Assessment Template: Organizational Change Case Analysis

Prepared by: Jason Kiehm

Date: May 31st, 2021

Walden University, CBE Dynamics of Change,
DY3002: Leading Change Effectively

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Part 1: Strategy and Organizational Change (10–16 paragraphs)

Factors for Consideration

Three factors that leaders should consider when developing a strategic approach to
change management are a clear definition of the change, strategic and emotional
benefits, and a culture of peer networks and motivators. The definition of the change
should include the exact change taking place and how it will be implemented, tracked,
and measured for success (Mulholland, 2017). Leaders should also clearly
communicate why the change is taking place and what strategic and emotional benefits
will come of it. The benefits the organization expects to gain from the changes should
also be honestly and openly communicated.

Finally, the organization should consider creating a culture of peer networks and
motivators. This means the leadership and management positions must communicate
with potential influencers within the ranks in order to create a network of people who
support the change and motivate others to embrace it as well. Of course, this cannot
happen if the change and proposed benefits are not communicated honestly and openly
with everyone. A culture of honest and safe communication must be established by the
organization when developing a strategic approach to change management.

Tony Hsieh’s Approach to Change Management

2001 marked the first big organizational change for Zappos when Tony Hsieh joined as
co-CEO and their operations were moved into the Venture Frogs incubator. Tony
immediately began to implement his “Weird Culture” where everything was kept casual,
from clothing to greetings to company correspondence. He eventually became the sole
CEO in 2003 as sales climbed to $70 million (Askin & Petriglieri, 2016). While his role
as CEO was likely clearly defined, the culture that he created was not. It wasn’t until
they moved their operations near Las Vegas in 2004 that Tony decided to strengthen
the culture and invest in hiring and development.

In 2006, according to the Zappos website, the company’s 10 Core Values were
developed from a pool of hundreds of ideas from employees. While the culture was
started by Tony, the Core Values were created by the employees of Zappos, and the
benefits from the formalization of its culture were implicit. This culture, further formalized
in a book of definitions of the culture written by the employees, changed the way that
Zappos did business with both its customers and vendors. There were no scripts, no
upselling techniques, and personal emotional connections were the top priority (Askin &
Petriglieri, 2017). It isn’t certain that these changes were made explicit from the
beginning, but the Core Values and book of culture gave some definitions to the
changes that took place while also creating a culture of peer networks and motivators.

As for metrics, the growth in sales, the $20 million investment from Sequoia, and the
eventual acquisition by Amazon were probably the metrics that Zappos used to
measure the success of their change. However, Tony was seemingly not so concerned

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about sales (profits) and focused largely on the company culture, which led to a dispute
with the board of Zappos. This caused Tony and his business partner Alfred to trade
their shares in Zappos for Amazon shares, thus giving legal ownership of Zappos to
Amazon in exchange for independence under Tony’s leadership (Askin & Petriglieri,
2017). The fact that the company remained unified by the culture through all the ups
and downs would signify that Tony communicated the definition, purpose, and benefits
of the culture with his fellow Zapponians.

Common Challenges and Strategies to Address Them

The first and probably most common challenge that leaders face during times of change
management is conflict. Due to the tendency of people to exhibit feelings of shock,
denial, and rejection when faced with significant organizational change, it is natural for
conflict to arise. Fear of the unknown can cause staff to become frustrated, sometimes
with one another, and must be proactively corrected with patience and a solution that
involves and engages employees (Smith, 2018). Open communication and regular
updates from the leadership are necessary to help mitigate such feelings and prevent
conflict.

Another challenge that organizations face is poor planning. Some management teams
may not have the experience or skills needed to plan for significant organizational
change. This can cause feelings of distrust and resentment to arise amongst the
employees. The leadership may consider hiring a third-party change management
consulting group to help with the initial planning if their current leadership is not up to
the task.

A lack of communication is another challenge that leaders face during times of change.
Employees will be left guessing about the motives behind the changes and gossip and
rumors may spread through the organization. Regular meetings and an open line for
communication between the leadership and regular staff are a must when going through
change. This will temper any misconceptions or doubt and create trust with employees.

Reasons for Implementing Organizational Change

Organizations want to implement change for several reasons. Depending on the life
cycle of the business or product, change in the form of a new product line, technology
solution, or even a new policy or procedure may be necessary (Lauby, 2018). For
example, coffee has been around for a long time, but the industry experienced change
after change when cafés became mainstream, espresso gained popularity over drip,
instant coffee quality improved, and home coffee machines became more capable and
affordable. Businesses had to change with each new wave of demand.

