unconventional human-resources philosophy. For nearly a decade the company has been making something it calls “The Offer” to new hires—an opportunity to take a $2,000 stipend instead of starting the job. The company prides itself on the attentiveness of its customer service and the devotion of its workers, and “The Offer” is an attempt to weed out those who aren’t thrilled about the work ahead.

But now, one of the company’s unusual approaches has led to what’s being called a Zappos exodus , as 18 percent of the company's staff have taken buyouts in the last 10 months. That takes Zappos’ turnover rate for 2015 to 30 percent, which is 10 percentage points above their typical annual attrition rate.

Why are so many employees leaving? Backtrack to 2013: Tony Hsieh, Zappos’s CEO, started promoting a new management structure called holacracy. It’s a setup that’s supposed to encourage collaboration by eliminating workplace hierarchy—meaning no more titles and no more bosses. The system instead asks workers to track all strategy decisions and their outcomes in a web-based app called Glass Frog. Roger Hodge, writing in The New Republic , called it “a radical experiment … to end the office workplace as we know it.”

But there was a result of holacracy that the company didn’t anticipate (but probably should have): confusion . Self-governing produced a bit of a mess, with some workers telling reporters that they weren’t sure how to get things done anymore . The New York Times reported last year that those in charge of payroll, for instance, had trouble determining salaries after titles had been banished, and some employees wanted a boss to consult when making important decisions.

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In a statement posted online on Friday, Zappos attributes the widespread departures to a recent buyout—a special version of “The Offer” made after the company began changing its internal structure. The company says that the additional turnover in 2015 “was mostly due to us giving long-time employees the opportunity to pursue their dreams (average severance paid out was about 5.5 months pay when we last analyzed the data).” Additionally, the company seems unbothered by the numbers: “We have always felt like however many people took the offer was the right amount of people to take the offer, because what we really want is a group of Zapponians who are aligned, committed, and excited to push forward the purpose and vision of Zappos.”

Flattening workplace hierarchies has been a management trend for several years, it’s accrued its proponents and detractors. The argument for such a radical break from tradition is that so-called “flat” workplaces are in theory more likely to spark unlikely collaborations, which in turn can lead to creative new initiatives. There is also the undeniable appeal of cost-cutting: Consultants tend to like organizational philosophies that reduce the number of employees necessary.

But while some case studies have shown this system’s effectiveness , it’s far from certain whether it’s a good idea for all companies (particularly large ones). And, as those concerned with management theory have noted , flattening hierarchies runs the risk of taking away employees’ motivation to stay at a company because there’s no ladder to climb.

In fact, recent research seems to indicate that flattening workplace hierarchy is not only much more complicated than it seems, but that people prefer a pecking order. One Stanford study found that egalitarian work structures were disorienting. Workers found hierarchical companies were more predictable, and therefore preferable, because it was easy to figure out who did what and how compensation should be doled out. Another Stanford paper , which looked at why hierarchical structures in the workplace have such staying power, concluded perhaps the obvious: Hierarchies work. They are practical and psychologically comforting .

Hsieh, for his part, seems to understand that holacracy isn’t for everyone. Last year, in a 4,700-word memo (which he acknowledged takes about 30 minutes to read), he told employees that they could either get onboard with holacracy or take three months’ worth of pay and quit. He wrote:

Self-management and self-organization is not for everyone, and not everyone will necessarily want to move forward in the direction of the Best Customers Strategy and the strategy statements that were recently rolled out. Therefore, there will be a special version of “the offer” on a company-wide scale, in which each employee will be offered at least 3 months severance (and up to 3 months of COBRA reimbursement for benefits) if he/she feels that self-management, self-organization, and our Best Customers Strategy and strategy statements as published in Glass Frog are not the right fit.

Which takes us back to the exodus. Over the last 10 months, employees have been taking Hsieh up on this offer. It’s not clear how many of these departures would have come about in the form of layoffs, as their COO Arun Rajan initially told Quartz that many offer-takers were managers, and that the managers (whose status was diminished by holacracy) who hadn’t taken the buyout would have likely been laid off as the company restructured. Contradicting Rajan, Zappos now says that those in traditional managerial roles would not have been laid off, and the managers who wanted to stay would be offered the opportunity to switch roles at the company. Whichever is the case, it’s clear that Zappos is going through a rough transition—one that it anticipated, and one that could make it stronger in the end.

