Both companies are online retailers who ship a variety of goods to customers across America. Both are successful and known for their customer service. We have noted that Amazon gets it done with a tight structure that relies on sophisticated technology, precise measurement, close supervision, and zealous focus on customers, often to the exclusion of employees’ satisfaction and welfare.
Contrast this with the Zappos structure, erected on a “culture of happiness” rather than a “culture of metrics.” Tony Hsieh, Zappos CEO, is just as focused on the customer as Amazon CEO Jeff Bezos, but he has chosen a very different structure to get there. Structurally, Amazon and Zappos are mirror images of one another. Amazon steers customers toward interaction with its website rather than its employees. Zappos wants highly motivated, happy employees, immersed in an environment of “weirdness and fun,” who will create a personal, emotional contact with customers.
Zappos ful!llment operations take place in two large warehouses in Kentucky where goods are received and merchandise is shelved, picked, packed, and shipped. Work is fast paced, intense, and often strenuous. Amazon workers have been known to say they are “treated like a piece of crap” (Soper, 2011, p. 1), but Zappos makes working conditions a primary concern. The warehouses are air-conditioned, and lunch breaks are embellished with free food, video games, and karaoke—the equivalent of adding several dollars to the hourly rate. One employee summed it up: “It’s a hot boring job, and we may not get paid top dollar, but with our bene!ts and free food, it really makes a difference.”
In 2013, Hsieh concluded that Zappos was developing too much bureaucracy and proposed a “holocratic” form that eliminated jobs and the organization chart. Managers were replaced by “lead links” of self-managing teams, and individuals were charged to use the “Role Marketplace” (Bernstein et al., 2016, p. 10) to look for work that interested them and needed to be done. The new system turned off some employees, and Zappos lost almost a !fth of its workforce. The transition to holocracy required major investments of time and energy as everyone struggled to !gure out how the new system was supposed to work. Things got worse before they got better, as is typical of structural change. But, working
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within the holocracy framework in 2015, Zappos achieved a 75 percent year-over-year increase in pro!ts (Bernstein et al., 2016). The long-term impact on Zappos’ free-wheeling culture remains to be seen, but, despite a rocky start, there are signs that this experiment may not be as crazy as it seems.
Zappos and Amazon achieve customer satisfaction through entirely different structural arrangements. What makes the story even more interesting is that Amazon paid over $1 billion to buy Zappos in November 2009. More than a year later, Zappos CEO Tony Hsieh sent a memo to employees saying the culture was still intact, Zappos was still in charge of its own destiny, and business was better than ever (Zappos Blogs, 2011). That was still true !ve years later in 2016.
Structural Imperatives Why doMcDonald’s and Harvard or Zappos and Amazon have such different structures? Is one more effective than the other? Or has each evolved to !t its unique circumstances? In fact, there is no such thing as an ideal structure. Every organization needs to respond to a universal set of internal and external parameters (outlined in Exhibit 3.2). These parameters, or contingencies, include the organization’s size, age, core process, environment, strategy and goals, information technology, and workforce characteristics. All these combine to point toward an optimal social architecture.
Exhibit 3.2. Structural Imperatives.
Dimension Structural Implications
Size and age Complexity and formality typically increase with size and age.
Core process Structure must align with core processes or technologies.
Environment Stable environment rewards simpler structure; uncertain, turbulent environment requires a more complex, !exible structure.
Strategy and goals Variation in clarity, suitability, and consistency of strategy requires appropriate structural adaptations.
Information Information technology permits !atter, more !exible, and more technology decentralized structures.
Nature of the More educated and professional workers need and want greater workforce autonomy and discretion.
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imperative adj . ) necessary
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Size and Age Size and age affect structural shape and character. Problems crop up if growth (or downsizing) occurs without !ne-tuning roles and relationships. A small, entrepreneurial organization typically has simple, informal architecture. Growth spawns formality and complexity (Greiner, 1972; Quinn and Cameron, 1983). If carried too far, this leads to the suffocating bureaucratic rigidity often seen in large, mature enterprises.
