Clarity: Know Where You’re Going
Zappos will take an order as late as midnight and deliver it to the customer’s doorstep before breakfast. It has the world’s largest selection of shoes, and its service includes free returns. If it doesn’t have the shoe you want in stock or in your size, a Zappos call center employee will go to three competitors’ sites to try to help you locate what you want to buy. Seventy-ï¬ve percent of its business comes from repeat customers, despite the fact that its prices are far from the lowest. (Price is an area where Zappos has made a conscious trade-off in its service model in order to deliver exceptional service.)
It’s not surprising, then, that managers from other companies—including many from service and quality leaders like Southwest and Toyota—make regular pilgrimages to Zappos facilities to learn how the company pulls it off. Everyone wants to know what the heck is going on. A quick look around reveals that part of its success is the company’s IT strategy, including a real-time inventory management system that is 99 percent accurate, compared with accuracy rates as low as 40 percent in other areas of retail. But what gets visitors every time are the clues to Zappos’s true competitive advantage: its culture. And no one inside the company is surprised.
The most visible champion of Zappos’s culture, naturally enough, is president and CEO Tony Hsieh (pronounced “Shay”). Hsieh is crystal clear on the culture he needs to make the company thrive, and he and his team have broken it down into ten core company values:
1. Deliver wow through service.
2. Embrace and drive change.
3. Create fun and a little weirdness.
4. Be adventurous, creative, and open-minded.
5. Pursue growth and learning.
6. Build open and honest relationships with communication.
7. Build a positive team and family spirit.
8. Do more with less.
9. Be passionate and determined.
10. Be humble.
Hsieh embodies these values. He is passionate, positive, fun, humble. And a little weird. As the fearless leader of a high-proï¬le shoe company, Hsieh unapologetically wore the same pair of shoes every single day for two years. He then replaced them with the exact same pair. Hsieh’s deï¬nition of weird, however, is closer to authentic or real. He’s betting that the “real you” will be more valuable to Zappos than the safe, watered-down version that usually shows up in a work environment. So go ahead, be a little weird.
Early in his career, Hsieh had a breakthrough about how much culture mattered to the performance and motivation of employees. He sold a software company he had founded when he realized that even he no longer wanted to come to work, primarily because of the culture. Now Hsieh does many things you’d expect from an enlightened CEO, like taking calls at the call center on holidays to give his employees a break and staying in direct touch with his customers.
But what really sets Hsieh and his team apart is their deep awareness that culture is the company’s most important asset. “Service is a by-product of culture,” says former chief ï¬nancial ofï¬cer Alfred Lin, as are things like supplier behavior and employee turnover. In 2005, when the company’s call center moved from the Bay Area to Las Vegas, an astonishing 80 percent of its California employees relocated—for a $13-an-hour job. In 2008, a year in which the average turnover at call centers was 150 percent, turnover at Zappos was 39 percent (including turnover owing to promotions). Managers attribute the loyalty to a culture that cultivates the passion, purpose, and humanity of its employees.
But it’s not just management that gets it. The conviction that culture is key is embraced throughout the ranks at Zappos. It’s so central to the company’s belief system, in fact, that the company publishes the Zappos Culture Book, which is updated regularly and contains hundreds of unscripted comments and essays written by Zappos employees and vendors about the company’s culture, why it matters, and how it affects what they do every day. It was conceived as a training tool for new hires and partners, but consumption of the book has gone way beyond that internal circle. Ringing in at 348 pages in the 2009 edition, it’s a moving and persuasive testament to the power of employee engagement (“happiness” in Zappos-speak), and the role of culture in eliciting it. We recommend buying it and just paging through.
Here’s a taste, from Abbie “Abster” M., an employee who had been working at the company for three-plus years:
The Zappos culture to me is unlike anything I’ve ever experienced before. It’s always fun and weird, we’re all creative and open-minded, passionate and determined, but most of all, we’re humble. I think it’s because most of us have worked in horrible dead-end jobs before and can cherish our Zappos culture for what it is. It’s what makes me want to come to work every day, even my weekends.
. . . I hear so many horror stories from friends about the places they work and it only makes me feel that much more fortunate to be a part of the Zappos family. I can’t imagine my life without Zappos, and the amazing people that I work with.
The quote that moved us most was from Ryan A.: “At my last job I was afraid to be anything: right, wrong, smarter, dumber . . . At Zappos being yourself is the best thing you can do.” Perhaps the cultural feature we observe most often is unproductive fear, fear of looking bad or doing something wrong. If organizations did nothing else but address that part of their environment, we’re conï¬ dent that the creativity and engagement of their people would have a real chance of being unleashed. Human beings are not at their best in a defensive, self-distracted crouch.
Hsieh named his book on building Zappos Delivering Happiness, but he and his team didn’t just deliver happiness for its own sake. Like IDEO’s relationship with creativity, Zappos understood that the happiness of its employees, partners, and customers was a deadly serious endeavor, the most reliable route to sustaining excellence in the industry in which Zappos chose to compete. Everyone inside Zappos, from the CEO to the front line, understood the link between its culture of happiness and the company’s daily performance. What’s the cultural analog in your own business? What’s your version of happy?
Reprinted by permission of Harvard Business Review Press. Excerpted from Uncommon Service: Hot to Win by Putting Customers at the core of Your Business. Copyright 2012 Frances Frei and Anne Morris. All right reserved.
Case | HBS Case Collection | October 2009 (Revised June 2011)
Zappos.com 2009: Clothing, Customer Service, and Company Culture
by Frances X. Frei, Robin J. Ely and Laura Winig
On July 17, 2009, Zappos.com, a privately held online retailer of shoes, clothing, and other soft line retail categories, learned that Amazon.com, a $19 billion multinational online retailer, had won its board of directors' approval to offer to merge the two companies. Amazon had been courting Zappos since 2005, hoping a merger would enable Amazon to expand and strengthen its market share in soft line retail categories. While Amazon's interest intrigued Zappos' senior executives, they had not felt the time was right, until now. Amazon's offer—10 million shares of stock (valued at $807 million), $40 million in cash and restricted stock units for Zappos' employees, and a promise that Zappos could operate as an independent subsidiary—was on the table. Zappos' financial advisor, Morgan Stanley, estimated the future equity value of an IPO to be between $650 million and $905 million; this estimate skewed the Amazon offer—at least in financial terms—toward the high end of Zappos' estimated market value. Hsieh and Lin, Zappos' CEO and COO respectively, knew that much of Zappos' growth, and hence its value, had been due to the company's strong culture and obsessive emphasis on customer service. In 2009, they were focusing on the three C's—clothing, customer service, and company culture—the keys to the company's continued growth. Hsieh and Lin had only a few days to consider whether to recommend the merger to Zappos' board at their July 21st meeting.
Keywords: Mergers and Acquisitions; Customer Focus and Relationships; Decision Choices and Conditions; Governing and Advisory Boards; Service Delivery; Organizational Culture; Online Technology; Valuation; Apparel and Accessories Industry; Retail Industry;