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Zappos case: the best customer service

Zappos case: the best customer service

We have insisted countless times that customer service is a key element that determines the degree of satisfaction of our customers and their loyalty to the brand. Poor customer service generates dissatisfaction and discourages buyers from continuing to consume a product or contract a service because they consider that it is not worth going through an unhappy or directly unsatisfactory experience with the company.

<<< Lays Case: towards the conquest of the Asian market >>>

Well, it is precisely to inspire other companies that we decided to tell today's case study: the story of Zappos , a shoe company that is not like other companies since it stands out for the best customer service known in the business world (and we think that is not an exaggeration).

In this article, we tell you how this company emerged; it continues to grow and its main philosophy is to satisfy the needs of its customers . In addition, we will talk about what is the secret of its success by making minimal investments in marketing and advertising campaigns.

Zappos history

The beginnings of this prestigious company date back to the need to buy shoes from its founder when he was not yet thinking of being an entrepreneur. It turns out that one day Nick Swinmurn was walking around a San Francisco shopping center looking to buy some shoes that he liked and couldn't find.

In the search for the dream model, he checked every internet catalog he found without results. That got him thinking: if the shoes he wanted didn't exist, why not create them himself?

Driven by necessity, it was then that Nick became the founder of a shoe company and began to take his first steps in the world of business, creating the shoe retailer shoesite.com , which would later become Zappos .

The name change responds to the idea of a derivative of the word shoes that was conceived in conjunction with CEO Tony Hsieh to expand the original concept of the first name and raise the possibility of selling more products in the future.

A philosophy focused on making the customer happy

Getting customers to have a happy experience would not be possible if the company's workers were not happy too. The equation is simple: happy employees provide better customer service , and the result is happier customers .

The Zappos philosophy consists of maintaining, above all, a very pleasant , fun, camaraderie and, above all, collaborative work environment . At Zappos, employees help each other and there is no need for internal skills because everyone's skills are equally important for the growth of the company.

In addition to this, it should be noted that Zappos' corporate culture promotes a horizontal organizational structure , where all collaborators work by objectives instead of by managers . In this way, the hierarchies in this business model are dissolved and the employees reduce stress when they feel that their actions are recognized and have the same value as those of the managers.

Being motivated, Zappos employees answer more than 5,000 calls a month and more than 1,000 emails a week. Customer service does not stick to a script to always answer the same thing to its customers when they call to answer their questions. They can have 5-minute phone calls, as well as 10-hour calls, as their record became.

With this feedback, Zappos employees earn the trust of their customers because they show that they care about them and that they will do everything possible to provide effective solutions to their problems and, above all, they will make them not afraid to ask their concerns because they are to solve them 24/7.

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Product distribution and return policy

One of the main differences between Zappos and the rest of its competitors is that they offer free shipping and product returns to make transactions easier. For example, customers can try on several pairs of shoes free of charge until they find the one they like.

In the meantime, you have up to 365 days to make the appropriate returns on the pairs of shoes you won't buy.

Another surprising aspect that places Zappos as the best customer service is that it is so unusually honest that, if it cannot satisfy its customers with a shoe model that meets their needs, it sends these customers to the competition. Imagine the surprise of your customers with an action that is considered suicidal in the business world.

But that outpouring of honesty, in the long run, benefits them by bringing customers back. As you will see, they invest much more in offering better customer service than in their marketing campaigns. In a nutshell, their goal is to invest in increasing the human connection with customers.

Personalized customer service: Telephone calls

While many companies invest large sums of money in chatbots and artificial intelligence, Zappos promotes interaction with customers in a personalized way , to make them feel heard and understood. For the company, phone calls are the key to building lasting relationships with customers.

Also, unlike many companies that seek to reduce the number of daily phone calls, Zappos does the opposite, activating mechanisms to facilitate telephone contact. Hence, people have internalized the treatment they receive from the company as if it were a friend or family member.

The culture of "wow"

We had anticipated that, in addition to focusing on improving customer service , Zappos is concerned with keeping its employees happy within the company, breaking down hierarchical structures to bring people closer together. In this sense, the internal culture promotes such personalized and efficient attention that it motivates the client to say “wow”, and it is very likely that they will achieve it.

Tony Hsieh, in his book Delivering Happiness, states the following about the goal of his company culture:

“What set us apart from our competitors was that we put company culture above all else. We bet that by being good to our employees we would be able to offer a better service than our competitors. Better service results in many recurring customers and this means low marketing expenses, long-term profits, and rapid growth.”

