What’s Really Going on Zappos? The Impact of Holacracy on Workforce, Culture & Morale

March 16, 2016

As I’m sure you’ve heard by now, the last few years have been rough for Zappos – particularly 2015. In addition to the company’s radical shift to Holacracy (known as Teal internally) a few of years back, CEO Tony Hsieh announced early last year, via a 4,000+ word email, that employees could either get on board with the new system, or get out. Well, quite a few people chose the latter. As a result of Hsieh’s offer, 18% of employees (more than 250 people) left Zappos – that’s on top of the company’s normal attrition rate of 12%. In total, Zappos lost 30% of its workforce in 2015 alone.

While there seems to be never-ending change at the company, one thing does remain constant: Hsieh’s unwillingness to admit that Zappos’ once enviable culture has been corrupted. Instead of talking about the 18% of workers who chose to leave, Hsieh comments on the positive aspect that “82% of people chose NOT to take the offer.” Instead of finding fault with Holacracy, Hsieh asserts that nearly 20% of his workforce left because the company’s severance was too good to refuse. No matter what catastrophe unfolds, it seems to never be a bad day for Zappos or its founder.

I’ll admit, it’s difficult to read interviews with Hsieh and not wonder what cloud he lives on. Does he talk to his employees? Who does he consult with before he makes these decisions? Does he ever seek an outside perspective that, gasp!, might differ from his own? While Hsieh earns a certain degree of respect for wholly committing to his ideas, it leaves me wondering if he’s not blinded by them.

Holacracy’s Impact on Hiring

Another Hsieh brainchild is Zappos Insider – the idea that anyone and everyone should be so excited to work for the company that Zappos can fuel hiring almost solely through inbound requests. Interested parties submit their information to the program and become passive members of the talent pool hoping to one day be a fit for an open position.

While I was never bought into the idea that inbound-only hiring would work, I’m certain that with Holacracy and the internal strife it has created, Zappos Insider numbers have been steadily dwindling. If pipeline is dwindling, Zappos is going to have a hard time backfilling the roles of the 18% of employees who left.

The Remaining 82%

For the 82% of Zappos employees who didn’t leave the company, I’d wonder how much longer they have left. Has anyone talked to these employees about what’s going on? Holacracy has done away with managers and Hsieh all but quashed dissent with the email I mentioned earlier. With a workforce too scared to speak up, how does the company improve, iterate or grow?

While I’m sure there’s quite a bit wrong with Zappos (that Tony Hsieh likely doesn’t know about), the problems with Holacracy / Teal stand apart for the following reasons.

While Holacracy eliminates a lot, it’s by no means simple

Hierarchy is simple. There are managers, individual contributors, an executive level and so on. Holacracy/Teal on the other hand has everything! Links, people points, link leads, beaches, glass frogs, “reporting relationships” and so on and so forth. There is certainly a misconception about simplicity with Holacracy/Teal. Yes, managers go, but there’s quite a bit that takes their place.

While there is no management, there are still leaders

I get it. The idea of no management is appealing. That is until you realize that the natural order that comes with a management structure is actually helpful. In everything from meetings to promotions, order, whether you like it or not, comes with some form of hierarchy. While Zappos doesn’t have managers, there are certainly still leaders within the company. “Lead links” in fact, are still in some ways running the show. Changing the title doesn’t change the authority, Zappos, but it does make it a whole lot more confusing.

Same work, no reward

If there’s no true hierarchical structure, promotions become meaningless. But what happens when one person stands out for doing something really great? What happens when you’re what we’d traditionally call a top performer? How do you grow, succeed and continue to be motivated?

When Zappos did away with performance reviews, they implemented a badge system (similar to the Girl Scouts). Badges are tied to compensation. While achievement and pay are still correlated, Holacracy completely removes the traditional relationship employees have with titles. And frankly, people are often motivated by the opportunity to lead.

When you take away opportunities for traditional promotions and replace them instead with the vague positions within Teal, you quickly lose your drive unless you happen to be so fortunate to work on something you’re truly passionate about.

What IS your job?

Holacracy gives Zappos employees the ability to work in many different “links.” At first blush, this seems like a great way to explore areas of interest outside your specific job description (if those still exist…). However, no one is checking in on how you spend your time or what value you place on certain “links” within the company. While it might seem like this is a great way to achieve autonomy, it’s not actually great for the bottom line. For instance, what happens when someone hired as a java developer decides to devote 90% of her allotted points to marketing initiatives?

So, it’s clear that I have some very strong opinions about how Zappos manages and runs its culture and internal team. But, I’m not the only one. Employees have shared their true feelings about Holacracy on good ol’ Glassdoor. While I do think it’s a noble task to iterate and try to improve on your company’s workflow and structure, when 18% of your company leaves you have to stop and ask yourself if the new changes are really working. But again, you don’t have to take my word for it. Just look at what Zappos employees have to say:

Zappos review

Zappos review 2

Zappos review 3

Recruiter, Sales & Marketing

<strong>Katelyn Lagarde</strong> is a recruiter at <a href="http://www.cloudhealthtech.com">CloudHealth</a>. She was previously a Talent Specialist at OpenView.