Making Sense of Zappos’ War on Managers

In the early 1980s, Ralph Stayer sent a long memo and a $200 check to every employee of his family business. Since taking over as CEO, sales had increased fifteen-fold. Profits were up 150%. Headcount was growing. Regional expansion was underway. But Stayer wasn’t happy. Product quality and employees morale weren’t as high as he wanted. Everything, he had resolved, had to change.

His letter announced a compensation restructuring, which accompanied a dismantling of hierarchy and the introduction of self-managed, self-organizing teams throughout the company.

The purpose of a company, he proclaimed, was not to make money; it was to help its members (Stayer banned the term employee) thrive. Innovation, customer delight, and profits would all follow from it. As he put it, “Helping human beings fulfill their potential is of course a moral responsibility, but it’s also good business. Life is aspiration. Learning, striving people are happy people and good workers. They have initiative and imagination, and the companies they work for are rarely caught napping.”

He would later call this the most important insight of his career.

The change was neither easy nor popular at first. Two years in, Stayer fired three top managers because they kept deferring to him. Deference to the CEO did not fit into his vision of “an organization where people took responsibility for their own work, for the product, for the company as a whole.”

Stayer soon became the darling of management gurus. His struggle to transform the Johnsonville Sausage Company into a beacon of enlightened business was chronicled widely and became a best-selling case study.

I enjoyed teaching that case for many years. No matter how I framed it, no matter how senior the managers in the audience, the debate would eventually come to Stayer’s motives for changing a solid business on a whim.

Why was he doing it?

Some managers would argue that it was a smart yet ultimately superficial change: a calculated strategy to get people to care more, work harder, and boost company profits. That was all Stayer cared about, really. Others saw it as a deeper change in values, a realization that business should serve a broader purpose, perhaps brought about by Stayer’s involvement in his community, impending middle age, or religious faith. A few viewed it as a clever and/or selfish experiment, a ploy to draw attention to his firm and to amuse himself.

There is a video of Stayer charming a roomful of skeptical MBA students, and an article about his trajectory as a leader that he wrote for this magazine in 1990. When I showed them to managers in my classes, their opinions ranged from “he is unassuming and charismatic” to “he is an anxious egomaniac.”

Leading Means Shaping Culture

There was a great lesson in those debates. It was not about whether self-managing, self-organizing systems “work.” We have known they do since they were introduced among British miners whose industry had been disrupted by new technology. Allowing teams to set their targets, plan the work, and manage staffing, a landmark study showed, restored the “responsible autonomy” that miners had lost due to technology and improved their satisfaction and productivity. That study appeared in 1951, long before Stayer’s memo. We also know that these systems are hard to implement, that they are demanding for everyone involved, and that many mistrust them regardless of the evidence.

The lesson was about a central—I would argue existential—paradox of leading: If you are not leading culture, you are not leading at all. If you are leading culture, not everyone will follow.

Those who aspire to lead are rarely content with their organization’s financial success. Sooner or later, they want to shape its culture. Making the numbers, they realize, keeps a leader employed. But it is only half of his or her performance.

Whereas recent views of leadership tend to emphasize the instrumental meaning of performance, the extent to which a leader meets contracted goals, there is also a cultural meaning of performance. This underscores the extent to which a leader credibly embodies a set of values, a desirable lifestyle. Unless you attend to both dimensions of performance, you will not be regarded as a leader in the long run.

When leaders do focus on culture, however, they generate both enthusiasm and suspicion. Especially when they attempt to change the structures, norms, and arrangements that people are familiar with. No news there.

“How many of you would like your work to have a broader impact than just making money for yourself and your firm?” I would usually ask managers towards the end of our debate on Ralph Stayer’s tenure at Johnsonville. Most raised their hands. “How will you deal with the cynicism that many of us have demonstrated here today towards Mr. Stayer?” I would ask next. “How will you deal with the fact that mistrust in leaders has grown exponentially since Stayer’s days, and you will likely not be the company owner as you face resistance?”

No matter how good a leader’s intention, how strong their track record, how smooth their style, leadership will still generate ambivalence. Unless they are able to work with that ambivalence, leaders often either try to suppress any opposition, becoming de facto fundamentalists, or give up.

I stopped using Stayer’s case in my classes a few years ago. Despite its timeless lessons, managers no longer wanted to debate the 1980s choices of a sausage company, even if it had since become a global brand. They wanted to hear about Semco, Southwest Airlines, Gore Tex, HCL. They wanted to hear about Zappos.

Zappos’ War on People Management

Tony Hsieh, the online retailer’s CEO, is but the latest in a long line of elite revolutionaries—larger-than-life corporate leaders who claim that meaning is more precious than money. Hsieh’s bestselling book’s title sums up his vision: “delivering happiness.”