The demands of the market or industry change whether a company wants it to or not,
and so, companies must adapt or die. Some companies are ill-equipped for change, or
worse, resist until the walls come crashing down. When a business is falling behind the

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competition and the industry, organizational change is a must. Apple, Inc. is probably
the most famous example of this. The company began a downward spiral after Steve
Jobs left the company in 1985 and was nearly bankrupt by 1997 when Jobs returned.
Innovation was nearly dead at Apple, but Jobs’ return reinvigorated the company and
organizational change happened rapidly.

Organizational Changes at Zappos

In October of 1999, Zappos was started with Nick Swinmurn as the founder and CEO.
With an investment of $500,000 from Tony Hsieh’s Venture Frogs, Zappos began
operations by creating “drop ship” relationships with manufacturers (Askin & Petriglieri,
2016). Despite making progress quickly, Zappos was unable to earn much profit or gain
the interest of Sequoia, a venture capital firm that Tony introduced to Zappos. Having
problems with cash flow and with no investors in sight, Zappos was doomed to fail.
However, Tony decided to invest another $1.1 million, moved the company into the
Venture Frogs facility, and became a co-CEO. This was the first major change that
Zappos underwent, and marked the beginning of a cultural transformation within the
company.

As Zappos continued to face challenges with cash flow, Tony cut his salary to $24 per
year, provided living quarters for his employees free of charge, and invested personal
capital into the company (Askin & Petriglieri, 2016). This example that Tony set was the
embodiment of Zappos culture. The company was encouraged to become fanatical
about customer service and to form personal emotional connections with both
customers and vendors. The atmosphere was very casual, and the company was
transparent about everything with everyone. This eventually led to another major
change at Zappos: the adoption of Holacracy.

Tony was determined to take the company culture to the next level and get rid of
traditional hierarchies in order to maintain growth. He argued that companies with top-
down bureaucracies decline in productivity when they grow. Holacracy was the solution
to this. Holacracy creates a system more liken to cells of an organism; each cell is
autonomous and answers to none, yet they cooperate to ensure their survival. Similarly,
there are “circles”, or teams, that have goals or projects that are accomplished
independently. Each member of a circle is also independent, although communication
and collaboration are a must. The switch to Holacracy was the biggest organization
change at Zappos to date.

Challenges and Change Management Approaches at Zappos

One of the biggest challenges Zappos faced was in its early years under the leadership
of Nick Swinmurn and Fred Mossler. While they were able to spark the interest of Tony
Hsieh and gain momentum with the initial investment from Venture Frogs, the company
was unable to maintain enough profits or growth to attract further investment from larger

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venture capital firms. Zappos was on the verge of bankruptcy. Tony’s change
management approach was unorthodox, to say the least. He invested more capital
through Venture Frogs and stepped in as co-CEO. He eventually became the sole CEO
and set to work on overhauling the company’s organizational culture. He housed
employees for free and invested personal capital into the company to keep it afloat. His
change management approach was hands on and inspirational. He involved individuals
at all levels of the company.

Tony attempted to align Zappos’ organizational practice with the values he envisioned
for the company. Doing so requires that the company acknowledge that its people are
the greatest asset and to engage them in a process-driven culture to improve
productivity and efficiency (Prosci, n.d.). Zappos did just that when the company created
its 10 Core Values and refocused their hiring practices to align the workforce with its
culture. Tony lived those values in every action he took to save the company from
downfall, and he succeeded.

However, the second biggest challenge that Zappos was faced was their switch to
Holacracy, which sought to further align organizational practice with organizational
values. This change began in a more organized and formal manner. There was a plan
to implement Holacracy over a span of three years. The change management process
involved a Holacracy Implementation Lead, John Bunch, who oversaw the restructuring
process (Thai et al., 2017). John first tested Holacracy with a small group, then built a
team that would train and support the rest of the company. There was also a three-day
voluntary training program as well as over 100 certified facilitators to assist new circles
within the Holacracy. However, Tony was not satisfied with the speed of transition and
decided to fully implement Holacracy halfway through, which caused 14% of his
workforce to leave the company (Askin & Petriglieri, 2016). Some might criticize Tony
for such a move, but his intentions were made very clear from the beginning and there
was a lot of support for anyone who had doubts. Overall, the approaches to change
management at Zappos were successful.

