1. Running head: ZAPPOS RADICAL MANAGEMENT EXPERIMENT 1
Zappos Radical Management Experiment:
The Impact of Adopting Holacracy
The Consultants:
Christian Antecon, Gerry Vuong, Jonathan Braddock, YoonHwan Cho
Presented to: Professor Dayna Walker
Management 340 Fridays 9:00AM
California State University of Fullerton

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Introduction
“The one thing I’m absolutely sure of is that the future is about self-management,” says
Tony Hsieh, Zappos CEO (Reingold, 2016). If Hsieh is able to successfully incorporate self-
management into Zappos, he may produce the blueprint businesses has been waiting for. In
2013, Zappos, an online shoe and clothing retailer, remodeled their entire internal structure,
replacing pyramidal hierarchy (where managers reside over employees) with Holacracy; a
network of circles dedicated to specific functions such as marketing and human resources
(McGregor, 2015). Within these functions, each individual employee is in charge of specific
roles that contribute to the department goals. In other words, management is no longer present.
Groups of employees are now responsible for their respective functions within the company.
This reconstruction with Holacracy has many organizational behavior (OB) topics on the
individual and organizational level that will help form recommendations for Zappos’ transition.
On an individual level, the topics include autonomy and feedback found from the Job
Characteristics Model and the OB topics on an organizational level that will be discussed are the
Six Elements of Organizational Structure. The Six Elements are: work specialization,
departmentalization, chain of command, span of control, centralization and decentralization, and
formalization. Finally, recommendations for Zappos and future businesses adopting Holacracy
will be given in regards to these observational behavior topics.
Individual Level
When Holacracy is implemented, there are many changes that happen on an individual
level that can be explained through observational behavior topics. The Job Characteristics Model
proposes that jobs can be described in terms of five dimensions: skill variety, task identity, task
significance, autonomy, and feedback (Robbins & Judge, 2014, p. 216-217). Under current

3. ZAPPOS RADICAL MANAGEMENT EXPERIMENT 3
hierarchical structure, one’s autonomy is very limited. For example, when employees are faced
with a problem and a decision is needed, they will report to managers first before making a final
decision. However, in a holacratic system, it allows department circles and individuals to
practice autonomy by operating as their own manager. Charlie Mowat, a journalist for
Huffington Post, writes that an Australian software company exercised autonomy in their
organization for 24 hours, the only requirement was that the developers needed to show the result
at the end of 24 hours to the company. This one day of autonomy provided numerous fixes for
bugs and new ideas for new products. As Charlie Mowat said perfectly, “a true autonomy is one
of the aspects that really shines by implementing Holacracy within an organization like Zappos
(Charlie Mowat, 2015).” Mowat reveals that autonomy has the potential to increase productivity
and creativity which is what Holacracy preaches. Autonomy isn’t the only beneficiary: feedback
also plays a huge role in Holacracy adoption.
The implementation of Holacracy also allows each circle to take ownership of their work
and are driven by the circle’s purpose. Doing so will encourage the circles to provide feedback
within their respective circles. Feedback is providing the employees with direct and clear
information about the effectiveness of one’s performance (Robbins & Judge, 2014, p. 217). It is
an important factor when analyzing productivity because it allows employees to feel involved.
Furthermore, employees can learn what works, what doesn't work, and what needs to be
improved efficiently and effectively. Trevor Madigan, the CEO of the Vision Lab, explains that
98% of employees reported that they feel more detached from their tasks when they do not
receive feedback and that both giving and receiving feedback makes it clear to employees that
their contributions are noticed and appreciated (Madigan, 2015). Zappos is all about employees
and because of this the team of employees is dedicated to employee engagement (Lindsey,

4. ZAPPOS RADICAL MANAGEMENT EXPERIMENT 4
2015). Madigan also mentioned giving feedback to one’s boss in a hierarchical organization
would be impractical due to the possible repercussions (Madigan, 2015). However, when there
are no titles that make this distinction among these circles, it creates a comfortable environment
where feedback is given by one’s peers. Knowing the importance of feedback, Zappos
encourages real-time feedback through the weekly team huddle meetings and encourages all the
staff from call center to receive feedbacks from customers to reflect and apply information in
their business (Cheng, 2013). By adopting Holacracy, a sense of autonomy and feedback are
created to ensure a responsive and productive team.
Organizational Structure
The organizational structure of companies is also changed by adopting Holacracy. The
six elements of organizational structure will help explain these changes Zappos faces with a
holacratic structure. When a company is starting up there are six elements that need to be
addressed when designing an organization`s structure. The first concept to consider is work
specialization; the degree to which tasks in an organization are subdivided into separate jobs
(Robbins & Judge, 2014, p. 432). A common way for organizations to run their businesses,
especially unskilled labor, is through high work specialization. For instance, a company with
high work specialization would have individuals who may be in charge of packaging and
labelling (called the packager) and another individual who handles the shipping (called the
shipper). This process describes how most businesses function today; however, at Zappos,
employees do not have titles that illustrate their tasks. Instead, Zappos’ employees are in charge
of the tasks themselves (Feloni, 2016).
The second element of organizational structure is departmentalization; the basis by which
jobs in an organization are grouped together (Robbins & Judge, 2014, p. 434). A couple popular