In the beginning, McDonald’s was not the tightly controlled company it is today. It began as a single hamburger stand in San Bernardino, California, owned and managed by the McDonald brothers. They virtually invented the concept of fast food, and their stand was phenomenally successful. The two tried to expand by selling franchise rights, with little success. They were making more than enough money, disliked travel, and had no heirs. If they were richer, said one brother, “we’d be leaving it to a church or something, and we didn’t go to church” (Love, 1986, p. 23).
The concept took off when Ray Kroc arrived on the scene. He had achieved modest success selling milk shake machines to restaurants. When many of his customers began to ask for the McDonald’s milk shake mixer, he decided to visit the brothers. Seeing the original stand, Kroc realized the potential: “Unlike the homebound McDonalds, Kroc had traveled extensively, and he could envision hundreds of large and small markets where a McDonald’s could be located. He understood the existing food services businesses, and understood how a McDonald’s unit could be a formidable competitor” (Love, 1986, pp. 39–40). Kroc persuaded the McDonald brothers to let him take over the franchising effort. The rest is history (or Hollywood, which tells its version of this story in the 2016 !lm, The Founder).
Core Process Structure forms around an organization’s basic method of transforming raw materials into !nished products. Every organization has at least one core technology that includes raw materials, activities that turn inputs into outputs, and underlying beliefs about the links among inputs, activities, and outcomes (Dornbusch and Scott, 1975).
Core technologies vary in clarity, predictability, and effectiveness. Assembling a Big Mac is relatively routine and programmable. The task is clear, most potential problems are known in advance, and the probability of success is high. Its relatively simple core technology allows McDonald’s to rely mostly on vertical coordination.
In contrast, Harvard’s two core processes—research and teaching—are far more complex and less predictable. Teaching objectives are knotty and amorphous. Unlike hamburger buns, students are active agents. Which teaching strategies best yield desired
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results is more a matter of faith than of fact. Even if students could be molded predictably, mystery surrounds the knowledge and skills they will need to succeed in life. This uncertain technology, greatly dependent on the skills and knowledge of highly educated professionals, is a key source of Harvard’s loosely coordinated structure.
Core technologies often evolve, and signi!cant technical innovation calls for corre- sponding structural alterations (Barley, 1990). In recent decades, struggles to integrate new technologies have become a fateful reality for many !rms (Henderson and Clark, 1990; Christensen, 1997). Existing arrangements often get in the way. Companies are tempted to shoehorn innovative technologies into a box that !ts their existing operations. As we saw with the decline and fall of Kodak, a change from !lm to digital photography, slide rules to calculators, or “snail mail” to e-mail gives an advantage to new players less committed to the old ways. In his study of the disk drive industry from 1975 to 1994, Christensen (1997) found that innovation in established !rms was often blocked less by technical challenges than by marketers who argued, “Our customers don’t want it.” By the time the customers did want it, someone else had grabbed the market.
Some organizations are more susceptible than others to outside in”uences. Public schools, for example, are highly vulnerable to external pressures because they have limited capacity to claim the resources they need or to shape the results they are supposed to produce. In contrast, an institution like Harvard is insulated from such intrusions by its size, elite status, and large endowment. It can afford to offer low teaching loads, generous salaries, and substantial autonomy to its faculty. A Harvard diploma is taken as suf!cient evidence that instruction is having its desired effect.
Strategy and Goals Strategic decisions are future oriented, concerned with long-term direction (Chandler, 1962; Mintzberg, 1994; Roberts, 2004). Across sectors, a major task of organizational leadership is “the determination of long-range goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals” (Chandler, p. 13).
A variety of goals are embedded in strategy. In business !rms, goals such as pro!tability, growth, and market share are relatively speci!c and easy to measure. Goals of educational or human services organizations are typically more diffuse: “producing educated men and women” or “improving individual well-being.” This is another reason Harvard adopts a more decentralized, loosely integrated system of roles and relationships.
Historically, McDonald’s had fewer, more quanti!able, and less controversial goals than those of Harvard. This aligned well with the centralized, top-down McDonald’s structure.
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