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Part 2: Leading Organizational Change (14–21 paragraphs)

Planning for Organizational Change

The first step in planning for organizational change is to create the plan. This crucial first
step should include an estimate for how the change will impact the organization,
suggested, or assigned personnel for a change management team, and a timeline or
schedule for the change (Conrad, 2017). The leadership should consider which
departments or individuals will be most affected by the changes. They should choose
leaders from each department affected by the change to create a team that meets and
communicates regularly with all parties involved. Finally, the timeline should include
dates and expected milestones needed to stay on schedule.

Once the plan has been created, leadership should consider how the plan will be
executed. Training and support must be comprehensive and organized. Employees
must see that the company has taken every measure to ensure that they are trained to
handle the change and supported when mistakes or misunderstandings occur. The
leadership must communicate and be open to feedback. They should be ready for and
respond to all types of inquiry. As the change is being implemented, the leadership must
be ready to make adjustments along the way. Change can be unpredictable, so the
leadership must remain adaptable throughout the change process.

Finally, the leaders must ensure that the change is solidified and ingrained in the new
day to day operations. This can be accomplished through follow-up training that will
ensure employees have adapted to the change correctly while allowing for feedback on
the changes. This aligns with the practice of consistent communication and monitoring
of the change’s efficacy. Also, open communication and follow-up may reveal
weaknesses that weren’t apparent at the start or suggestions to further improve or build
on the change.

Communication Strategies

The first, and probably most important, communication strategy leaders can incorporate
in organizational change is to develop and present a clear vision for the future. The
vision should begin with a narrative about the organization’s purpose. It should then
explain why the change is needed and how the change will impact the company’s
alignment with the vision (Galbraith, 2018). Another important strategy is to make sure
that all managers or leaders are properly equipped to explain the change. It is important
not to assume that managers or supervisors will communicate the change and its
context clearly (Kislik, 2018). They should be trained either through rehearsals or role-
playing sessions to prevent the wrong message from spreading and causing irreparable
damage.

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The Effectiveness of Tony Hsieh’s Communication

The second of ten Core Values of Zappos states, “Embrace and drive change when
there’s a clear reason why.” The sixth states, “Build open and honest relationships with
communication.” Tony Hsieh lived these values when transitioning to Holacracy by
communicating with everyone the vision for Zappos’ future. He wanted Zappos to
operate like a city to avoid losing productivity in the face of growth and he wanted
Zappos to remain relevant 50 years into the future (Askin & Petriglieri, 2016).

Tony also announced that the hugely impactful change to Holacracy, which would take
about three years. He understood that the change was significant and would require a
lot of communication, planning, and training. However, as things progressed and he
realized that things weren’t moving fast enough, he wrote a 4,700-word email explaining
that Holacracy would be implemented immediately and anyone who couldn’t adapt
should instead take a 3 months’ severance payment to leave the company (Lam, 2016).
This action caused nearly a fifth of the company to quit. It is possible that a different
approach may have led to a higher retention rate, but overall, the decision was effective
in making change happen.

Change Management Tools and How to Incorporate Them

Flowcharting, or process mapping, is an easy way to visualize the change process and
each step involved (Lock, 2019). The diagrams are designed using universal symbols,
such as arrows, rectangles, diamonds, and circles. The arrows show the direction of the
flow in the process, rectangles show an activity without much decision-making, and
diamonds show an activity with significant decision-making. Circles have multiple uses,
but they usually show the start of the process or link to another page of a connecting
flowchart.

Hsieh could have created flowcharts for the employees to better understand exactly
how their tasks and processes would change with Holacracy. For example, in the
traditional hierarchy, employees would have to get approval from higher-ups and stay
within their lanes according to their job descriptions. A Holacracy flowchart might have
made clear exactly how a certain role within a circle would complete tasks, or even how
members for circles are chosen or assigned. Visualization is an important tool when
explaining complex ideas, and flowcharts would have helped to organize and simplify
the complexities of Holacracy.

The buy-in index is a way to measure how the change is affecting people’s attitudes
during each part of the transition (Lock, 2019). It usually consists of a short survey
made up of relevant and simple questions or statements. Participants are asked to rate
on a scale from 1 to 5, strongly disagree to strongly agree. This survey is given out at

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various stages of the transition and compared to each other to measure employee
attitudes.

Conflict resolution addresses the concern for the self in comparison to concern for
others in relation to the change initiative. The leadership should determine if the conflict
is caused by disagreement about goals or alternatives. A conflict over alternatives
means that there is agreement over the goal, but not the method. Communication is key
and the pros and cons of each alternative should be discussed to create a plan that can
be agreed upon. If the conflict is over the goal, or the longer-term objective, then the
leadership must create a strategy to gain commitment for the goal.

