Question

Read the case study. Identify three (3) problems and recommendations to solve the problems. Each problem will require a justified recommended solution at least a page each. Zappos CEO Asks Employees to Commit to Teal, or Leave Zappos had modest beginnings. In 1999, shoesite.com was started by Nick Swinmurn to capture online shoe sales. Swinmurn reached out to Tony Hsieh (pronounced “shay”) and Alfred Lin, who were running Venture Frogs, a kind of venture capital group, for advice and funding. Shoesite soon changed its name to Zappos, a riff on zapatos, the Spanish word for shoes, but abstract enough to let the company offer products other than footwear. In 2000 Hsieh joined Swinmurn as co-CEO and then became sole CEO. Quietly charismatic, Hsieh gives quote-worthy interviews and for over a decade has served as the company’s public face and voice. (Swinmurn left in 2006.) Zappos has achieved great financial success. Revenue jumped from $1.6 million in 2000 to over $1 billion by 2008. This success led Amazon.com to purchase the company for $1.2 billion in 2009. And today? While Amazon does not separate Zappos revenues in its annual report, the division’s sales are assumed to continue at well over $1 billion annually. Hsieh told Jennifer Reingold, a Fortune reporter, that the company had achieved its highest operating profit ever in 2015.119 Tony Hsieh’s Vision for the Company Hsieh has long cared about employee welfare, as evidenced by his book titled Delivering Happiness. He asserts that employee satisfaction is essential for business success. Today, his goal is to turn Zappos into a “teal” company: teal represents a company “characterized by self-management, bringing one’s ‘whole’ self to work, and having a purpose beyond making money,” according to Fortune. To get there, Hsieh implemented an organizational structure he calls a holacracy. Moving to Holacracy Zappos historically favored an informal and flatter organization structure that probably best fits the horizontal form of organizational design discussed in this chapter. The company preferred this design because it felt bureaucracy and hierarchy might dampen the creativity and employee engagement needed to provide great customer service, a primary corporate goal. Although this design aided Zappos throughout its growing years, in 2013 Hsieh came to believe that Zappos’s organizational structure was limiting what employees had to offer. It was time for a change. Hsieh told The Wall Street Journal, “Employees have so much more to offer. They’re a full human being that has all these skills that, if they’re given the right context to collaborate with each other and be creative and help move the company forward, they will do that.”120 In a holacracy, the traditional hierarchical structure and reporting relationships are replaced by self-management. There are no job titles and no managers. “It removes power from a management hierarchy and distributes it across teams that have a clear set of roles, responsibilities, and expectations. Instead of being assigned to a particular job position or description, roles of employees are defined around the work. These roles are constantly being updated and employees fill several roles. Additionally, employees work within a team in which authority is equally distributed among its members," according to management blogger.121 These teams represent a hierarchy of work circles. A writer for Fortune noted that each team has a different purpose, and the circles “operate next to, and on top of, each other. … Lead links are the nominal managers—but they have little formal authority and can’t force employees to do anything they don’t want to do.”122 A writer from Forbes described the structure as a hierarchy of circles that operate according to detailed procedures outlined in the Holacracy Constitution. “Each higher circle tells its lower circle (or circles) what its purpose is and what is expected of it. It can do anything to the lower circle—change it, re-staff it, abolish it—if it doesn’t perform according to the higher circle’s expectations. The word customer or a reference