Is holacracy the future for HR management? Exclusive interview with Zappos

Written by
Changeboard Team

08 Apr 2015

08 Apr 2015 • by Changeboard Team

Zappos company culture

Zappos is a company that likes to do things differently. The online shoe retailer began life in 1999 after (now departed) founder Nick Swinmurn couldn’t find a pair of trainers he wanted at a shopping mall. Within a year it was making $1.6 million in revenue and within ten years it was being bought out by Amazon for $1.2 billlion.

However, it’s not the billion dollar buy out or the state of the art open plan Las Vegas headquarters – which is so impressive that it attracts 1,200 visitors each month – that makes Zappos such a fascinating company. Instead it’s the organisation’s culture, which focuses on the employee, offering perks like dancing machines, napping pods, free food and pay increases based around passing incentives, not time spent working there.  

Many companies aspire to live by their values, but at Zappos it forms the basis of every hire, with CEO Tony Hsieh openly admitting to turning technically excellent applicants down if they don’t fit the company ethos of creativity, flexibility and creating fun. 

Rejecting traditional management systems

Hsieh’s latest idea is to implement a ‘holacracy’, a radical management structure where employees operate without managers or job titles, but rather in self-governing overlapping circles, where they choose what they work on. Sound like a recipe for disaster? Head of HR Hollie Delaney is the woman charged with implementing it.

“A holacracy is not like a traditional hierarchy at all. You really need the senior management in the company to throw down their authority and give it to the employees who are doing the day-to-day jobs,” says Delaney, who has worked for Zappos for eight years, beginning her tenure as the organisation’s first ever employee relations representative.

“The aim is to create a workplace where employees pick up that authority and make decisions without looking to a manager or supervisor for approval. We’re hoping that this creates an environment where people can be innovative and engaged with their jobs – things that are really important to our key values.”

Building a talent pipeline

Delaney helped Zappos move towards the holacracy model at the beginning of the year, transitioning from a traditional director of HR position to several roles in different circles, both in her own HR team and in the wider business. So, instead of simply working on HR, she is actively involved in other employee circles, which can include anything from specific business projects to teams organising staff outings.

While she admits that the first 4-6 months were a “very difficult learning curve”, the model has brought demonstrable changes to the company, including a talent acquisition scheme that has already been rolled out. The programme involves removing specific job postings from the company website and simply encouraging people to apply to work at Zappos, allowing the HR department to build an internal pipeline of interested candidates for when roles arise.

It gives Zappos the opportunity to build a pipeline of potential talent, creating relationships with candidates before jobs are even available, and was devised and implemented entirely by Zappos’ recruiter team, without running it up to senior management.

“This means that when we have openings, we already have a group of interested people we can reach out to, rather than just those looking for a job,” adds Delaney. 

Senior management challenges

Getting employees onboard was a challenge Delaney expected, with many initially unwilling to speak up without senior approval. Problems – known in a holacracy as ‘tensions’ – are resolved through governance and tactical meetings, with the former focusing on who is accountable for what work and the latter on solving the issues preventing work from being completed.

With encouragement, workers have adapted to the new system and have become much more efficient, going out and implementing new strategies rather than being held up waiting for approval from the management chain.

Slightly more surprising for Delaney has been the reaction from senior management. “It’s very hard for management to give up their authority and put it in other people’s hands,” she says.

“You have a lot of senior leaders who want to maintain that hand in all areas and know everything that is happening, and they have to learn to let go a little.”

Cultural vs technical fit

Recruitment is an area that Zappos particularly focuses on. According to Delaney, the recruitment process is very slow, with a focus on matching applicants with the organisation’s ten core values – examples include ‘doing more with less’, ‘delivering WOW through service’ and ‘embracing change’.

Candidates are assessed through a series of behavioural based questions that all lead back to these values, before being invited onto a four week customer service training programme, where coaches look for them to demonstrate values.

“We will turn away the best technical fit if they aren’t a culture fit as well,” says Delaney. “ Our core values feed into this idea of trust and empowerment and the organisational design and culture we’re trying to achieve right now.”

Zappos’ commitment to its values extends to offering new recruits a month’s salary (around $4,000) to leave the company should they feel that it isn’t the right place for them. However, Delaney reveals that only 2.5% of recruits take up the option.

“Usually it’s the people who want to come into a 9-5 office environment, where you just put your head down and do your job. If so, this isn’t the right place for you.

“Our ethos is all about getting to know each other better. It’s not just about doing the technical work, it’s about getting to know people and collaborating, because this brings about a lot of the creative innovations, higher productivity and deeper engagement than just coming in and sitting down with headphones and doing your work,” she insists.

Delaney argues that this shift in mindset is vital when it comes to attracting the next generation of workers, who often have different job expectations from older employees.

“For the millennial generation, it’s not about salary and security, it’s about enjoying their work and having freedom to do things. They look to time as more important than salary, so flexibility is key.”

What does the future look like?

This adaptability is the key to modern HR, where people come first and the freedom to try out new ideas is crucial to developing the organisation. If its plan to complete the transition to a holacracy succeeds, Zappos will become the largest company to have adopted the management system.

However, Zappos’ development doesn’t end there. Having moved into new offices in downtown Las Vegas in 2013, Tony Hsieh is engaged in a $350 million plan to transform the region into a tech city, complete with new apartment blocks for employees offered at subsidised rents.

This desire to improve your employees’ lives, rather than just looking after the business, is something Delaney sees as vital to the future of HR. 

“HR isn’t just about holding people to rules, it’s a lot more than that. It’s about making sure your people are represented in the company’s decisions and live up to their potential. It’s about being part of something bigger and providing a great place to work rather than simply protecting the business.”