It could be assumed that Zappos employed some type of buy-in index and conflict
resolution since its 10 Core Values include open and honest conversation and
relationships with one another. Another hint is that the bulk of the workforce remained at
Zappos and presumably attempted to adopt Holacracy for at least a year and half
before the abrupt full integration that Hsieh enacted. It was probably repeated issues
with conflict and the negative results of buy-in indexes that prompted Hsieh to take the
final leap. While employing a few more or differing change management tools may have
been effective in reaching a larger number of employees, it is impossible to say how
many more. Is it reasonable to say that such a large change is only successful if 95% or
even 90% of employees buy in? The fact of the matter is that Holacracy was fully
integrated, and Zappos remains one of the most successful companies to do so today.

Tony Hsieh’s Leadership Through Organizational Change

The first and most impressive situation where Hsieh demonstrated effective leadership
was when Zappos was about to run out of cash under Swinmurn’s leadership. Anyone
could have simply given the company more funds (if they saw the potential that he did,
at least), but Hsieh went beyond his role as investor when he moved the company into
the Venture Frogs facility and became the co-CEO. He immediately set to work on
creating the best work environment possible by setting the example. He would dress
casually, hug people when greeting them, and host parties and get-togethers with his
fellow Zapponians (Askin & Petriglieri, 2016). He was honest and open with employees
as well as customers.

When the company was again in the face of cash problems, Hsieh cut his own salary
down to a mere $24 per year and provided free living in his personal loft to employees.
This showed the incredible faith he had in both the company and its people. Imagine the
amount of respect and appreciation this created among the employees at Zappos. He
then asked them to create the 10 Core Values and continued to lead the revolution in
customer service. Even people who weren’t the right fit were treated with respect and
were given “The Offer”, which was a $3,000 severance to leave the company if they
chose to.

Hsieh was so dedicated to his people and the culture they created that he traded his
stock in Zappos for Amazon stock, making Amazon the legal owner, when the board

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threatened to fire him to chase profits rather than commit to the culture. Amazon agreed
to keep Hsieh on as the CEO as part of the deal. This was yet another sign of effective
leadership by Hsieh. He showed the people that he truly believed in what they all
worked so hard to create.

Hsieh faced a huge challenge when he attempted to change Zappos’ internal structure
over to Holacracy. Under the consultation of the Holacracy organization and advisement
of John Bunch, Hsieh created a three-year plan to fully implement Holacracy into
Zappos (Thai et al., 2017). As time passed, however, something motivated Hsieh to cut
the 3-year plan in half and fully implement Holacracy. This caused about 14% of his
staff to quit and was widely criticized by the media.

Hsieh might have been a more effective leader if he stuck to the original three-year
transition plan. After all, the 14% who quit were, supposedly, doing their best to adapt to
and adopt Holacracy for a year and a half. Hsieh could have been more patient and
tried harder to understand and alleviate the concerns of the 14%. Another possible
route would have been to give some type of bonus to those who felt disenfranchised by
the loss of their traditional leadership titles. The fact was that 14% of the workforce felt
that Zappos was not living its core values. However, it is impossible to say what
percentage of retention would mean that Hsieh was being an effective leader. Holacracy
is still in use at Zappos today, so maybe his leadership was effective in the end.

The Role of Employees in Organizational Change

Employees play a vital role in organizational change since they are largely responsible
for implementing and sustaining any change that may take place. However, there are
more specific and defined roles that all people within the organization either play by
default or conscious planning. These roles are change practitioners, sponsors, people
managers, project managers, and people (the impacted employees) (Prosci, n.d.).
Sponsors and people managers are considered to be employee-facing roles because
these are the people who are most visible and expected to communicate with and
support the people. Change practitioners and project managers are enabling roles
because those who facilitate change in a behind-the-scenes manner that coordinate the
employee-facing roles during the transition.

Although the roles were slightly modified and more active at Zappos, Tony Hsieh played
a project manager role because he focused more on the development and
implementation as a whole and helped to ensure that change practitioners integrated
the plan. John Bunch was the change practitioner who applied the change management
process by building a team that would go on to train the rest of the Zappos family.
Bunch was empowered to take on this very active role during the change process, and
he, in turn, empowered many others to do the same. Bunch was able to build a team of
sponsors who became his coalition of support that directly communicated with the rest
of the employees about the change.