to any feedback mechanism from the customer doesn't appear even once in the Holacracy Constitution. The Page 629arrangements are purely inward-looking and vertical,” according to Forbes.123 As of 2015, more than 300 circles covered the areas of customer service, social media, Holacracy implementation, and others.124 The Holacracy Constitution was developed by Brian Robertson, the software executive who proposed this form of organizational design. This document contains a language unique to this form of structure and detailed procedures for running governance and tactical meetings and expressing “tensions.” A tension is an employee concern or problem about something happening at the company. Circles are expected to resolve tensions. Employees are expected to use the language and procedural guidelines in the constitution. Hsieh notes this process makes everything explicit. In other words, holacracy creates bureaucracy and hierarchy. “The ironic thing is there’s actually a lot more structure and we have governance meetings. Each circle has its own governance meetings that list accountabilities and change purpose statements and so on,” he said.125 Employees are allowed to move from circle to circle if they believe their talents can be used more effectively elsewhere or they are unhappy in their current circle. The Outcomes of Holacracy at Zappos In attempt to optimize P-O fit, in 2015 Hsieh offered employees three months of severance pay if they did not like working in the new structure. About 14 percent of Zappos’s 1,500 employees took the deal. This is huge when you consider that the company’s traditional turnover rate has been about 1 percent.126 Hsieh isn’t overly concerned and even provided this positive spin: “Another way to look at it is that 86 percent of employees chose to walk away from the ‘easy money’ and stay with the company.” Zappos simply went out and hired more people. Fortune reporter Reingold concluded that holacracy creates winners and losers. On the positive side, it sparked new ideas and provided more opportunities for less senior employees because experience and expertise were de-emphasized in the new structure. It also benefited introverts in that they now are expected to speak up in meetings. It also helped dissatisfied employees such as Derek Noel. Noel was a customer service representative who wanted to transfer to the company’s culture team. His boss had blocked the transfer, but under holacracy, he was no longer allowed to do this. So Noel moved to the Fungineering circle, an events-planning/pep team.127 On the downside, the new structure is vague about how people receive performance evaluations and pay raises. Some are concerned about promotional opportunities because there are no managerial job tracks. Employees told The Wall Street Journal, “The new system has been confusing and time-consuming, especially at first, sometimes requiring five extra hours of meetings a week as workers unshackled from their former bosses organize themselves into ‘circles’ and learn the vocabulary of holacracy.”128 Now What? Hsieh wrote a 4,300-word memo to employees in 2015 called, “Reinventing Zappos: The Road to Teal.” (Remember that he earlier asked people to commit to a holacracy culture and 14 percent of the employees quit.) He then asked everyone to commit to teal or leave (with a nice severance package). He felt that nonbelievers needed to go. According to Fortune, “In the end, 18 percent of the 1,500 employees took buyouts, and another 11 percent left without a package.”129 All told, about 29 percent of Zappos employees quit the company as a result of instituting a holacracy culture in pursuit of becoming teal. Many remaining employees feel it’s time to refocus on organizational culture. It was suggested that circles include a “culture check” at every governance meeting. The company has also revised its recruiting process to assess whether applicants fit the new structure and philosophy of teal. In 2016, Zappos did not make Fortune’s list of Best Places to Work for the first time in eight years. Its scores on 48 of 58 questions had dropped.130

