Zappos Is Different (Case Studies of Great Companies)

by John Gifford - May 7th, 2014

I. Overview

Tony Hsieh wants to want to come to work

In 1998 Tony Hsieh was unhappy at the dot-com company he founded (LinkExchange), so he sold it to Microsoft for $265 million. But Tony was not ready to retire–he wanted to run a company where he would be happy to come to work.

That place was and is Zappos, known for selling shoes online (they sell clothing and other things, too) and their outrageously good customer service.

How did this successful combination of Hsieh and Zappos come about?

1) As if he were a venture capital god creating a myriad of worlds, Hsieh funded some 20-odd companies and tracked their evolution to find the one that was having the most fun (Zappos)
2) Hsieh proceeded to get Zappos company founder Nick Swinmurn (he couldn’t find the shoes he wanted, so he founded Zappos) to hire him as his CEO.
3) As CEO, Hsieh had this company of happy employees set down on paper the culture of the company by sharing what it meant to work at Zappos
4) Hsieh then took this information shared by the employees and articulated a written set of core values
5) Having laid out this set of core values Hsieh made certain that decision-making at Zappos was consciously driven by them: hiring, customer service ethic, way to treat employees, compensation and promotions, openness to new ideas, etc. are informed by the culture encapsulated in these principles

Hsieh’s targeting Zappos as the place he wanted to work and his enhancement of a company culture that was already successful has paid off for the company, its customers, and its employees. Consistent growth by Zappos led to $1 billion in annual sales in 2008, beating their internal goal to $1 billion by two years. Customers are cult-like in their following of Zappos and it is borne out by Zappos being in the top 10 for Customer’s Choice Awards in 2010 and winning the 2011 Stevie award for Sales & Customer Service. Another internal goal that they reached was making Fortune’s list of the Top 100 Companies to Work For in 2009 (#23) and the February 7th Issue of this year listed Zappo’s up to number 6 on that measure of employee satisfaction. Even though Zappos was sold to in 2009, Hsieh is still the CEO and “Zappos” lives on as a semi-autonomous entity within Amazon, with its culture and systems virtually intact.

And as testimony to its ability to go its own way, Zappos is in the process (it began in part in 2013, and is continuing as of May 2014) of implementing a hierarchy-averse culture in name as well as in practice. This business model is known as holacracry, whose concept is to “replace the traditional corporate chain of command with a series of overlapping, self-governing ‘circles.’ In theory, this gives employees more of a voice in the way the company is run.” Time will tell if Hsieh’s bet on this counter-mainstream paradigm pays off.

Zappos is Different

Zappos differentiates itself from other online retail establishments by its focus on customer service and making it easy for a customer to buy and to like the company:

1. There is a 365-day return policy
2. A phone number where the customer can contact a live representative of the company appears on each page of the web site (in contrast to other web-based companies who are unable to be reached by phone); Zappos’ philosophy is that the phone is an excellent means to build rapport and develop life-long customers
3. Only items that are actually available are listed for sale on the site
4. Surprise upgrades to overnight delivery and other wow experiences encourage customers to tell their friends about the super customer service
5. If Zappos is out of an item, they will even help the customer to find the item on another website (as their aim is lifetime loyalty, not just a quick sale)
6. The emphasis is on the customer and meeting their needs, as demonstrated by Zappos’ policy of not measuring the duration of calls of employees as a criterion for success

Fueling the excellence of customer service delivery is the culture of the company employees, which is reinforced by Hsieh and other Zappos management:

1. Every employee goes through call-center experience, underlining the importance of the front-line employees
2. There are no scripts for the call center personnel; they are to use their unique personality to connect with the customers
3. Spontaneous parades and celebrations may break out (and are encouraged) at any time among the employees
4. In order to foster transparency of the company, tours are conducted regularly throughout the whole of the company
5. After training, an employee is given the opportunity to quit for $2,000, thus weeding out those employees just there for the money–overall it saves time and money spent on such employees
6. Each year the company publishes its massive “Culture Book” which is composed of statements from the employees describing their view of Zappos company culture
7. Potential employees go through two interview processes, one for professional skills and the other for their personality. The hiring process seeks to hire those individuals that have an affinity to the existing culture
8. Numerous perks are available for Zappos employees — free lunches, no-charge vending machine, company library, a nap room, and free health care.

In the Focal Strategy section will be a discussion of what underlies the ability of Zappos staff to provide such consistent, exemplary service.

2. Focal Strategy: Identify Your Core Values and Promote a Happiness Culture

Tony Hsieh believes that a company culture drives the success of a company. If you get the culture right, customer service and the success of the company will follow.

Although initially, much of the culture had been developed spontaneously and organically, Hsieh consciously examined the company culture through the help of his employees and articulated it for himself and the employees to understand and enhance. The yearly book that lets each employee speak to what Zappos means to them is an ongoing legacy of that wish to allow employees to express their viewpoint with respect to the company. Hsieh believes that if you develop the right company culture, customer service excellence will follow. The 10 core principles that he articulated inform key decisions that are made in the company: the individuals hired, the type of treatment that customers and employees receive, products and services provided, means of marketing the brand, choice of suppliers and distributors, and the way systems are developed and executed.