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ways to group these jobs are by functions or by the type of product or service produced by the
organization (Robbins & Judge, 2014, p. 434). In a company that groups by function,
departments such as marketing, accounting, and operations will be found. Whereas in a company
that groups by the type of product or service produced by the organization, departments such as
shoes, shirts, and hats may be found. Zappos`s Holacracy experiment had no apparent relative
effect to its departmentalization; it still currently runs on a function and product basis.
The third element is the Chain of command which is an unbroken line of authority that
extends from the top of the organization to the lowest level which clarifies who reports to whom
(Robbins & Judge 2014, p. 435). In simpler terms, workers report to supervisors, supervisors
report to higher-level managers, and upper management employees report directly to the CEO
and the board of directors. Following the Holacracy model of Zappos, managerial job titles were
eliminated and all employees make final group decisions as a team within their respective circle
when it only involves the team. When decisions involve other departments the chain of
command of the departments takes effect and now the higher department makes the decision.
Here, Zappos is creating work teams which generate positive synergy and their performance is
greater than the sum of the individuals instead of a group that is in charge of one or two people
that have limited capabilities.
The fourth element of organizational structure is Span of control which is the number of
subordinates that a manager or supervisor can directly control (Robbins & Judge, 2014, p. 436).
Although managerial positions distributed authority to their teams and now all employees are the
ones that have complete control about how they organize their work (Riley, 2014).However,
there is still departmental control from superior departments, meaning that the span of control
among the circles is relatively non-existent, but the span of control among the circles is still very

6. ZAPPOS RADICAL MANAGEMENT EXPERIMENT 6
much intact. For example, Human Resources is still in control of relative functions among circles
such as operations and marketing but within operations there is relatively no span of control as
the team has autonomy to organize as they see fit as long as goals are still met.
The Fifth element to evaluate is the range of centralization to decentralization that the
company wants to incorporate. Centralization is the degree to which decision-making is
concentrated at a single point in the organization (Robbins & Judge, 2014, p. 437). In most
businesses, corporate goals and decision-making come from executives. On the other hand, at
Zappos, instead of having to follow specific day to day routines, their employees now have the
autonomy within their respective circle to decide on how to accomplish the goals at hand (Feloni,
2015). Because of this Zappos, with its Holacracy structure, can be considered to be low in
centralization or high in decentralization.
The final element is formalization; the degree to which jobs within an organization are
standardized (Robbins & Judge, 2014, p. 438). In similar industries such as Zappos,
formalization is rich. However, Zappos is low in formalization. For example, in a similar
organization, the box and tape to enclose an item may be pre-chosen and standardized relative to
the size of the item. Whereas in Zappos, the ability for an employee to perform his/her job as
they see fit is high because of the level of decentralization exhibited by the company (Pontefract,
2015).
Recommendations
Zappos has their work cut out for them. Reconstructing a company’s internal structure
could be fatal if Zappos fails to correctly implement Holacracy. And that’s the major concern,
there are no notable mid-sized companies that have successfully adopted this radical idea.
According to Jan Klein, a senior lecturer at the MIT Sloan School of Management who spent

7. ZAPPOS RADICAL MANAGEMENT EXPERIMENT 7
years researching the topic says that all companies, such as Shell Oil and Cummins, who have
implemented this strategy did not survive past six months (Klein, 2014). However, Zappos has
the possibility to discover the algorithm that many companies have been searching for and
revolutionize how businesses view themselves. The following will consist of some
recommendations for Zappos as they approach the possibility to transform business hierarchy in
regards to the OB topics presented above.
One of the reasons why Holacracy is sought after is that it stresses a higher staff
commitment. In other words, engagement levels of individuals will be higher if all employees are
equally responsible and empowered, which will lead to increased productivity and
competitiveness (Russo, 2014). This directly correlates with autonomy, which was one of the OB
topics outlined previously. If autonomy is so vital for an individual to perform, then why hasn’t
Holacracy worked for previous companies? Jan Klein explains why: “People just didn't self-
regulate as well as the companies had hoped. Teams weren't good at disciplining themselves
either” (Klein, 2014). The recommendation then is for Zappos to motivate on a consistent basis
at the individual level. Zappos needs to ensure that the gift of autonomy is not something to be
looked past by their employees. Instead, Zappos should illustrate that the freedom presents the
power to take control of their work. If this self-regulation is designed to consistently motivate
individuals, Zappos will find themselves surviving past six months where many mid to large-
sized companies seem to fail. Not only does Zappos need to caution themselves at the individual
level, but there is a huge hurdle at the organizational level.
Sergio Russo, a journalist for HR review, says that the hardest challenge that Holacracy
faces is sustainability (Russo, 2014). This sustainability is measured by how well Zappos designs
their organization’s structure. The six elements of organizational structure that were presented

8. ZAPPOS RADICAL MANAGEMENT EXPERIMENT 8
above will help formulate a recommendation for Zappos. As Zappos reconstructs their company,
they will need to ensure that each step is thoroughly communicated to all employees and that
there is no confusion on how the process works. The process will encompass all six elements of
organizational structure. For example, Zappos will have to communicate how
departmentalization will work in the company since there are now going to be hundreds of
circles that have various responsibilities instead of a title designating their role. Another example
may include an explanation about how the chain of command will work since there will be a
transition to a flatter organizational structure. Furthermore, Zappos should communicate each
step by means of high channel richness over an extended period of time to guarantee no chance
of information overload. The transition for Zappos and its employees will be a long a grueling
process; however, if Zappos is able to consistently motivate their individuals and thoroughly
communicate how Holacracy will be implemented, Zappos may find themselves transforming
how businesses view hierarchy.
Conclusion
Examining the outcome of Zappos’ transition will stimulate further discussion and help
determine if Holacracy is a new, sustainable way to structure a business. Regardless, Zappos will
need to caution itself as they inch closer to the long-term side effects that many businesses have
experienced with Holacracy by making sure that all employees are motivated and well-informed.
Understanding observational topics such as autonomy, feedback, and the six elements of
organizational structure can also help understand the impact Holacracy will have on companies
such as Zappos.

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References
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