Robert Richman, co-creator of Zappos Insights, says that culture is everything at Zappos. "Culture is made up of values, values determine behavior, behavior determines actions, and actions produce results."

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A business model to imitate

To conclude, our thoughts lead us to ask ourselves how many times we have worked for passion and how many times we did it just to make money. We believe that the main difference with other companies concerned with selling is that Zappos cares about better customer service and also about the satisfaction of its employees, an infallible combo to captivate the market.

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Case study: how zappos created a customer-centric approach to digital marketing.

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What is Zappos' approach to digital marketing?

Why is zappos so focused on its customers, what is zappos' strategy, what is it about zappos that makes them so successful, how does zappos create long-lasting customer relationships, what distinguishes zappos, what is the rationale behind the customer-centric marketing strategy, what are zappos' four cs, who is zappos's ideal customer, what is zappos' client segment.

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case study zappos

Zappos: How Excellent Customer Service Can Drive Growth Case Study

Zappos.com is the largest online shoe retailer in America and it is owned by Amazon.com. The company is based in Henderson, Nevada. It was founded in 1999 by Nick Swinmurn. 1n 2009, the company was acquired by Amazon. Tony Hsier is the current CEO.

Zappos mission is “to provide the best customer service possible”. Its core values are captured by what it refers to as the “ten Commandments”, which employees are supposed to study, internalize, and practice. The company believes that the right corporate culture is the foundation of exceptional customer service.

Zappos is a rapidly growing company that is also profitable. It has made a significant contribution to Amazon’s profitability. Since 2005, Amazon had been toying with the idea of starting an online retailer of shoes and that is why it started endless.com. The company, however, decided to acquire Zappos. The decision to acquire Zappos was an inspired one because growth prospects are exceptionally bright under the leadership of Tony Hsier.

Zappos is a reputable company to work for. It was listed among the top companies that treat employees well. The company does not only treat employees well, it also it also compensates them handsomely. Employees are trained under a program of continuous self improvement and handed countless other challenges that are motivating.

Zappos is involved in number of activities aimed at protecting the environment. The company also provides direct job opportunities to almost 2000 employees and indirectly to hundreds. This is good for the American economy. When many companies in the US are outsourcing jobs to India, Zappos has made the conscious decision to locate its call centre in United States.

The company was not hugely affected by the 2007 financial crisis, but it had to offload 5% of its workers at some point. Looking at its revenue figures, Zappos growth has been impressive. This has been due to its commitment to exceptional customer service. Future prospects for the company are significant because it is now a trusted brand. Secondly, almost all of its first customer buyers make repeat purchases. As long Zappos maintain its excellent and innovative customer service, it will continue to gain more market share.

Organization and continuity

Operational process.

A company such as Zappos that ships shoes and other accessories to clients once they buy online requires considerable operational processes to be reliable (DiJulius, 2008). For activities to be performed in a standard way, there is a need for operational processes and procedures. Common activities in a firm can be accomplished in several ways, but there that single way that is both cheap and efficient. Documenting operational processes help a firm avoid failures and other costly mistakes.

Training new employees includes educating them on operational processes. Most firms do not provide formal training as such, but new employees are put under more experienced workers to mentor and transfer the required knowledge on operational processes and procedures (DiJulius, 2008). Operational processes are essentially documented best practices that have been adapted from elsewhere or developed in-house.

Operations are harmonized by integrating processes and people to drive reliability and improve capacity. When Zappos was incorporated, it faced a number of operational challenges in their quest to ensure that they ship products to their customers successfully (Laseter & Rabinovich, 2012).

To deal with the problems, Zappos adopted a highly sophisticated computer system called Genghis. Gengis manages the operations of the company. It manages the following key areas of operations: order entry, warehouse management, e-commerce system, and inventory (Zappos.com). If a customer wants a certain size of a particular shoe, he can be able to check its availability and the total number of shoes in the store of that size and their colors.

The system also reminds employees to call back customers and also coordinates reboot system of the warehouse. The management gets reports on profit contribution of selling a certain product in their online store. This way, the management can be able to assess whether it’s profitable to sell a certain product or not before stocking.

Management style

Management style refers to ways decisions are made in an organization and relating to subordinates. Management styles can be autocratic, paternalistic, or democratic. According to management experts, management style should be adapted to fit the prevailing circumstances. In a modern organization, democratic management style has been found to give the best results.

