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Holacracy: How and Why Zappos Is Changing Their Culture With It

June 23, 2015

holacracyZappos is, yet again, breaking the mold of traditional organizational functioning. I’ve written before about Zappos’ unique organizational culture. However, Zappos is in the news again. Recently, Tony Hsieh, CEO of Zappos, announced that Zappos would be replacing the traditional organizational structure with Holacracy. Hola-what you ask? Well, I asked the same thing…

Holacracy is a self-governing operating system in which 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. A final unique feature of Holacracy is that organizational rules apply to everyone; there are no exceptions to the rules depending on the employee.


One of the goals of Holacracy is to encourage employees to act more like entrepreneurs instead doing exactly what their manager tells them to do. Hsieh mentioned that one of the drivers of Zappos moving towards this model is to make sure that innovation and productivity still thrive as the company expands. They intend to make the full transition by the end of the year.

Without getting into the weeds of whether this type of organization will thrive or not, I think we can all agree that this is a big change from typical policies and functioning. Some employees may not like this more radical/non-traditional approach and may not do well in such a structure. And, Hsieh agrees, which is why he is presenting employees with an ultimatum to leave or stay. If employees prefer not to adapt to the changes and express dissatisfaction by the restructuring, he’s offering them at least three months’ severance if they quit. To date, about 14 percent of the company’s workforce has accepted the buyout.

14 percent of the company has left? That seems bad.

This situation brings us back to the idea of motivational fit. Motivational fit describes the degree of alignment between employees and the organization on values, interests, and beliefs. The amount of fit also depends on work environment factors and organizational expectations. When there is a greater degree of fit, employees are more satisfied and much less likely to turnover.

Holacracy may or may not resonate with employees. For those that it doesn’t resonate with, they will likely be dissatisfied with the work environment. Hsieh is giving these employees an opportunity to select out of the organization for some compensation. If these employees stay, it will be a lose-lose situation for both the employee and Zappos. The employee will be unhappy. Additionally, the employee is more likely to engage in negative or cutter-like behaviors which can ultimately affect productivity, coworkers, and clients (the negatives for Zappos). By presenting employees with this thought exercise, Hsieh is getting employees to think about whether they will continue to fit in with the organization. He’s also recognizing the impact that this shift can have on the employees and the organization.

Overall, this situation highlights that motivational fit of employees can change when there is a shift in organizational culture or when the job changes. When companies go through big changes, it’s critical to maintain a pulse of your current workforce and how they fit in with the changes.

Driving Culture with Pre-Employment Assessment at Sears

Alissa Parr, Ph.D. Alissa Parr, Ph.D. is a Senior Consultant at PSI. Her areas of expertise include the development, implementation, and evaluation of assessment processes. Alissa has experience managing entry-level through executive level assessment and selection efforts across a number of different industries including government, financial, military, education, healthcare, and manufacturing.