This document provides an overview and analysis of the Holacracy model of organizational structure implemented at Zappos. It discusses how Zappos operates under a transformational and servant leadership model, with core values focused on open communication and removing obstacles for employees. The document outlines how Zappos recently transitioned to a Holacracy structure, which removes job titles and managers in favor of self-organizing teams and a structure based on work roles rather than hierarchy. The Holacracy model aims to distribute leadership more broadly and form a true team environment without barriers created by traditional titles and management.

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Dissecting the Holacracy
Floyd C. Ogle II
National University
LED490 – Leadership Capstone
Dr. Michelle T. Ross
November 23, 2014

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While there may be some truth in thinking that a good leader is well educated, there is
unspeakable truth in the fact that a great leader is well informed. Any person that desires to lead
must have a clear understanding of the direction that the journey is going to take. This is hard to
comprehend when one does not know from where they have come; and it is nearly impossible to
truly know and understand a destination if there is not a clear understanding of the obstacles that
may lie in the path that has been chosen. It is abundantly clear that a good leader is well read,
and that they have their finger in the pulse of what is happening in the culture that they are a part
of. One of the greatest methods of understanding the culture is to constantly and consistently be
examining the cultural atmosphere and the business environment in which they are immersed.
Great leaders know that they do not have all of the knowledge that they will ever need to lead
effectively; and, therefore, they are constantly looking for areas in which they themselves can
improve and how to relate those improvements to the organization that they lead. Any leader that
believes that they can no longer be taught, or that feels as though they have reached the pinnacle
of leadership, will soon find themselves following a leader that is humble enough to continue to
learn. Based on appearance, Tony Hsieh of Zappos.com seems to be that type of humble,
learning, engaged leader that is worth following.
Of one thing we can be sure, in order to become a great leader, one must ask them self,
“How does one become the type of leader that is worth following and can lead effectively?”
Hambley, O’Neill, and Kline try to answer that in their article Virtual Team Leadership. As Bass
and Avolio (1993) state:
transformational leadership focuses on motivating and inspiring followers to perform
beyond expectations and comprises four main factors: (1) idealized influence (or

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“charisma”), (2) inspirational motivation, (3) intellectual stimulation, and (4)
individualized consideration (as cited in Hambley, O’Neill, and Kline, 2007).
Den Hartog and Koopman (2001) also share:
Transformational leaders are skilled at increasing and broadening follower interests,
gaining commitment to the goals and mission of the group/organization, and motivating
people to go beyond their self-interests for the good of the group (as cited in Hambley,
O’Neill, and Kline, 2007).
It is clear that transformational leadership gains the trust, respect an honor of its followers. By
virtue of the characteristics of this leadership style, followers are willing to give more and do
more to achieve common goals. In order to achieve even greater commitment from their
followers, and transition into the new paradigm of transformational leadership, identified and
discussed as servant leadership, leaders only need do one more thing; value the follower to a
greater degree than the cause:
The transformational leader’s focus is directed toward the organization, and his or her
behavior builds follower commitment toward organizational objectives, while the servant
leader’s focus is on the followers, and the achievement of organizational objectives is a
subordinate outcome. The extent to which the leader is able to shift the primary focus of
leadership from the organization to the follower is the distinguishing factor in classifying
leaders as either transformational or servant leaders (Stone, Russell, & Patterson, 2004, p.
349).
It can be said of Hsieh and the leadership team at Zappos, that they meet the criteria of
transformational leadership … to a fault!
According to Tony Hsieh, the founder and Chief Executive Officer at Zappos:

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We're not trying to maximize efficiency. We're trying to maximize the customer
experience … Our whole belief is that if you get the company culture right, most of the
other stuff — like delivering great service or building a long-term, enduring brand — will
just happen naturally on its own (as cited in Chandler, 2010).
Hsieh and the leadership at Zappos value the organizational culture more than anything;
apparently, even more than profit and sustainability. Unfortunately for Zappos, this mindset
contributed to their sale to Amazon before they had intended. In his article with Inc Magazine,
Hsieh (2010) states that the first time Amazon offered to buy Zappos was in the summer of 2005,
and Hsieh was not yet ready to let go of the organization that he had, “poured the past five years
of my life (and almost all of my money)” into. However four years later, even though his
impulse was to say no, the board of directors had other intentions. Hsieh describes the situation:
At the time, Zappos relied on a revolving line of credit of $100 million to buy inventory.
But our lending agreements required us to hit projected revenue and profitability targets
each month. If we missed our numbers even by a small amount, the banks had the right to
walk away from the loans, creating a possible cash-flow crisis that might theoretically
bankrupt us. In early 2009, there weren't a lot of banks eager to give out $100 million to a
business in our situation (Tony Hsieh, Inc Magazine).
Though somewhat unusual, due to the success that Zappos has had in building a brand and a
culture, Zappos operates independently, and is able to govern and manage their business model,
and most importantly the culture that they are ultimately known for.
Even a quick glance at Zappos’ core values proves that the model of leadership under
which they function can easily be described as transformational or even servant-leadership. An
example of Zappos’ core values, taken directly from their website, are things like, “Create Fun