Answer 1

Answer :

The three problems at Zappos were

High Attrition Rates

Turnover rate or attrition is the rate at which people leave the organisation. It could also be calculated in terms of percentage if its being calculated in terms of attrition i.e the % of people of the active workforce within an organisation who leave the firm on an annual basis. The primary measure we took was to adjust compensation.

After implementing the first transition in the organisational culture at Zappos, Tony Hsieh wrote a memo about the new organisational structure Holacracy. In 2015 Hsieh offered employees three months of severance pay if they did not like working in the new structure. This resulted in about a 14 % overall attrition on an organisational level. In the second Phase of transition, Tony Hsieh implemented a new organisational structure called TEAL. Which is basically based on the principles of self governance and management. He repeated the same strategy during the transition of organisational culture in 2015, where he asked employees who did not like working under TEAL organisational structure to leave the firm with a severance pay. This resulted in about 29% of Zappos employees leaving the organisation as a result.

The Solution to reduce attrition rates

The appropriate technique is to crowdsource feedback from the grass root levels of the organisation amongst departments which witnessed the unusually high rates of attrition as a preventive measure and in order to identify or pin point the problem through an employee opinion survey .

Job satisfactions are best measured from the grassroots of the organisation, the employees. EOS or employee opinion surveys offer a relatively clear view of an employee or a group of employees job satisfaction. Employee Opinion Surveys to gather aggregated feedback. They're one of the best sources of feedback about what the employees thought about the business. its effectiveness, strengths & weaknesses, what'd they'd like to change or keep the same. EOS captured and analyses this data in order to paint a clearer picture of what needs to be changed to drive better results for the firm. This also gives a clear qualitative and a quantitative idea about the work environment and an employee's general job satisfaction. It can be measured by asking him or her feedback about the organisation or the enterprise, his or her direct boss and reporter, and a questionnaire about the firm that would map this data.  

As a curative measure. the Human Resources department should quickly organise exit interviews and counter offers along with a detailed questionnaire for the employees leaving the organisation in order to understand whats the core problem. The core reasons could range from Compensation or better counter offers from rival firms trying to fish from our organisation's talent pool.

High Stress Levels or Work Load due to the sudden growth in the company's profits A situation where the organisation isn't facilitating a good work environment or a good work culture

Performance Appraisals

Zappo's new organisational structure still retained an organisational hierarchy. If anything it build an even more authoritative and a vague performance appraisal process. This meant that instead of having a single manager oversee performance metrics, they had multiple people within a circle oversee performance appraisals without any checks and balances. This meant that employees had not received a clearly outlined performance metrics to adhere to in order to excel within the firm.

This was far worse than the bell curve. A change in the performance appraisal process would help zappos turn around their employee satisfaction levels and drive better performance within the organisation. Here's a case study of two companies who followed different performance appraisal processes.

Microsoft

Performance

At Microsoft performance was driven by consequence over rewards and recognition. They used traditional bell curve systems using a method called Stack Ranking. Its feedback loop was limited by metrics and direct reporting manager ratings and comments. No review or feedback was collected about their performance review systems from their employees. The used the stick instead of the carrot to drive performance. Microsoft never asked the employees they were assessing about their opinion on the fairness. effectiveness and the implementation of their performance management systems.

Performance Appraisals Infosys

Infosys ditched the traditional bell curve for performance appraisals and switches to a new I Count system where individual employee performance has more weightage and it took into account career choices. It also had a new crowd sourced feedback system. Crowd sourced feedback gathers employee feedback from their peers and not just their direct reporting manager to get a more holistic picture to eliminate bias. It also had excellent feedback loop from the employees about the company's performance appraisal systems. Infosys forged its new I COUNT system using a rigorous feedback form employees & managers.

The problem with Zappos's Appraisal System , Bell Curves and a Stacked Ranking or Forced Distribution method

The forced distribution method of evaluating employee performance involves dividing employees into two or three different broad segments within a bell curve. These segments could be classified as High performers, low performers and average performers. The largest portion or the area of the bell curve which matters the most is the average performers, the high performers and the low performers have relatively smaller areas in the bellcurve.

The problem with Stack Ranking or Forced Distribution, is that it used broad strokes to classify employees without looking into marginal differences or degree of performance and skill variations within each performance segment within the bell curve. This results in the firm making bad decisions during performance reviews. Employees who could add great value to the organisation could leave or be left out because of forced distribution

The result ?

Infosys has lower employee attrition , higher innovating levels and higher employee satisfaction.

The Solution to Performance Appraisals at Zappos : Include More Qualitative and Quantitative Metrics in the Performance Appraisal Process

Due to its nature of generalisation, the possibility of specific Rater Errors and Biases when conducting performance appraisals is extremely high. A new and improved performance appraisal system where organisations could look into finer qualitative metrics are opposed to purely quantitative metrics would help make the system more fair. If employee feedback was crowdsources from his or her peers and horizontal and lateral bosses i.e from multiple seniors in order to get a more fair and unbiased aggregated feedback.

Qualitative Data Analysis

Since Qualitative data is subjective in nature, it is analysed by having multiple sources to compile the same metric of data in order to reach an accurate consensus using aggregation or averages and means. Quantitative data is partially quantified once its collected to form a macro picture of its conclusion.

