Related Solution
HCG HR Solutions
hunel · JaDE · talenx — we propose the right HR solution for your organization.
Solve Complex HR Challenges with HCG
Talk to our experts
Insights
Zappos was the first company to sell shoes online and a powerhouse in the retail business, but in its early days it was not particularly well known.
After Amazon decided to acquire it for a staggering $1.2 billion in 2009, Zappos's management approach began drawing significant attention.
Amazon CEO Jeff Bezos saw Zappos's distinctive obsession with customer satisfaction and decided to acquire the company. He also said he would protect Zappos's value going forward. Even today, Zappos maintains an independent management approach.
Zappos's unique corporate values and culture cannot be explained without CEO Tony Hsieh.
The author of the bestseller Delivering Happiness, when asked "What does Zappos sell?", does not hesitate to answer, "a company that sells happiness." He also wants Zappos to be remembered as a company that creates the best customer experience. What is notable is that he tries to find the source of customer satisfaction in a happy corporate culture.
"We just happen to sell shoes — we are essentially a customer service company. To deliver amazing service to customers, we have to deliver the same service to our employees. Our belief is that company culture and brand are just two sides of the same coin. Brand is just a lagging indicator of culture."
The reason this company — with fewer than 2,000 employees — has continued to dominate media and social media headlines is all about culture.
The first of Zappos's 10 core values, and the most symbolic phrase that distinguishes its colors from those of other companies, is "Deliver WoW through service."
The story of an employee who delivered flowers and talked for eight hours with a customer whose mother had passed away is famous. The longest customer call known to date is, astonishingly, 10 hours and 29 minutes long.
There are countless stories about their outstanding customer service, but just looking at the fact that more than 75% of revenue comes from repeat customers tells you about employees' eagerness for "WoW service."
Generally, the call centers of online retail businesses measure efficiency — average handling time, adherence to response rules, and so on. Zappos's customer service representatives do not have to follow scripts, and do not need to adhere to call time limits. Tony Hsieh explains how Zappos's approach is different:
"What matters is trusting customer service representatives and letting them make their own decisions. If you only let them follow rules, the person taking the call cannot actually do anything. The moment a request goes outside the normal range, you either escalate to a manager or say, 'That's not allowed under our policy.' We ask our representatives not to be bound by policy and to do whatever they can for the customer and the company."
Next to every Zappos employee's phone is a postcard. If an employee asks a customer why they are buying sandals and the customer says they are about to go on an overseas vacation, this employee will enclose a note saying "Enjoy your trip!" with the product. Simple and common-sense, but it becomes a service that builds an emotional relationship with the customer.
A culture that builds close relationships with customers ultimately reduces the marketing investment cost passed on to consumers and lets you spend many resources on customer experience. Rather than a Super Bowl ad or social media, a few minutes on a call turns the time spent into value.
To internalize the core value of customer service, every employee who joins Zappos — regardless of position — must participate in a four-week call center training program. This period includes time for live conversations with actual customers and web chat sessions. In addition, every employee donates at least 10 hours per year to call center work. This also has the effect of sharing the workload during peak times like vacation periods or year-end when orders pile up.
This kind of training also helps with innovation. Developers find opportunities for improvement while delivering actual customer service through the systems and tools they built. After completing the training, developers begin building tools that let call center staff deliver service more efficiently.
"We have met many people talented enough to immediately impact our profits. But if they don't fit the culture, we don't hire them. Even if they are a current superstar in their workplace, if they have a bad influence on the culture, we will let them go. What matters most is whether the employee is living in alignment with Zappos's culture, and whether they inspire others with Zappos's culture." Zappos aims for a workplace where their core values are alive and moving.
To build this culture early, even recruiting is differentiated. Here are four distinctive features.
Zappos's recruiting process is sometimes compared to dating or courtship. Not required for every role, but before formal hiring decisions are made, candidates are given the chance to attend various company or department events and meet potential colleagues.
This is, separately from the formal interview, an opportunity to hear opinions about the candidate from the colleagues they will actually have to closely cooperate and collaborate with. Just because a supervisor likes them does not automatically mean they will get along with the rest of the team. This kind of cultural attention can take time. In fact, several months can pass between the cultural fit interview with HR and the actual hire. CEO Tony interviewed every applicant in the early days of the business.
For candidates who passed a typical interview at the time, Tony says what mattered was whether this was someone he personally wanted to get to know.
"If we weren't doing business together, would this person hang out with me or go for a drink with me? If the answer was 'no,' we did not hire them."
They want to hire not only people who fit the culture but also good people. Even if a candidate leaves an amazing impression in the interview, they cannot be hired if they are rude the moment they board the airport shuttle.
"Many candidates come from other regions, and we pick them up from the airport on a company shuttle, provide them a car, and spend the rest of the time on interviews. After the interview, the recruiter will ask the shuttle driver how they were treated. If the driver was not treated well, it does not matter how well the interview went. We will not hire that person. Even if candidates do not arrive on a company shuttle, there is always a receptionist or personal assistant nearby to greet them."
Zappos values delivering a "WoW" service experience to customers. So the first four weeks at Zappos are spent at the call center learning how to respond to customer needs.
According to recruiter Christa Foley, "This process is an important step that lets new hires understand what our core values are, how to live with the values, and what is expected of them to maintain and grow this culture going forward." It is not only a way to learn about the products and services but also a great way to test cultural fit.
