At the turn of the millennium, Zappos, a Las Vegas–based Internet retailer, was a start-up struggling to survive. The company wanted to be the online destination for buying shoes, but customers hesitated to pick out shoes online.

The company hired a 27-year-old business consultant named Tony Hsieh to figure out what would save Zappos.

Hsieh, a first-generation Taiwanese American with a degree in computer science, already had a couple of successful business start-ups under his belt. Undeterred by Zappos’s weak performance, he set an ambitious goal: Zappos would become the largest shoe retailer on the Internet.

How? Not by focusing on mainly price or even selection, but by enhancing a company culture designed to make employees happy. Happy employees, Hsieh believed, would deliver superior service. And when customers take a chance on picking out shoes from a website, they want to trust that the seller will ensure they are satisfied with everything about the purchase, from shoe style and fit to fast delivery and an easy returns policy.

The approach quickly began to stimulate sales, and just a year after he started advising Zappos, Hsieh was named chief executive. He worked for the startlingly small annual salary of \($36\),000. That arrangement didn’t bother Hsieh because he was more motivated by creating a great organization than by earning money. After all, his previous business, LinkExchange, brought him \($265\) million when he sold it to Microsoft.

Hsieh built the Zappos culture on 10 core values:

1. Deliver WOW (an emotional impact and powerful story to tell) 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. (“Family” refers to Zappos co-workers.)

8. Do more with less.

9. Be passionate and determined.

10. Be humble.

These somewhat unconventional values are essential hiring criteria, and the company’s career website directs potential applicants to read the values—which are described in whimsical terms—and apply for a job only if they want to be part of this “best thing about the Zappos family.” In fact, at the end of the orientation process, employees are offered \($3\),000 to quit if they feel they aren’t a good fit with the company values, and displaying a lack of the values is grounds for being discharged. According to Hsieh, hiring people who share the core values makes it easy to form real friendships, and those relationships, in turn, create an environment in which people think creatively.

The Zappos human resource department, under the leadership of Hollie Delaney, a Salt Lake City native, ensures that job candidates start to experience and participate in this unconventional, fun culture during the application and selection process. An online application invites them to submit video cover letters with their applications, and interviews are conducted in a room that looks like the set of a TV talk show, where candidates might answer a question such as “What’s your theme song?” Employees evaluating candidates consider not only work history, but also the way candidates interact during lunch. They even take into account the observations of the shuttle drivers who take visiting job candidates back to their hotel. Once on board, employees might discover that fun and a little weirdness at the company includes an opportunity to dye a manager’s hair blue or shave his or her head at the annual Bald & Blue Day. And the commitment to wowing customers spills over into work relationships: Given a chance to reward colleagues’ good behavior with a \($50\) monthly bonus, many employees held off, waiting to see exceptional behavior.

Recently, performance appraisals also were brought into line with the focus on values. Employees are rated not just on task accomplishment, but also on how well they represent the core values. Managers are expected to describe specific instances of employees demonstrating the values at work, and employees who score low on a measure have the chance to receive training in that value. Outside the formal appraisal process, employees also continue to receive regular feedback on task-related measures such as percentage of hours spent talking to customers.

Delaney acknowledges that the company’s values result in a work environment that is loud, hardworking, and full of change—conditions that aren’t for everyone. Pay also isn’t necessarily high, especially for call center workers. But for those who share the values, this kind of workplace is exhilarating.

There also are plenty of rewards and perks, including profit sharing, a nap room, and access to a life coach who counsels employees as they sit on a velvet throne. With this approach to human resource management, Hsieh helped Zappos grow into a billion-dollar company, which was eventually acquired by Amazon for \($1.2\) billion.

Hsieh negotiated a deal in which Amazon promised to let Zappos continue operating independently, in accordance with its distinctive culture.

Unfortunately, although the 2008 financial crisis didn’t keep sales at Zappos from rising, the ongoing economic slowdown eventually hurt, and Zappos laid off some of its workers, letting them down as gently as it could with generous severance packages. Even so, Zappos, unlike many businesses, hasn’t outsourced its call center, located in Kentucky, because those employees need to be part of the company culture. After all, they are the ones who talk directly with customers, and they’re trained to wow customers— for example, encouraging them to try multiple sizes because shipping is free in both directions.

Tony Hsieh stepped down in August 2020 and Zappos COO Kedar Deshpande (age 42) succeeded him. Hsieh planned to support entrepreneurs who provide social good, but died tragically in November 2020, stunning the company, its people, and the business world.

What’s next for this innovative e-retailer? Some likely strategic and operational changes, but Deshpande added that employees will continue to embody the values that Tony Hsieh championed. As one example, during the December 2020 holidays one employee mentioned children who missed seeing Santa Claus during the pandemic.

This led to a multidepartment effort to offer Santa Zoom meetings for children around the country. As Deshpande put it, “Tony’s legacy is around delivering this happiness to everybody. . . . This culture he has created or pioneered, it’s going to be alive.”

DISCUSSION QUESTIONS 

1. Evaluate and discuss Zappos as a responsive organization.

What changes have occurred, and how do you assess its responsiveness currently?

2. How does human resource management reinforce Zappos’s core values?

3. How well do you think Zappos’s human resource strategy supports the valuing of employee diversity? What diversity issues does Zappos need to address?