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and A Little Weirdness”, “Be Adventurous, Creative, and Open-Minded” and, “Build Open and
Honest Relationships With Communication” (Zappos.com). Under the heading of building open
and honest relationships with communication, is an especially poignant text; it reads, “The role
of a manager is to remove obstacles and enable his/her direct reports to succeed. This means the
best leaders are servant-leaders. They serve those they lead.” While servant-leadership is a
relatively new subset of transformational leadership, it is clear that it has found its place not only
at Zappos, but in many other organizations. There is a need to know that they people that are
leading us are worth following, that they care and that they have the ability to help us make an
impact for the cause which is being pursued. Certainly, there is an expectation that leaders have
the knowledge that the field requires as well as the authority to make decisions; however, if their
decisions are not based on affection for the cause and the people with whom they are pursuing
the cause, their knowledge is vanity. A person may have authority; however, that authority will
only carry them to level of reward that is offered for the people that they are leading. The
moment that the reward is no longer adequate, the followers will abandon leaders which do not
have their respect. History tells us that great men, with the respect of their followers, and a
certainty of a greater cause, have lead droves of men in to battle and some into to demise; this
could not happen without a love and genuine honor of their servant-leaders.
In an effort to perpetuate their servant leadership model, Zappos has again taken steps to
deepen their organizational culture and gain the buy-in of their employees. Amiee Groth (2013)
reported that during the company’s fourth quarter “All Hands” meeting, “Hsieh talked about how
Zappos’ traditional organizational structure is being replaced with Holacracy, a radical ‘self-
governing’ operating system where there are no job titles and no managers.” Though this is not a
major departure from what Zappos’ structure seemed to embody before, the changes are

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significant and visible to even the casual observer. While the concept of Holacracy is new to
many, an examination of what it defines strengthens the servant-leader mind-set.
Pepijn van de Kamp (2014) brings understanding to Holacracy in his essay titled
Holacracy - A Radical Approach to Organizational Design:
In Holacracy the organizational structure consists of a holarchy of self-organizing teams,
called ‘circles’. This holarchy of circles emerges in the process and evolves over time.
Hereby Holacracy aspires to result in a natural hierarchy focused on work instead of
individuals (B. J. Robinson, as cited in Pepijn van de Kamp, 2014, p. 16).
Van de Kamp goes on to discuss that in a Holaracy, titles are removed, thus breaking down
another potential barrier and creating a more purpose-driven structure. This structure allows roles
to emerge into overlapping structural circles based solely on pursuing the purpose of the team
and/or organization; thus distributing the leadership to the proper person for the job at hand, and
for the time needed. Using this type of organizational structure removes the barriers that titles
can bring and forms a true team environment.
Though some may criticize Hsieh for his choices, or in their opinion, reluctance to make
decisions, there is no doubt that his model is working! Zappos is considered by many to be
among the best companies in the country to work for, and these are not just idle words. As a part
of Zappos’ training process, they offer people an out. After an employee is hired, there is an
intensive four week training process that includes time and training in the customer care center
so that every employee at every level understands what it is like in the trenches. At various
points in the training process, new hires are given the option to take what Zappos calls “The
Offer”. “The Offer” is a $2,000 bonus, on top of salary for time worked, to quit (Keith

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McFarland, Bloomberg Businessweek). Despite the offer, Zappos boasts a 97% stick rate, much
higher than most companies, and certainly higher than expected with such an offer in place.
Much can be said about Hsieh as a businessman, some even criticizing him for the need
to sale to Amazon before he was ready; however, those criticisms pale in comparison to the
praise he receives as one of the preeminent leaders in modern American business culture! Hsieh,
and the team at Zappos, have created an organizational culture that has impacted many, far
beyond the walls of Zappos. Hsieh and the Zappos team continue to break new ground and lead
the charge into the future of organizational culture in America and around the world!

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References
Chandler, M. (2010). Tony Hsieh: Happiness leads to profits. Insights by Stanford Business:
Leadership, Management. Retrieved from http://www.gsb.stanford.edu/insights/tony-
hsieh-happiness-leads-profits
Groth, A. (2013). Zappos is going holacratic: no job titles, no managers, no hierarchy. Quartz.
Retrieved from http://qz.com/161210/zappos-is-going-holacratic-no-job-titles-no-
managers-no-hierarchy/
Hambley, L.A., O’Neill, T.A. & Kline, T.J.B. (2007). Virtual team leadership: The effects of
leadership styles and communication medium on team interaction styles and outcomes.
Organizational Behavior and Human Decision Processes, 103(1), 1–20. doi:
10.1016/j.obhdp.2006.09.004
Hsieh, T. (2010). Why I sold Zappos. Inc Magazine. Retrieved from
http://www.inc.com/magazine/20100601/why-i-sold-zappos.html
McFarland, K. (2008). Why Zappos Offers New Hires $2,000 to Quit. Bloomberg
Businessweek: Small Business. Retrieved from
http://www.businessweek.com/stories/2008-09-16/why-zappos-offers-new-hires-2-000-
to-quitbusinessweek-business-news-stock-market-and-financial-advice
Stone, A. G., Russell, R. F., & Patterson, K. (2004). Transformational versus servant leadership:
a difference in leader focus. Leadership & Organization Development Journal, 25(4),
349-361. doi: 10.1108/01437730410538671
Van De Kamp, P. (2014). Holacracy - a radical approach to organizational design.
doi:10.13140/2.1.3740.8645
Zappos.com. Part of the Zappos Family: Zappos Family Core Values. Retrieved from
http://about.zappos.com/our-unique-culture/zappos-core-values