Cultural Change from Bureaucratic Management to Holocratic - Case Study Example

Cultural Change from Bureaucratic Management to Holocratic

Introduction

Holocracy is a management transformation where a company isolates power from the top management and distributes it transversely in specific roles. Workers can, therefore, complete their tasks separately with no micromanagement. With holocracy, duties are more structured than the bureaucratic management. There are clear set laws and procedures on how a group shares their roles and defines functions with unambiguous responsibilities.

The headline by Washington post “Zappos says goodbye to bosses” and the other from Quartz “Zappos is going holocratic: no managers, no job titles, no hierarchy” caused a media hysteria to many (Arvedlund 2015). Zappos was considered by many to be the organization of the future and no one anticipated this transformation. Tony Hsieh the company CEO announced that Zappos traditional structure was being replaced with holocracy, an operation system with no hierarchy in management. Indeed, the transition had already begun and was expected to be completed by the end of 2014.

Background of the company

Zappos.com is an organization that was formed in June 1999 due to unfruitful tour to a local shoe store. Brick and mortar limited had small sizes of the stock rooms while shoppers were limited to a few styles in the warehouse (Tolley, 2009). Buyers, on the other hand, would pray that their sizes were available in the stock. Nick Swinmurn, was frustrated as it became difficult to get his favorite pair boots and decided henceforth to start his shoe company. Zappos.com hence identified a market gap to offer customers an all-round selection of different brands ranging from size, color, and width. This was an opportunity to make the shoe shopping an enjoyable experience.

After few months of the organizations hired various qualified individuals from the corporate world to spearhead its growth. Fred Mossler was a former footwear buyer from Nordstrom and became the company vice-president. From a distance was Tony Hsieh, founder of Venture Frog Incubators situated in one of the Marquee building in the Bay Area. Tony Hsieh was a former student of Havard and had extensive experience in various organizations. He worked for Oracle, founded Link Exchange that he later sold to Microsoft and if that is not enough, he founded various internet startups as browser Ask Jeeves (Tolley, 2009).

Within 2000, the company had expanded to a great extent. The company partnered with bricks and clicks that benefited Zappos with their traditional retailers and online partners. Hsieh came on board and invested $1.1 million in the e-tailer and became a co-chief executive. The organization as well invested in various innovations including famous brands, agreement with Pavillion shoes to take care of the e-commerce and showcase their footwear and giveaways all attracting customers to the company. At the end of the year 2000, the company workforce had grown to 30 employees, provided more than 150 different shoe brands, and the sales had reached $1.6million.

Swinmurn and Hsieh as the chairperson and chief executive respectively made critical decisions in 2004 including securing funding for the expansion of the cyber retails and shifting their offices from Silicon Valley to Las Vegas. This gave the managers the chance to reduce costs and secure partners as Sequoia Capital and Wells Fargo in a deal worth $20million and $40million accordingly. The investment in cyber created an online e-retail that offered the major shoe brand on the company page for viewing in all angles including 360 degrees (Robertson, 2015). This saw the company inventory increase from the $5million in 2003 to $13million in 2004 and a double in their warehouse space. Due to this, the company was able to provide more than 200 brands of shoes for all genders and age increasing their sales to over $180 million.

Zappos continued to expand their line-up and establish themselves as the leading shoe sale retailers providing over 500 brands with 60, 000 styles. With different colors, size and virtually stress-free shopping, Zappos gave consumers what other organizations like brick and mortar was unable to (Tolley, 2009). The customers’ loyalty was at a return rate of 40% leading to more success in the company. In 2009, Zappos online shoe retailer was acquired by Amazon for approximately $847million.

Reasons for Change

Change in management/ Revolution: The growth and development of Zappos over the years is attributed to the managers working under the bureaucratic leadership. Even Tony Hsieh, the chief executive, admitted that it was impossible for the organization to reach their goals without the directors (Arvedlund, 2015). Traditionally, managers were tasked with different roles including approving decisions, budgeting, overseeing management and professional development and not to mention the direct supervision of projects and goal realization. The role of the managers to the company was precious in an organization like Zappos where there were self-managing and self-organization, they make no logic.

The company was looking to finding new exhilarating offers that other employees had to provide to the company initiating the management change. Holocracy hence an opportunity on how the organization could restructure itself especially with the ideology that individuals operating in groups should be recognized for their achievements instead of being given titles (Barr, 2015). Solid research suggested for the company that for improved creativity and performance, there should be shared cooperation and leadership between the team members who are distinct in their responsibilities (Rachel, 2015). Companies could always do this in a gradual process, but Zappos saw it as a success to provide for a revolution in their management.

Culture: The change was also part of the organization norms both from the employees and executive. All the staff of the Zappos right from the headquarter in Las Vegas to other regions consistently mentioned: “embrace and drive change”. The organization even abandoned their job advertisement online to implement a free membership program that allows for potential recruits to the company philosophy and connects with the existing workers (Rachel, 2015). Hsieh, the company CEO also mentioned the change as organization cultures hence the shift from bureaucratic to holocracy.