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Transformational Change

Tony Hsieh and Zappos created transformational change when they cooperated to
integrate the “Weird” culture and the 10 Core Values into the corporate culture.
Internally, this created a work environment that people embraced lovingly. The culture
and Hsieh’s leadership created a culture of honest and open communication as well as
a family-like bond between employees. This is evidenced by the fact that entry level pay
was not considered to be very competitive, yet in 2013, about 25,000 people had
applied to work there (Askin & Petriglieri, 2016).

The culture yielded such a positive impact that it received a wide range of attention from
the media and academia alike. There are many articles written about Zappos’ culture
from well-known outlets such as Entrepreneur.com, The NY Times, and Forbes. A
search on Google Scholar for Zappos shows nearly 10,000 results including studies,
reports, and a multitude of citations. This has made quite an impact externally by
influencing current business practices as well as educated future businesspeople on the
potential of cultural and organizational change.

Hsieh’s Downtown Project was an incredibly ambitious undertaking that sought to

revitalize the downtown Las Vegas area. Hsieh and his partners invested $350 million
into small businesses, startups, education, arts, and real estate (Askin & Petriglieri,
2016). This had a huge external impact on the city of Las Vegas and the lives of
everyone involved. It can be assumed that those within Zappos also felt a connection to
the project, since Zappos was also located in the heart of downtown Las Vegas. It is
probably no coincidence that the Downtown Project and Holacracy integration began in
the same year, when Zappos moved into the old City Hall building in downtown Las
Vegas.

Now called DTP, the project has garnered both praise and criticism. There were three
suicides by DTP entrepreneurs. There were accusations of mismanagement and
profiteering. There was also criticism for DTP’s lack of residential/housing investments.
However, according to a 2017 report, DTP has 407 current or completed construction
projects and has created 1,500 jobs and $210 million in economic output (Schulz &
Shoro, 2020). While not quite what Hsieh had originally envisioned, it can be confidently
said that the impact of DTP on Las Vegas has been positive, overall.

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References

 
Askin, N., & Petriglieri, G. (2016, August 26). Case: Tony Hsieh at Zappos: Structure, culture and radical

change. Harvard Business Publishing. Retrieved from http://hbsp.harvard.edu

Conrad, A. (2017). Crafting your change management plan: A beginner’s guide. Retrieved from

https://blog.capterra.com/crafting-your-change-management-plan-a-beginners-guide/

Core Roles in Change Management. (n.d.). Prosci. Retrieved May 29, 2021, from

https://www.prosci.com/resources/articles/core-roles-in-change-management

Galbraith, M. (2018, October 5). Don’t just tell employees organizational changes are coming: Explain

why. Harvard Business Review Digital Articles, 1–5. Retrieved from https://hbr.org

Kislik, L. (2018, August 9). How to tell your team that organizational change is coming. Harvard Business

Review Digital Articles, 2–4. Retrieved from https://hbr.org

Lam, B. (2016, January 15). What Happened After Zappos Got Rid of Workplace Hierarchy. The Atlantic.

https://www.theatlantic.com/business/archive/2016/01/zappos-holacracy-hierarchy/424173/

Lauby, S. (2018, August 28). 5 situations when your organization may need change management [Blog

post]. Retrieved from https://business.udemy.com/blog/5-situations-when-your-organization-

may-need-change-management/

Lock, D. (2019). Change management tools and techniques: The complete list. Retrieved from

https://daniellock.com/change-management-tools/

Mulholland, B. (2017). How to make a change management strategy (and defuse the growth time

bomb). Retrieved from https://www.process.st/change-management-strategy/

Prosci. (n.d.-b). 7 compelling reasons for deploying change management. Retrieved January 2, 2020,

from https://www.prosci.com/resources/articles/7-reasons-for-change-management-

deployment

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Schulz, B., & Shoro, M. (2020, December 5). No doubt Tony Hsieh impacted Las Vegas. Was his vision a

success? Las Vegas Review-Journal. https://www.reviewjournal.com/business/no-doubt-tony-

hsieh-impacted-las-vegas-was-his-vision-a-success-2199968/

Smith, C. (2018). Challenges faced by leaders during change management. Retrieved from

https://change.walkme.com/organizational-change-management/

Thai, J., Rosenstein, J., Sri, V., Desroches, Z., Gittens-Ottley, S., Rosenstein, J., & Schwartz, C. (2017,

November 3). The story behind Zappos’s shift to Holacracy. Wavelength by Asana.

https://wavelength.asana.com/zappos-self-managed-team/#close

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