Is Tony Hsieh out of touch with his employees?
That's one question you'll find yourself asking after reading Roger Hodge's update on Zappos's organizational transition in The New Republic. When you last checked in on Zappos, it was likely in April, when 14 percent of the company (210 people) took buyout offers, instead of staying aboard as the company revamped its management structure.
Hodge has kept tabs on the company in the six months since then, tracing its progress--and its setbacks--on its path to becoming a so-called "teal" organization by implementing holacracy and other self-management systems. Here are seven takeaways from his report:
1. Upper management might be out of touch.
Former employee Chris Coy took the buyout after working for a few months as a user experience designer. Coy is in favor of self-management and other teal principles. But he disliked how Zappos was handling the transition. "It's not the ideas, it's the execution," he told The New Republic. Hodge writes:
It wasn't just Hsieh who was out of touch with the lives of normal employees, Coy said. Other members of the core leadership were having a hard time empathizing with people in the call center, who, Coy said, were having a difficult time adjusting to all the changes... For people who live paycheck-to-paycheck, a job that's always in flux can be pretty terrifying. "People who live in trailers," [Coy] said darkly, "generally do so because they're broke, not because it's a fun social experiment."
The article also includes testimonials from current Zappos employees critical of the company's transition.
Brian Kirby, a software engineer who formerly worked at Adobe before Zappos, told Hodge he was "all Teal all the time." But he was still uncertain about whether he'd stay with Zappos, because it's not yet clear how his compensation will change next year. Rachel Murch, who has worked at Zappos for five years, told Hodge she "thinks the whole thing [has] been handled badly."
2. The culture may be squashing debate.
For all the rough spots of the Zappos' transition, Kirby, Murch, and other employees are not hesitating to critique the company in public.
On the other hand, there's evidence that some employees are hesitant to speak out. Coy tells Hodge Zappos is "not a culture of critique or open dialogue," and that employees don't feel free to speak openly because of the "subtle culture of coercive positivity." On a website dedicated to venting about the teal transition, Hodge found two anonymous employee comments that speak to a low-trust environment:
Anonymous: "I'm afraid to speak up in my circle because I'm afraid my lead link might retaliate. What resources are available to me?"
Anonymous: "Upvote this if you don't trust Tony anymore."
3. One complex transition is hard enough.
The teal transition is happening at the same time that Zappos is migrating its backend IT systems to Amazon's platform, a multi-year project the company is calling Supercloud.
Barry Van Beek, the project's program manager, who has been at Zappos eight years, told Hodge he thought Supercloud was the single largest e-commerce replatforming in history. "No one has ever attempted this before, on this scale." Van Beek also told Hodge that the introduction of teal principles has been "disruptive to our progress... And I think it's had more of an effect on morale. Mostly because it's personal."
For example, after the buyout, Van Beek had to worry about replacing key employees. Zappos also published a list of employees who had taken the offer, which took staffers by surprise. "A lot of people didn't get to tell their colleagues and friends that they took the offer before the list came out," Van Beek told Hodge.
Hodge asked Van Beek if he would have preferred for Hsieh to wait until after Supercloud to make the buyout offer. "Oh, absolutely," Van Beek told him. "I call it executive interruption. That's expected, especially at Zappos. But when Supercloud began, I wouldn't have been able to imagine executive interruption at this scale, especially toward the end of what we're trying to do."
4. CEO charisma only goes so far.
Based on employee testimonials, Hodge concludes that the "Hsieh's relentless organizational experimentation may no longer be as sustainable as it once was, when Zappos was a much smaller company."
His idea is that a founder's duende loses some of its aura, as a company grows in size and experiences thorny transitions. "When the CEO becomes a distant figure, sheer force of personality and charisma cease to be enough to motivate hundreds of employees as they weather wave after wave of perpetual organizational flux," he writes.
5. If you're changing structure, address compensation first.
Kirby, the software engineer and teal zealot, wasn't the only Zappos employee who felt his future was up in the air because he was not sure what the transition would mean for his compensation. "All this talk about higher stages of consciousness is fine, but even gung-ho Tealiocrats like Kirby are unwilling to live on the bleeding edge if they have to take a pay cut," writes Hodge.
On the issue of compensation, Hodge reports that Murch "sounded pretty frustrated." She explained how the new compensation system would be tied to a system involving "badges" and "people points."
"If Murch wants a raise, she has to do all the research into what she's worth, create a badge, come up with qualifications for receiving the badge, and then design the actual look of the badge," writes Hodge.
6. Progress is being made.
One sign of progress is that there are now efficient meetings at Zappos which hew closely to the holacracy format. "Watching a well-run holacracy meeting in action can be revelatory, because when everyone knows the drill it eliminates much of the time-wasting verbosity and psychological microdrama that often turns workdays into an endless series of unproductive jaw-sessions," writes Hodge.
Murch also shared that "things were slowly improving, or at least that people were figuring out how to get their work done."
7. Self-managing companies can be more like cities.
Given the challenges of the transition, Hodge asks Hsieh to explain his rationale. What follows is a glimpse into Hsieh's vision, in which companies learn to behave more like cities. Hodge writes:
He wants everyone at Zappos to approach their work like an entrepreneur, to be adaptable, flexible, resourceful, and creative. He spoke about cities and how resilient they are and cited a finding that when cities grow in size, the productivity of residents increases as well. Precisely the opposite happens with organizations. "Companies all die at some point," [Hsieh] said. "But cities often don't."
What's interesting about this analogy is that most American cities have mayors and legislatures and countless officials with traditional titles. Yet they also have an organizational infrastructure--spelled out through the rules and procedures of government--allowing generation after generation to fill these positions.
It's telling about Zappos that for all of the rough patches, many employees are hanging in, even as they deliver their public critiques. Whether the company is creating a city they all want to be a part of--or whether they're just gamely weathering the situation, pending their future compensation--only time will tell.