About a week into call center training, Zappos offers new hires the right to leave the company along with $2,000–$4,000 (the amount has varied over time). If they do not have the will to commit to the culture and values of becoming a member of Zappos, they are encouraged to leave. There is one principle, though. If you take the money and leave, you can never come back.
This sounds like an attractive offer, but in reality only 1–3% of people accept it. Not every company is willing to bear the cost burden for a potential applicant who is not yet definitively hired.
But compared with the cultural and financial costs — and even the emotional costs to employees — of a wrong hire that does not fit the organization, this may actually be a remarkably cheap cost.
"Many companies pursue work-life separation or work-life balance for employee happiness. Zappos focuses on work-life integration. Wherever we are, our day is a day of life. In the workplace where we spend so much time, we need to enjoy more of our time with the people we are with."
CEO Tony Hsieh expanded on this in a speech at Stanford University.
"We want people to be the same person at home and in the office. Because when we look at when people come up with great ideas or are creative, we have seen that it is when something more like a friendship has formed — not just a typical colleague relationship. Passion comes out when people are in that kind of environment, and that has been the driver of our growth for years."
For a happy workplace, Zappos encourages a culture in which people express their individuality, make their own decisions, and recognize each other.
Zappos's office looks like something between an elementary school classroom and a college dormitory.
Flags hang from the ceiling, posters and employee illustrations cover the walls, and each desk expresses the unique individuality of an individual employee.
"We spend more than 40 hours a week together at the workplace. So when we come here, we should be able to express our complete selves. We should wear what we want to wear and decorate what we want to decorate. This is a huge starting point for creativity" — one employee's interview gives a glimpse into the culture of respect for individuality.
Zappos also encourages expressing individuality at the group level. For example, each group can decorate their own conference room, and when not using it themselves, they can lend the room to other groups. Spaces that are fun and useful for work are naturally popular. It can be seen as an example of unique "fun management" where employees' originality and creative ideas are recognized and traded in an internal marketplace.
The most representative system that shows the culture of recognition and cooperation is the "coworker bonus award." Every employee is given the right to award $50 each month to one of their colleagues. The payout is once a month, but there is no limit on the chance to receive a bonus or its size. This is not only an act of recognition but also gives every employee the opportunity to expand the culture.
Every company experiences growing pains. When the criteria for business success are met and scale grows, the bureaucratic ills people often talk about emerge.
Zappos also worried that the culture that had made it great would be damaged and ultimately lead to the end of the business.
In 2015, Tony Hsieh declared the adoption of Holacracy. Proposed by Brian J. Robertson — known as a programming genius — the system is, in simple terms, a "company without bosses," a kind of self-management system.
Formal organizational teams are replaced by concentric circles, and instead of managers, there are only Lead Links who run the circles. Every employee moves not according to a defined job but according to a role, and works with independent self-decision-making authority.
The Lead Link is a manager in name only and has almost no formal authority. In particular, they have no right to force employees to do work they do not want to do. They do not give orders — they only request until they get others' agreement.
Zappos explains it this way:
"Traditional hierarchical organizational structures start from the following premise: people are not voluntary, they do not want to be exposed in their work, and the only way to get good output from employees is to manage them. But that is not true. People are more efficient and creative when they feel ownership. Whatever they are doing, people want to feel proud of what they do."
This process was not without its bumps. Not everyone was prepared, and managers who had built careers with high titles and positions may have felt like losers. Zappos offered, during the transition period, the right to leave the organization along with a separation package. Eighteen percent of all employees left the company, and afterward, another 11% of employees left without taking the package.
Zappos also disappeared from the 100 best companies to work for list, where it had ranked in the top 10–20 every year. On the other hand, that year Zappos recorded the highest operating margin in its history. For people with the inspiration and creativity to bring new ideas to life, there could not have been a more innovative model case.
What does HR look like at a workplace where holacracy is realized? Every Zappos employee can freely allocate their time and effort across the circles to which they want to contribute their capabilities. They can also be active in multiple circles. The basis at this point is the "People Point." Each employee has 100 points — corresponding to the time and effort of full-time work — to allocate across various circles.
And each circle has a required point count based on the size and scope of its work.
This is the principle of an internal market that matches organizations and roles through the medium of People Points. If you do not enjoy your circle or feel you cannot do great work, you find a new circle. Sometimes the Lead Link does not approve as many points as you want, considering the size of the circle.
Since holacracy, Zappos no longer conducts traditional supervisor-led evaluations. So who decides what about compensation?
For this, Zappos uses a system called "badging." Employees are rewarded according to the badges they own or have earned.
It is a structure where rewards increase when specific requirements are met, like a Java Coding Badge or Merchandising Badge.
So that employees do not feel anxious about their pay possibly dropping in the future, Zappos introduced a "Grandfather Badge" — based on the initial 2016 introduction point — to ensure that fixed pay does not fall.
(The way of recognizing existing rights when applying a new system or rule is called grandfathering.)
Zappos looks like a company that pours all of its attention and effort into making people happy. Through people making their own decisions, feeling that they are moving forward, and forming strong social bonds, it practices happiness management.
Zappos has a culture book that employees write themselves every year. They record how they feel about the company's culture and how to reinforce and develop it every day.
I am curious how the book will record the future of Zappos — a company that does not hesitate at new attempts when it comes to delivering happiness.