Technology and Organizations

Today was my Zappos Tour.  The Zappos Family seems to be doing everything they can think of to share how they WOW! their customers and employees. They better share since we can’t all go work for them (tidbit from the tour: a lower percentage of applicants get jobs at Zappos than apply and get into Harvard). What’s the secret sauce?  The Zappos Family core values. My translation: Transparency and the drive to do better.

Their transparency takes a variety of forms. I’ve talked about how Zappos live streamed their last all hands’ meeting to the world [9/26/2010 update: Streaming from 1-5pm pacific, click here to sign up for access]. They have an entire piece of the organization, Zappos Insights, focused on sharing via tours, answering questions on-line, and management education. The Delivering Happiness 20 city bus tour is about to begin… and they’re accepting applications for one more person!

Why share your secret sauce?  From Zappos Insights:

It all started when Tony [Hsieh, the CEO] decided to be completely open and transparent about how the Zappos Family does business. So many businesses not only wanted to learn the “what,” they wanted to learn “how” we do what we do. Zappos Insights (ZI) was assembled as our crack commando force team to give you all the tools you need to develop the culture you desire.

Zappos has been being transparent since the beginning.  In Delivering Happiness (Tony Hsieh’s new book), Fred Mossler (part of the founding team) describes how they decided that they should let the vendors have the same information the Zappos buyers had:

I’ll never forget the afternoon I turned my chair around and asked Tony what he thought about giving vendors access to the same information as our buyers.  Traditionally in retail, information is hoarded, kept secret, and used as leverage against the vendors to get more out of them…. But if we created true transparency in our business, not only would they help us, they’d benefit as well.

Not too long after I proposed the idea to Tony, he spun back around and said “Were you thinking about something like this?” He created the beginning of what we now refer to as “the extranet”…. vendors have complete visibility into the business (p. 187).

The reasoning in the book is that the average buyer at Zappos is working with 50 brands, but by being transparent to those brands’ representatives, there are 50 other people helping to run the business.

Ok, that makes business sense.  But what about the value of being transparent with the rest of their secret sauce?  My thinking:

• It’s a good deed and completely in-line with their values.
• It gives Zappos employees the opportunity to share their commitment to the core values with the world — deepening their own commitment.
• Sharing is more than a one-way street.  By sharing Zappos is opening up the possibility that their partners will also share back — and they have extended the definition of partner to include us all.  Think of all the new ideas that can come their way.
• The more we trust each other, the easier it is for all of us to work together.  Trust is a relationship built on being vulnerable. The more often you trust someone and they come through, the more trust you have in that relationship. Zappos is taking the first step in building trusting relationships with all of us.

What can we do in return?

We can’t all go work for them (see note above, though I do hope one of my graduating students will get the chance).  We can do our best to deliver some of our own happiness and build transparency in a way that will make it better for our employees and business partners.  In November I said that transparency was the concept of the quarter.  I’ll go out on a limb and say that transparency is the concept of the decade.

Have you provided transparency to your employees or business partners?  Care to be transparent with the results?  Click on the respond link below and let’s start a conversation.

Many thanks to all the Zappos Family members I met today and have had the chance to talk with over the last few months.  Jon & Robert, special thanks to you for the tour, and Marie for setting it up.

Some of my prior Zappos posts:

• Wow! from the Zappos Fulfillment Center
• Helping Others Develop Systems Savvy: Learning from Zappos, Leadership, and Design
• Delivering Happiness: The Movement
• Tony Hsieh’s New Book: Delivering Happiness
• Zappos Has Insights and I’m in Awe

Yes, the fulfillment center.  You don’t think the Zappos family hits its Wow! service standard by drop shipping do you?  (Drop shipping is where orders start with the retailer, but then are sent to the shoe company, that then sends the order to the customer.)  Zappos did start out that way, but drop shipping didn’t give them the kind of control they needed to provide their extreme form of customer service.  Though the team didn’t have experience in complex inventory systems, they jumped in, got their hands dirty, and created a organizational (warehouse facilities & team) and technology (inventory management) system that can hit their service goals while still managing costs.  The iterations they’ve gone through show deep systems savvy driven by their focus on delivering a Wow! experience to their customers, as well as great shoes and other products.

© 2010 Zappos.com, Inc. or its affiliates

I’ve had the chance to correspond with Keith Glynn about how they came to do things the way they do.  Keith is the guy who (story from Zappos CEO Tony Hsieh’s new book, Delivering Happiness) jumped on a plane to Kentucky, without going home pack, to help for a couple of weeks with 3rd-party warehouse issues — and ended up staying for two years.  At the point where Keith and Tony decided they needed to run their own warehouse, Keith went back to San Francisco to pick up his truck.  He and Tony then drove the truck 36-hours non-stop to Kentucky.  This is serious commitment to warehouse operations! Many thanks to Amelia Smith and the “Ask Anything” team at ZapposInsights for the connection.

I asked how Zappos came to run the fulfillment center the way they do.  I’d read that they randomly stocked the shoes as this actually made things easier to find! Keith’s response:*

In a traditional brick and mortar store stocking was done based on Brand, Style, Size and Color.  At Zappos originally there was no intent to stock inventory. As Zappos grew we realized we wanted to own the customer experience, so we started to hold inventory.

We started with a small space in our office. It held a couple thousand pairs of shoes. This consisted of static racking and the shoes were stocked based on what other stores were doing.  Brand, Style Size, Color.  We learned early on that this was a laborious job. You would have to continually shift brands because you did not account for seasonality and future growth.

