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CASE 118
Zappos: Stepping Forward inTaking Steps
toward Maximizing Stakeholder Satisfaction
CASE NOTE FOR INSTRUCTORS
This case discusses the unique management style of Zappos with its focus upon employee happiness as
the key to the firm’s success. According to Tony Hsieh, CEO of Zappos, the company’s emphasis on
employee happiness translates into high quality service for customers. The care that Zappos shows to its
employees, customers, and other stakeholders has earned it praise for its ethics as well as its fun work
environment.
According to Tony Hsieh, the Zappos brand is “a brand about happiness, whether to customers or
employees or even to vendors.” When Hsieh assumed the CEO position of the company in 2000, he was
at first skeptical about selling shoes over the Internet. However, he saw this as a wonderful opportunity to
transform the company into one that emphasizes employee fun, a “zany” corporate culture, and “WOW
through service.” Zappos developed ten core values that it uses to direct all of its activities. In 2010
Zappos was acquired by Amazon for $1.2 billion with the agreement to allow Zappos to continue its
unique corporate culture.
Zappos takes a customer-centric approach to make the shoe shopping experience fun and easy. It
maintains a live inventory web system, a 100 percent% sSatisfaction gGuaranteed rReturn pPolicy, and
instructs its call center employees to maintain non-scripted conversations with employees until customer
issues are addressed fully (some calls have lasted hours). Zappos maintains a relaxing and fun work
environment but is selective in whom it hires. Employees are required to undergo a 5-week training
program, and any who decide Zappos might not be for them are offered $2,000 to walk away. All
employees must spend two weeks manning phones during the training process. Although pay for Zappos’s
call center employees is less than the industry average, employees receive full health insurance, free
lunches, paid volunteer time, and more.
More recently, Zappos adopted a new corporate structure called a Holacracy that eliminated managerial
positions and instituted a number of other changes. Realizing that current employees may not be happy
with such major changes, the company extended “the offer” of paying money if they wanted to walk
away. Although Approximately 184 percent of employees took the deal. On an employee survey,
satisfaction decreased on 48 out of 58 questions. For the first time in eight years, Zappos fell off Fortune
magazine’s list of 100 Best Companies to Work For. Despite these setbacks, , Hsieh is convinced that the
restructuring will help Zappos to continue increasing productivity as it grows larger.
Despite its strong reputation for ethics, this doesn’t mean that Zappos does not face ethical issues. It is
important for students to realize that even the most ethical companies will encounter ethical challenges
and make mistakes. For instance, Zappos was criticized for disconnecting its call center due to fears of a
system overload after hackers had stolen customer data from Zappos’s computer system. Students must
realize that while a firm might experience ethical issues, how it responds to these issues can tarnish or
restore the firm’s reputation as an ethical company.
This case should be a fun one for students. It demonstrates that a company can be successful while also
being fun, ethical, and just a little bit weird.
QUESTIONS AND DISCUSSION
1. Does Zappos effectively focus on stakeholder happiness, and how does this approach affect the
ethical culture?
There is no right or wrong answer, as long as the students defend it. Most students will likely answer
in the affirmative. Zappos’s benefits and emphasis on fun helps contribute to a zany corporate culture
that allows employees to enjoy themselves. However, Zappos also stresses the fact that employees
must fit into the company culture. Tony Hsieh is not interested in hiring hard-working employees who
2. Has Zappos developed long-term relationships with customers and employees that provide a
competitive advantage in the purchase of shoes and other products?
Students’ answers will vary and should be supported by reasoning. Some may say Zappos has
developed long-term relationships with customers with its return policy. Because making purchases
on the Internet is seen as a risk, especially when it comes to purchasing shoes, Zappos eliminates that
risk for the customer by offering free shipping on returns. Real time inventory listings is also an
important factor in building relationships with consumers because there is less chance they will be
Another factor is the company culture. The quirky culture attracts the kind of people that will enjoy
working at Zappos. They find it fun and engaging, which makes them more connected to the
company. The rigorous training employees go through indicates to the new employee that the
3. Has Zappos effectively managed ethical risk, and what are potential ethical risks in the future?
Most students will likely agree that Zappos has managed its ethical risks fairly well. For instance,
when an ethical issue does arise—such as laying off employees, mispricing products on its website, or
merging with Amazon—the company tries to be as transparent as possible with stakeholders. By
allowing stakeholders to realize why Zappos has made a certain decision or that it is working on the
Potential future ethical risks might include more advanced hacking attempts and the possibility that
the company might grow too rapidly. Companies that grow too rapidly tend to lose elements of their
ADDITIONAL RESOURCES
The Zappos’ way of managing:
http://www.inc.com/magazine/20090501/the-zappos-way-of-managing.html
Zappos’ weird company culture:
http://www.cbsnews.com/8301-3445_162-6553702/zappos-tony-hsieh-steps-lively/
Halocracy structure:
http://www.cio.com/article/2956721/staff-management/what-is-holacracy-and-why-does-it-work-
for-zappos.html
Challenges becoming a Holacracy: http://fortune.com/zappos-tony-hsieh-holacracy/