Democratic or participative management style is suitable for employee motivation because they feel appreciated and part of the organization.

They also feel that they own the final decision reached, and this inspires them to cooperate towards the realization of what has been decided. This type of management style is best when working as a team. It is the best where quality of what will be produced is more essential than speed.

Tony Hsier has distinguished himself as a great manager. He realized that Zappos needed to offer a excellent service stay ahead of the competition.

Towards that end, he developed a work environment where employees work as a team all committed to offering delightful service to customers. One of the decisions Tony, together with his employees, made at Zappos was to adopt casual dressing style (DiJulius, 2008). Also, during the early days of the company, the whole team collectively developed organizational culture and key values.

One of the reasons that have made Zappos a dominant company is the management style of its CEO, Tony Hsier. The vision of the CEO was to make a successful company that, despite size, could still offer customers exceptional service. That is why the company invests so much on training new employees. New hires on training is given full salary and a $2000 for those who wish to opt out.

Employee involvement which contributed to their growth over the years

According Tony, zappos is a company that is committed to delivering happiness to all the stakeholders (Hsieh, 2011). He is focused on making customers happy. This singular focus on the customer’s happiness is largely responsible for the company enormous success. It is also from this focus that informs its corporate culture.

Tony Hsier believes that when a company is able to attract talented people who also enjoy their work, it is possible to offer exceptional service and develop a strong brand in the process (Hsieh, 2011). The people who are recruited by the company is committed to offering delightful service to customers. New Employees, who feel that they cannot cope, or lack sufficient motivation to work there, are encouraged to leave the company and are given a $2000 reward (Zappos.com).

During interviews, employees are sometimes asked to rate their weirdness on a scale of 10. Interviewers sometimes push job applicants to extreme situations so that they can gauge their reactions when under pressure (Laseter & Rabinovich, 2012). During the early days of the company, workers would stay late into the night to socialize.

The goal was to create an organization where everyone is friendly. A test of innovation is given to prospective employees. Innovation is critical to the company, and it is indeed its hallmark, since it was founded. It is now even more urgent because of emerging vendors who have copied Zappos strategy and business models. Zappos, therefore, has been able to reach this far by relying on the employee’s innovativeness and commitment to excellent service.

Companies may be large, but it is real people that can give individual customers enjoyable and memorable service that they are able to identify with. Eighty per cent of all Zappos customers are repeat customers. They come back, again and again, due to the great service they get from employees. Therefore, by committing themselves to making customers happy, they have made Zappos the excellent company it is.

Marketing practices

Marketing is a crucial aspect of any business. Proper marketing involves not only physical goods but also puts into consideration services surrounding those goods. Proper marketing requires proper understanding of the key factors that would enable a business get customers and keep them. Keeping customers is as important as getting them. This is essential getting a new customer is more expensive than keeping an existing one.

Zappos is aware of what customers are looking for when they go online to shop. According to Tony, they are not only looking for a pair of shoes, but also after a pleasant buying experience. That experience can only be achieved by integrating personalized service and excellent operations management.

Good marketing practices include the following: developing a marketing plan, budget, securing necessary resources and; lastly, establishing metrics to assess the impact of marketing on business (Laseter & Rabinovich, 2012).

Zappos relies on, among other things, word of mouth marketing. This strategy has worked because stories of their superior customer service abound, and this drives customers to their website to make purchases. This has propelled the store to number one online shoe retailer.

Zappos strategy and motto is “customers are kings”. The company, therefore, goes out of its way to meet customer needs and ingratiate itself to buyers to retain their loyalty. Service helps Zappos standout from the crowd and differentiates itself. Although their shoes are not necessarily cheaper than what their competitors are offering, their efficiency, free shipping, and 365 day return policy is particularly attractive to prospective customers.

Zappos also incorporates hiring in its marketing strategy. The only people given the job are those whose personality fits the work culture at Zappos. Together with the four Ps of marketing, customer service complements marketing efforts and it’s what brings all the difference.

Area of focus they manage their operation under

Zappos, like other companies, is a complex organization. It has been able to grow at such a rate by adopting the right strategies in areas such as marketing, supply chain management, proper operational planning, good management, employing innovative human resource management, and making customers the central focus of all operations.

However, Zappos is totally committed to providing customers a excellent service. For instance, the company has adopted the following strategies to provide customers with a great service:

Call centre employees do not follow a preset script in dealing with customers queries. Zappos requires them use as much time as may be required to solve customers’ problem or make a positive impression.

