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Zappos has now lost 18% of its employees to its radical buyout offer

Las Vegas, Nevada

Last spring, online retailer Zappos gave its employees an ultimatum: adopt the company’s strategy for self-organization, or leave. Approximately 14% of the company’s 1,500 employees accepted a buyout offer, which included several months’ severance. A small subset of the company was given an extension until the end of the year to make a decision because of their involvement in Super Cloud, a years-long migration to parent company Amazon’s technical infrastructure.

With that deadline now past, the company announced last week that about 50 employees, or 38% of the Super Cloud group, accepted the buyout (that number doesn’t include the 17 members of the Super Cloud team that accepted the original offer). This raises the percentage of voluntary departures in connection with what the company has coined “the Teal offer” to 18%. (“Teal” refers to an ideal state of self-organization outlined in management thinker Frederic Laloux’s 2014 book Reinventing Organizations.)

Zappos COO Arun Rajan conceptualized Super Cloud back in 2012, when he was CTO. “About 80% of engineers were spending time keeping the lights on,” he tells Quartz (Rajan briefly left the company in 2013 and returned as COO in 2014). He proposed using Amazon’s technical infrastructure for backend functions like the site’s checkout service and email, so that the company could focus on innovating and improving other technical offerings like mobile and data-driven services. For example, Zappos is developing ways to sell products to customers using geolocation and weather (suggesting rain boots when it’s raining in an area). The company is also developing more sophisticated algorithms like Zappos Zero, which suggests clothes and other offerings to pair with a customer’s choice of shoes.

Zappos, which was bought by Amazon in 2009, has differentiated itself on customer service and company culture. But as that approach has become more mainstream, the company has been faced with the challenge of how to develop a competitive advantage. CEO Tony Hsieh has often said the company plans to move into other areas of customer service, long hinting at a Zappos airline, but it has yet to move beyond shoes and retail.

Rajan tells Quartz that about 75-80% of the Super Cloud offer-takers are managers. “The legacy managers who remain in play are the most technical,” he says. As the company moves toward a system without traditional managers, this group of employees no longer filled crucial roles within the company, especially now that the Super Cloud project is expected to be completed this quarter. Rajan tells Quartz that if there weren’t any offer takers, the company would likely have had to lay off some of the managers.

Rajan’s email to employees on Friday is posted below:

Super Cloud Teal Offer – Update

Date : 01/08/16
There have been a lot of questions about the Super Cloud Teal offer – specifically around how many people took the offer and how we’re going to handle the loss of employees in tech. Quick updates in this context –

  1. ~50 employees took the Super Cloud teal offer – this is inline with expectations and represents 38% of those who were given the super cloud teal offer, and 3.5% of the total number of employees we had in Q1 2015, which brings the total number of people taking the original teal offer or super cloud teal offer to 260, representing a total of 18% of the company taking the offer and leaving over the 12-month period since Tony’s email in March of 2015
  2. While we have lost a number of folks, it is important to note that we have a significant group of highly talented individuals who will be staying to help move Zappos forward. Additionally, we’ve had the opportunity between April and now to knowledge transfer from those leaving to help mitigate Super Cloud risk.

We had hoped to complete Super Cloud in 2015 with the help of the Super Cloud Teal Offer – however, we couldn’t get there prior to peak so will complete the project in Q1 16. Having the full team with us in 2015 has positioned us well for the Super Cloud launch in 2016 – we appreciate everyone’s efforts to prepare us for the launch and hope to have Super Cloud behind us by the end of Q1 2016.

Please let me or the CTO circle know if you have any questions about the above.

thanks
Arun

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