For Eg :

The Bell Curve used in firms for Performance Appraisals. Since employee performance is a highly sensitive and a subjective matter since human potential and contribution is hard to address and quantify, the bell curve aggregates the data with a comparative analysis using a large sample size of data in order to paint a macro picture.

Quantitative Data Analysis

Quantitative data can be analysed by having multiple metric and lesser inputs or smaller sample size for the same input. Since quant isn't subjective it only tells half the story and leave a lot of room for assumptions. debates and the classic causation isn't the same as co relation argument. Hence. quantitative data is analysed in multiple perspectives but with lesser inputs and smaller sample sizes.

Organisational Hierarchy

Zappos has an experimental approach to organisational hierarchy. While its good to test out new ideas and management concepts, the fact remains that experiments are risky and are often a product of trial and errors. These trial and errors could have serious consequences to the organisation and its stakeholders.

Stakeholders comprise of individuals or a group of individuals within or outside the company who have a vested interest in the company's business. They could be employees. customers. management, operations , workers, vendors etc. Any one person or a group of people who have a vested interest in an organisation are called stakeholders.

The Solution to Zappo's Organisational Hierarchy

To test out management concepts in smaller batches or smaller sample sizes with in order to reduce enterprise level damages in the event of the new organisational hierarchy not working out. And to implement a corporate culture that truly values employees and does not give them an ultimatum to adapt or leave. Its best to give employees the time to adapt to the new corporate culture.

Corporate culture is fundamentally defined by an organzation's values & principles with which it governs itself with. These values and principles are extremely strong in Legacy Companies such as GE, GM, Microsoft, IBM etc. These legacy organizations have a strong corporate culture that is define by their organizational values that were laid out both at the inception of the organization and throughout its journey as a company.

The reason why its an important management concept is because organizations use corporate culture as a compass to guide their long and short term strategic decisions. These could be related to internal policy making, hiring practices, organizational hierarchy, decision making process etc. Decisions are not just dependent on the leader who's making them or the outcome of the decision but weather the decisions are aligned with corporate culture and the organization's practices and principles.

Culture matter because organizational ethics originate from their company culture. Internal and external Code of Conduct policies for employees, vendors, customers and share holders and board members is build on the foundation laid by their company culture. Strong corporate governance originates from culture and translates into good policy making & implementation. A good culture will set the ethics standards for the organization. The reason for this is that , where policy fails due to ambiguity , organizational culture will act as a moral and a strategic compass for decision makers within the firm.

Implementing an Organizational Hierarchy which gives Employees a Greater Degree of Autonomy

While some operational jobs may require a high degree of supervision or managerial oversight, the fact remains that no one likes to be micromanaged in an organization. Employees enjoy and perform better and are far more motivated in a job environment or a job role that gives them a greater degree of autonomy.

For Example GOOGLE had a similar problem with autonomy

Here's a case study

The Problem at Google

Google is a technology company that facilitates innovation by giving its engineers the creative freedom to experiment , learn and implement new ideas for products and services. Most employee can start their own project for google within their incubators. The engineers , the tech team in particular questioned the relevance of management oversight at google. They voiced their opinions favours autonomy of operations within the tech teams , free from management oversight.

Core Issues

- Tech teams didn't want to be micromanaged on projects

- They wanted to be left autonomous

How they solved it

Rather than shutting down the argument by making a comparison to industry standards and competitors. Google used transparency , analytics & qualitative and quantitative data that was also partially crowd sourced from all employees as well as studied using internal and external audits to have a healthy debate within the firm and to make a case for management oversight over projects and tech teams at google. They also took feedback from tech teams on how they would like to managed and incorporated whatever could be feasible by identifying eight key behaviour shared by the most effective managers at the company and sharing those qualities across the enterprise to enhance the level of management quality and to facilitate the concerns put forward by the tech team. The result was that google figured out the root cause as to why tech teams had an issue with managers and solved it by ensuring that managers create an environment where they facilitate and not micromanage projects, ensure that core tech teams still enjoy creative freedom.

- 360 Degree Assessment and Employee Opinion Surveys that collected qualitative and quantitative feedback from core tech and operations teams.