Hsieh’s latest move has provoked the kind of ambivalence charismatic leadership always has. His own recent memo to employees announcing the abolition of people managers at Zappos didn’t come with a check but with an unusual offer: three months’ salary to read a management book and quit the company if they were not on board with the company’s planned transition to the form of organization that the book described. The book was about Holacracy, a manager-less system to support self-management and self-organization.

The offer of compensation to leave if unhappy is not new at Zappos, which has long paid new employees to quit. It was only unusually generous. What is new is that 14% of Zappos employees, 210 people in total, have taken it this time. The snarky takes are practically writing themselves.

Meanwhile, Hsieh has used a familiar tool, which underscores his consistent commitment to the Zappos culture, to tackle a major hurdle leaders face when they mandate change—making people choose it and showing the consequences of not doing so.

The 86% of Zappos employees who stayed are now likely to feel that they have chosen to forego money for a higher purpose. They voted for Holacracy with their wallets. Hsieh can take that as a mandate, and he has got it without firing anyone and keeping his options open. If the experiment succeeds, he will be hailed as a visionary once more. If it falters, it will be easier to swing the pendulum back towards more structure and supervision.

Admirers will speculate that those who took the offer were power clingy managers affronted by their loss of influence, or poor performers who had been able to hide behind the fail-safes of hierarchy. Skeptics might see them as people who disagreed that this was the best move for the company, did not trust Hsieh’s motives, had a better offer, or took the money to fund an entrepreneurial idea.

Here is one more suggestion. Perhaps those who left had a good manager and, faced with the prospect of losing him or her, expected their work life to get worse. The best managers do exactly what self-management systems aim to achieve, freeing people up to do their best work and grow in the process. Zappos’ ratio of stayers-to-goers squares up with a recent Gallup survey that found 90% of managers have little talent for managing people, leaving 10% who manage well. Despite those lopsided numbers, though, self-management is no panacea.

 

The Joys and Sorrows of Self-Management

Under the guise of freeing people up, self-management is often an effort to free the organization up first and foremost. Self-managed and self-organizing systems are meant to make a company more flexible in ever-shifting markets. They do so by increasing demands on its people.

They make it a requirement—not an option—to pour one’s heart into one’s job. While they abolish managers, they increase the amount of management. People work harder, and control gets more pervasive once it is exercised by everyone rather than by one boss. Issues have to be sorted out rather than delegated up.

Hsieh candidly recognized as much in his memo, writing that he expects peer pressure and visibility of results to sustain the same level of focus and productivity that bosses once did. He also outlined a clear methodology for resolving conflict that begins with a conversation between the parties involved. Slackers and conflict avoiders need not apply.

This is a common characteristic of self-organizing systems. They are often ruthless and easily become tribal. You are either “one of us,” if not demographically at least ideologically, or you’re too weak and boring to stay. Here is your check and best of luck.

On a good day, motivation in such “free” systems is provided by pride. On a bad day, by shame. Freedom is exciting if you feel confident, otherwise it can be paralyzing. (Hierarchy and management provide good cover against the very feelings that self-management stirs up—exhilaration, anxiety and shame.)

And if things are not working, you have no one to blame than yourself. This tyranny of freedom, some argue, is why societies where achievement and autonomy are valued above all else have growing incidences of depression among their members. All failure becomes personal.

Most of us, it seems, feel about the freedom to self-organize much the way we feel about leadership. We want some but not too much, and we are never too sure what it will do to us.

Once his company began to embrace self-organization, Ralph Stayer attempted to extend the idea to its logical conclusion. “For the last five years,” he wrote a quarter century ago, “my own aspiration has been to eliminate my job by creating such a crowd of self-starting, problem-solving, responsibility-grabbing, independent thinkers that Johnsonville would run itself.” He never succeeded.

Each time he took distance from Johnsonville, the culture he had so carefully curated slid backwards. Paradoxically, the more self-organization succeeded, the more needed he was. He was able to delegate instrumental performances, but never cultural ones. “Eventually,” Stayer realized, “I came to understand that everything I did and said had a symbolic as well as a literal meaning.”

The unwritten contract his people held him to seemed to be something like, “We’ll keep running the company as long as you continue minding its culture.” Like everyone else in a strong culture—most of all leaders—he could check out any time he liked, but he could never leave.

Stayer recently retired after 47 years on the job, hailed as the United States’ “Sausage King.” The title is ironic for someone who spent half a century trying to run a leaderless company. It is also a reminder that no matter how hard we try not to, we keep looking for leaders to admire, or to blame should things go wrong. That too, is human.

This blog first appeared on Harvard Business Review on 05/19/2015.

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