Acquisition by Amazon: Zappos online shoe retailer was acquired by Amazon in 2009, but the company was determined to maintain its work environment distinct from that of Amazon. The efforts of Amazon to inculcate their culture into Zappos were hence futile. Over time, the two organizations had various problems with their management structures making workers work in odd ways (Hill, 2015). One of the preconditions during acquisition was for Zappos to maintain their independent management approaches. This was because Amazon unconventional methods were under criticism and had a bad image in the public was not good for business (Hill, 2015). Zappos for that reason wanted a diverse approach to management making them shift from bureaucratic management to holocracy.

Change programs/ Change initiatives

Holacracy began with a pilot project for several months before being tried at Zappos with a small employee in 2013. The CEO declared that the company would get rid of the bosses countrywide and makes employees in management. The change began by replacing the team work with cycles. The worker was expected to join a circle depending on the kind of work they wished to do (Rachel, 2015). Every circle that formed had a lead link which is the same as a project manager with less or no authority. The members of the circle decided on their roles and responsibilities in a succession of governance meetings and tracked progress in tactical meetings (Rachel, 2015). The tactical meetings were meant for the employees to be on the same page. To date, the company employees have formed over 300 circles in customer service and media for implementation of holacracy.

The transition from bureaucratic management to holocracy was an approach that was to abolish traditional systems of manager managing people in the organization. The managers were required to transform to this new systems in conducting their daily operations in the company. In this regard, they were needed to accept the change or leave with pay. This led to almost 269 managers being upended in the organization (Hill, 2015). The remaining managers though were to maintain their monthly for end 2015 despite their roles and duties had reduced drastically in the organization. Critical decisions in the company were henceforth made in tactical meetings.

Under normal circumstances in many organizations, managers launch various projects and explain to the workers on how to meet the objectives by a specified deadline. The managers supervise the work process, make necessary decisions and come in to assist whenever a problem arises. With the implementation of the holocracy approach, various change initiatives were expected. The management roles were divided where a worker would contact one person for performance review, budget approval, and mentor for career guidance among others (Robertson, 2015). The circles were to determine every consideration in the company. Even though the holacracy required for the abolishment of traditional job titles, the external titles remained with the managers that still specified their responsibilities to the outsiders.

The company also invented an initiative of “reinvention yourself” to aid in their transition. This circle was to help managers to shift into their new functions that matched their skills, passion, and experience. The executive believed that through this transitions criteria, the managers would be able to advance in their new areas of duties while they are abandoning their daily tasks of people management (Robertson, 2015). Further, various committees were formed that looked into different functions of the managers in previous systems including hiring, firing and budget approval determination.

Outcome and Results

The outcome and results of holocracy to Zappos was both negative and positive. This diversity was almost in equal measure in the company.

The use of holocracy sets the rules and boundaries in the operations of a company. Hill (2015) provided a succinct explanation into one of the holocracy outcomes to the organization. It is like a gaming action where the referees control the sporting actions during a match. Just like in sports where players work together, employees cooperate and perform most of their actions in a clear and precise process in the company. For Zappos, there were no bosses and each of the worked in autonomy and partnerships. These were done henceforth with transparency including salaries that each member knew what others were making. It was, therefore, fun and transparent to many workers. For that reason, the employees of Zappos became more united than ever before creating a sense of unity in the organization (Hill, 2015).

Despite the critiques of holocracy as not to succeed in Zappos, the company in 2015 announced the profits of $97million that were an increase of 78% in 2014. There was also reinvention of the organization where it was transformed into teal organizations. This is a system where all employees work together to assist the team goals.

However, the change had some adverse outcome in the group. The transition from bureaucratic management to holocracy by Zappos was a strident move considering the company is famous for doing things otherwise. Approximately 14% or 210 of the workers did not support holacracy and decided it wasn’t for them and as such, had no reason but to quit the company ( Rachel, 2015). With the executive insisting on implementing the approach, some employees became more agitated with the holacracy. They view the systems as time-consuming and confusing in their duties (Barr, 2015). During its inception, the employees were required to meet five extra hours a week as they liberated from their managers to program themselves into circles to gain know-how of the operations of holacracy.

Beyond the initial obstacles, some of the workers were worried about how they would get to win prizes like pay raises and improve their career when there is no management track. The system to the employees was therefore as a drag given the values of the company such as to create fun and conferences (Hill, 2015). Regardless of these concerns, the executive was deeply involved in implementing holocracy that employees were either needed to adopt or accept pay and leave the company. In this regard, 86% of the employees stayed while the rest left. Some of the prominent departures include Zappos technology officer, human resource, vice-president of customer service among others.

There was though potential challenges to the problems of using the holocracy. Not all of the employees were on board to supporting the system. Some of the leaders were not ready to help others in the new regimes. This is possible since they everyone feels sense of freedom; other became frightened and were confused by the philosophy of self-management.

Conclusion

From the discussions, Zappos shift from the bureaucratic management to holocracy represents the modern change that is required in organization. Holocracy represents the platform for the entire employees to participate in the achievement of the organization goals. Consequently, it brings the sense of equality and sharing of roles and responsibilities. Even though the systems some concerned challenges with the employees and its practicability in large organizations, it is worth the risk to Zappos as there is an earlier indication of improved profits in the group which is the principal aim of business.