Zappos Case Study

Marcus Layne                                                                                April 1, 2017

Nassau C.C.                                                                                Prof. Levine

Tony Hsieh

Tony Hsieh, former CEO of Zappos, management style called “holacracy” isn’t working out as well as he thought it would’ve. His management style is a manager free operating structure that is composed, in theory, of equally privileged employees working in task specific circles, often overlapping. He began experimenting with holacracy in 2013 as a way of maintaining Zappos’ lauded employee centric culture as it continued to grow. The transition was supposed to have finished within a year but by March 2015, only 85% of Zappos employees had begun the process. He offered an ultimatum to his employees: Embrace self-management by April 30th, or we’ll give you a 3 month severance package to leave. By May, 210 Zappos employees, or 14% of the company had taken the offer.

        Zappos is stronger now that it has fully dedicated itself to self-management. Despite the revolving, Zappos has made enough new hires that its employee count is already back to around 1,500, according to Holacracy transition led by new CEO John Bunch. Each of those new recruits are fully operating within the Holacracy system. Zappos declined to comment on its financials at this time, but announced at last year’s All Hands meeting in February that one of its goals was to make $97 million in operating profit, up 77.9% from the year before, according to the Las Vegas Review- Journal. Hsieh said that self-management allows Zappos to function more like a city, like an ecosystem that doesn’t need constant direction from up top to function, and that will assure its long term survival even when he’s no longer CEO.

        Amazon.com has reached an agreement to purchase Zappos.com, the online retailer known for its selection of shoes, for $807 million. Zappos.com will get approximately 10 million shares of Amazon.com (AMZN, Fortune 500), which is equal to approximately $807 million, based on the average closing price for the 45 trading days ending July 17. As part of the agreement, Seattle, Wash.-based Amazon.com will also give Zappos.com $40 million in cash and stock for its employees, on top of the $807 million purchase price of the company. Amazon.com is scheduled to report its second-quarter financial statement Thursday after the closing bell. The company is expected to report that earnings fell to 31 cents per share, down from 37 cents per share in the same quarter a year ago, according to a consensus estimate compiled by Thomson Reuters.

Jeff Bezos

        Jeff Bezos has set Amazon apart with 2 leadership styles.

1. Customer is king                                                                                        Bezos places a great deal of focus on what the customer wants and doesn’t want. Amazon learned that customers “hate delays, defects and out-of-stock products.” So each of these issues are continually addressed, even to the smallest detail. In fact, Amazon’s metrics revealed that 0.1 second delay in the loading of a page equals a “1% drop in customer activity” so they work tirelessly to improve the loading rate.

1. Expect more from your employees

Amazon had 500 employees for the sole task of answering emails. They were each expected to answer 12 emails per minute, and could possibly be fired when that number dropped below 7. By having high expectations of his employees, Bezos has created an incredibly efficient machine, which is now famous for being able to make same day deliveries in over a dozen US cities. Without his penchant for continuously raising the standard for his employees, this would have never been achieved.

The world's largest online retailer on Thursday reported unexpectedly strong sales and earnings in the first quarter, blowing out analysts' projections and driving shares up more than 12 percent after hours. Big gains in its Amazon Web Services cloud-computing business helped the company report its fourth-straight profitable quarter and its best-ever quarterly profit. CEO Jeff Bezos consistently makes huge investments in things like new distribution centers, consumer electronics, original TV programming, grocery deliveries -- and much more. Even as operating expenses surged 25 percent during the quarter, revenue was even stronger. Sales reached $29.1 billion, up 28 percent, while Amazon swung to a profit of $513 million, from a loss of $57 million the year earlier. To put that figure in perspective, Amazon posted a profit of $596 million. Amazon is taking a "long-term approach" to building Prime Now, it’s free, two-hour delivery service that's available only in certain cities, Amazon executive Phil Hardin said, noting the Prime-only service's logistical difficulty and expense.