Employees are allowed to send customers gifts and later bill the company. According to Tony Hsier, the company does not have a policy of dealing with customers (Hsieh, 2011). Employees are expected to make a decision based on the circumstances of their interactions with the client. The only guide an employee has is that they should offer outstanding service to the client.

All goods are shipped to customers free, and customers can return the products, if they are not happy, at the cost of the company.

Customers are provided with a 365 days warranty. This allows customers to return faulty items. The corporate culture and commandments are developed around the need for make customers happy. Tony elaborated more on Zappos philosophy of making customers in his recent book. What he has emphasized is the need to serve customers well and make them happy.

That has been Tony’s vision for the company since incorporation of Zappos (Hsieh, 2011). Amazon attempt to acquire the company in 2005 was rejected because the CEO felt that the company would lose its unique culture. As noted elsewhere in this paper, Genghis system was adopted to make it easier for customers to shop at Zappos.

How Zappos improved market share/Profits

Zappos was a pioneer online shoe retailer. Nick got the idea of starting an online shoe retailer after unsuccessfully trying to purchase a pair of shoes in his hometown (Hsieh, 2011). In 2001, Zappos posted 1.6million dollars in revenue. Ten years later, the company’s revenue has jumped to around 2 billion dollars.

By all accounts, the company’s growth has been extremely impressive. The shoe market is estimated to be around 40 billion dollars. Zappos, a shore retailer, therefore, controls around 5% share of the market (Laseter & Rabinovich, 2012). This is notable for a single company because the industry has all type of shoe vendors (small and large) operating offline and a few online.

The secret to Zappos success is customer service. Zappos commitment to customer service is becoming legendary. There is a story about a woman who had ordered a pair of shoes for her husband but, unfortunately, the man died shortly after the order for the pair of shoes was placed. The lady called the company to cancel the purchase. The following day, she received a bunch of flowers instead. Stories of exceptional service, such as this, have enhanced the reputation of the retailer.

Although it costs Zappos a lot of money to provide exceptional service, the company considers the expenses as marketing costs. As already noted, 80% of the company sales are to repeat customers. Clearly, customers notice and appreciate the good service they are given by Zappos.

The outstanding reputation Zappos has acquired is responsible for its growth. Right now, the company is expanding to include online sales of other products, such as shoes, in addition to shoes.

Zappos is a case study on how excellent customer service driven by robust corporate culture can drive growth. Indeed all managers who care about customer service have visited the company’s headquarters to understand how the company executes its happiness vision for its customers.

The success of the company also highlights the importance of leadership in laying the foundation for success. The incredible service that is behind the success of the company is the brainchild of one man, Tony Hsier. He has driven the company through changes in its operational process to achieve its current excellence.

DiJulius, J. R. (2008). What’s the secret?: to providing a world-class customer experience . Hoboken, N.J.: Wiley.

Hsieh, T. (2011). Delivering happiness: a path to profits, passion, and purpose. . New York: Grand Central Pub, 2011. Print.

Laseter, T. M., & Rabinovich, E. (2012). Internet retail operations: integrating theory and practice for managers . Boca Raton, FL: CRC Press.

“Zappos Milestone: Timeline | about.zappos.com.” Home | about.zappos.com . N.p., n.d. retrieved < https://www.zappos.com/about/?utm_campaign=zappos&utm_medium=zappos-home&utm_source=footer&utm_content=text >.

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IvyPanda. (2022, June 23). Zappos: How Excellent Customer Service Can Drive Growth. https://ivypanda.com/essays/operation-process-of-zappos/

"Zappos: How Excellent Customer Service Can Drive Growth." IvyPanda , 23 June 2022, ivypanda.com/essays/operation-process-of-zappos/.

IvyPanda . (2022) 'Zappos: How Excellent Customer Service Can Drive Growth'. 23 June.

IvyPanda . 2022. "Zappos: How Excellent Customer Service Can Drive Growth." June 23, 2022. https://ivypanda.com/essays/operation-process-of-zappos/.

1. IvyPanda . "Zappos: How Excellent Customer Service Can Drive Growth." June 23, 2022. https://ivypanda.com/essays/operation-process-of-zappos/.


IvyPanda . "Zappos: How Excellent Customer Service Can Drive Growth." June 23, 2022. https://ivypanda.com/essays/operation-process-of-zappos/.

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