Why Amazon Tolerates Zappos’ Extreme Management Experiment

In 2009 Amazon.com bought a small competitor, online shoe merchant Zappos, for $1.2 billion. It was an unusual deal in that Amazon (AMZN) promised to leave Zappos alone so long as it hit certain financial targets. Tony Hsieh, CEO of Zappos, wrote the following year that the relationship between Zappos and Amazon was “governed by a document that formally recognizes the uniqueness of Zappos’s culture and Amazon’s duty to protect it. We think of Amazon as a giant consulting company that we can hire if we want—for instance, if we need help redesigning our warehouse systems.”

At the time, I doubted Zappos’s independence story, especially given that the overlord in question was the all-powerful Amazon. Six years later and after having read the just-released and extraordinarily vivid account of life at Zappos by my colleague Jennifer Reingold, for the first time I completely believe Hsieh.

In short, the story of how Hsieh is managing Zappos is so wackadoodle that it’s inconceivable Amazon CEO Jeff Bezos would tolerate it if he hadn’t agreed to in the first place.

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It is well known by now that Hsieh is pursuing a no-management philosophy at Zappos called “holacracy” and that a significant percentage of the company’s employees—Reingold, tongue in cheek, calls them apostates—have left as a result. What Reingold, America’s preeminent journalist writing about management, reveals is the depths of the eccentricity Hsieh has promulgated on his Las Vegas brainchild.

A snippet for those who assume Hsieh’s philosophies are all touchy-feely: “In early 2013 the human resources department became the first group at the company to deploy holacracy. Employees were shocked and frustrated by the numerous mandates, the endless meetings, and the confusion about who did what.” Eliminating management, it turns out, bred chaos.

Till death do us part.

All is not lost. Reingold reports that Zappos continues to satisfy Amazon and that Hsieh remains committed to his plan. He has made it this far, and while his ideas might be extreme it’s not like the rest of the business world has exactly nailed managerial excellence. Curious to know if you can learn anything from Hsieh’s curious mind? Read this story.


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