10 Core Principles:

1. Deliver WOW through service – something extra for customers, something unexpected

2. Embrace and drive change – encourage new ideas, especially from the grass roots up

3. Create fun and a little weirdness – fun, novelty, allowing the inner-child to emerge

4. Be adventurous, creative and open-minded – allow risk-taking, don’t be afraid of making mistakes

5. Pursue growth and learning – increase knowledge and skill set

6. Build open and honest relationships with communication – be open with other employees, even with suppliers (they have access to an extranet revealing the same inventory and sales data that Zappos executives see)

7. Build a positive team and family spirit – other employees seen as extended family

8. Do more with less – efficiency and inexpensive fun

9. Be passionate and determined – allow employees to bring in outside interests and get Zappos involved with them (marathon, Habitat for Humanity, etc.)

10. Be humble – Zappos still has a lot to learn, employees should not be cocky about customer service awards but should get even better at service delivery

Framework for a Happiness Culture

In researching company culture, Tony Hsieh identified four things that can enhance an employee’s happiness:

1. Perceived control
2. Perceived progress
3. Connectedness (the number and depth of your relationships at work)
4. Being part of something that is bigger than yourself and that has meaning for you

Hsieh explains that the employee’s perception that he is in control of his success at work is important in adding to his happiness. Zappos has engineered its pay increments to coincide with the number of skills mastered by the employee. Small changes in the way employees progress through stages of advancement also make a difference. In the marketing department, instead of having two stages, Marketing Assistant (MA) and Assistant Buyer (AB), each of which took 18 months to complete, the progression was broken down into 6 segments (MA1, MA2, MA3, AB1, AB2, and AB3), each of which took 6 months each. Employees much preferred the new system because they perceived progress more easilty.

The team-building and family atmosphere encouraged by Zappos enhances the employees’ connectedness and results in happier employees because they are working in an environment among friends. Zappos’ emphasis on being the best at providing customer service provides a larger purpose that employees can connect with and as a result add to the happiness of the culture. The four components of the framework for happiness combined with the 10 core values is an intentional strategy by Hsieh to create a company culture that sees excellent customer service as the larger goal they are serving.

3. Action Plan for Your Business

The 10 Core Principles and the four components of a framework for happiness make a good checklist to use for possible improvements of your own business’ culture and its system for enhancing employee happiness.

Principles for your culture

Let’s take the example of a web-focused company (WebABC) that designs websites, hosts websites, enhances websites, and provides marketing and sales integration tools for websites. Taking its cue from Zappos it can go through Zappos’ 10 Core Principles and get suggestions on ways it can improve its company culture.

The number 1 principle for Zappos–providing exemplary service–is an obvious choice. The webcentric company can provide WOW experiences for its customers as they aim for life-long customers, rather than just short-term sales.

As Zappos sends flowers unannounced or bumps up shoe delivery to overnight instead of 4-days, the web hosting company can have one of its service persons send a customer the freeware share code that can be added to a person’s website relatively easily and allow visitors to their site to share articles they like and want to pass on. Another WOW can be an extra 2 gigabyte storage for a customer’s site, and while we’re at it, let’s throw in an additional 10 free email addresses. The goal is life-long customers, and the high profit comes not from hosting but from website enhancement and marketing and sales integration tools which the customer will be more likely to choose from a provider who gives him WOW service already.

The web hosting company can embrace change and encourage new ideas by having a monthly meeting available for its customers and guests that describes new technology and makes it understandable.

WebABC’s employees can be rewarded for their increased knowledge by receiving pay increments for credentialing in key web-based skills.

Building a positive team atmosphere and the feeling of extended family can be promoted by after-hours social get-togethers, as well as volunteering as a team to help a local non-profit organization.

Outside interests by employees can be connected to the workplace by sponsorship of events (Dodgeball tourneys), showcasing hobbies (art of employees and families of employees can be displayed at special times and places), and letting employees share ideas with other employees at meeting times.

The humble attitude espoused by Zappos would work wonders for customer service for web-focused companies, whose employees sometimes exhibit a patronizing and condescending attitude toward mere non-technical mortals.

Employees’ happiness

WebABC can use Zappos’ four components of a framework for happiness to improve employee perception of the work environment. They can encourage initiative within the company for employees who present a plan for a new technique or technology with an associated revenue stream. For example at WebABC, an employee who becomes proficient in the area of QR (Quick Response) Code and details a method of making money for the compnay can be rewarded by getting a certain commission (in addition to his regular pay) for this new business he is able to deliver for the company.

As mentioned before, facilitating positive connections among employees can pay off with greater cooperation and communication. For WebABC, embracing the concept that their mission is to allow their customers to tell their story in the best way that technology can offer can make their work at WebABC more than just a day-to-day exercise in picking up a pay check.

For your company, a similar use of Zappos 10 Core Values and four components of a framework for happiness as templates for improving your company’s service culture can be invaluable.

4. References

Video: Tony Hsieh at 2010 Tony Robbins Conference

Grasping Zappos’ culture key to shop’s win. By: Parekh, Rupal, Zmuda, Natalie, Advertising Age, 00018899, 9/28/2009, Vol. 80, Issue 32

Zappos Delivers Service … With Shoes on the Side: Apparel Magazine; Jan2009, Vol. 50 Issue 5, p10-13

John Gifford
(317) 407-3382

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