[In 2000] we moved to a larger warehouse in Willows, CA…. We would receive a shipment, let’s say from Ugg. We would have to unbox the shoes. Lay them out in a large area on the floor based on style, size and color.  Imagine hundreds of shoe-boxes laid out on the floor and the amount of space needed to do this.  And this was only one brand.

Once you had them organized you would have to now figure out how to put them on the racks for storage. In order to get everything to fit you most likely had to shift thousands of shoes to get everything in the proper place. There were other brands on each side which had to be moved as well.  We would review our processes and come up with some small wins as to efficiency but it could cost us in space or other areas.  We thought it would be great to have a system where we did not have to rotate the inventory every day when the shipments came in.  We had the idea but did not have the resources or know how to make it work.

*Keith’s quotes are © 2010 Zappos.com, Inc. or its affiliates

In 2002, they thought they had a solution when warehouse service provider eLogistics offered to take over the warehouse and fulfillment operations.  eLogistics had a warehouse next to the UPS Worldport hub and this would speed up shipping.

When we moved to the Kentucky eLogistics location they did things quite differently. They had large static racks about 25-30 feet high. This probably worked for most of what they were shipping but there was no way it would work for us. We had large volumes of shoes, thousands of SKUs [stock keeping units - product identifiers].  The need for speed and accuracy was extremely important to us as this was our business’ “customer service.”

We had many conversations with UPS on how to improve what they were doing. We even had them install shorter racks so it wouldn’t take as long to put shoes away or pick for shipping. They only wanted to use this space for the faster moving products and felt the need to grow upward since this space was available to them. Imagine having 30’ ceilings and only 6’ racks.  I could see their rationale but it would not work for Zappos. Another challenge was that we were paying them for space. Basically this was a cube that varied in size. Let’s say 1’L x 2’W x18”D. They may have had only one or two shoes in the space based on Brand, Style, Size or Color that we had in inventory. This left a lot of empty space that we were paying for since we paid for the entire cube.

This is a problem that requires serious systems savvy.  At this point they are trying to work with building space, types of storage racks, costs, alliance partners, customer perception, and human heights (note the comment about shorter racks and stocking).

They eventually decide to again have their own warehouse.  According to Delivering Happiness, Keith went shopping for a warehouse and found one only fifteen minutes from Louisville airport. Again, good for shipping, and thus, customer service.  They signed the lease and take the crazy road trip mentioned above in preparation for moving the inventory.

In Delivering Happiness, Tony Hsieh tells the story of how they gave eLogistics a last chance to keep the business.  They designed a competition pitting Zappos’ new warehouse operations against eLogistics’.  For every week that the Zappos system beat eLogistics on shipping and inventory accuracy, 10,000 pairs of shoes would move from the eLogistics warehouse to the new Zappos warehouse.  It took only a month for the Zappos warehouse to win all the inventory into the new Zappos warehouse. “It was a valuable lesson.  We learned that we should never outsource our core competency.  As an e-commerce company, we should have considered warehousing to be our core competency from the beginning” (p. 118-119).

Keith continues:

While receiving the inventory, Tony came up with a quick program that would allow us to scan the UPCs [the “universal product code” you see with a barcode on many products] into a location on a shelf. This allowed us to put any shoe anywhere in the racks and we would be able to find it based on the UPC and the rack location.  We realized that this system would give us a higher density of storage and allow us to store items randomly.

Random storage is good for the people in the warehouse.  They can more easily grab the right box when its randomly stored — think about having to grab the right box if it were stored next to boxes that all were identical except for a color or size designation — random is good for people as the boxes are more distinguishable.

But they needed yet another innovation.  UPCs are not unique to a particular pair of shoes.  That is, the pair of size 7 Chocolate Leather Fitflops that I bought would have the same UPC code as the pair of size 7 Chocolate Leather Fitflops that you bought.  No good for managing inventory or returns.  That and some boxes have multiple UPCs printed on them. The warehouse team wanted a unique identifier for each and every unique box of shoes.

Keith:

Tony initially came up with the LPN (license plate number) system.  He then created some initial coding to test the system… [and] went to our development team and asked them to scale the code.

The LPN turns out to be a excellent example of a systems savvy outcome.  It’s a great way for Zappos to track the location of every item accurately in the warehouse and have a higher density of storage — Technology.  They are able to track specific items through receiving, shipping, and returns (Fun fact: 1 out of every 60 overnight packages shipped by UPS is a Zappos box) and as a result be amazingly responsive to customer service needs (and so be true to the Zappos Family Core Values) — Technology & Organizational Practice. Random storage takes into account human perception — People. It’s the intertwining of these dimensions that makes the LPN so powerful.  All from a number!

The warehouse story also shows what happens when a system isn’t built on systems savvy.  Keith and Tony realized that the technology eLogistics used wasn’t a fit with the Zappos products or the Zappos Core Values; the “pay for space” system wasn’t a fit with the Zappos business model; and as an e-commerce company, they couldn’t outsource warehousing.  All the parts have to be aligned if they are to “deliver Wow through customer service” (the first of their Core Values).

Note that they didn’t come to this approach in one giant leap and it didn’t come for free.  From 1999 to 2010, Zappos has had four different warehouse locations and inventory/shipping systems. They continue to grow their warehouse space in Shepherdsville, Kentucky and have added large carousel storage systems that rotate like the racks you’d see at a dry cleaners.

Systems savvy is built into the  Zappos Family Core Values, even if it isn’t there by name:

1. Deliver WOW Through Service
2. mbrace 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

This list of values is a well woven together platform for how to achieve your organizational goals, create one of Fortune’s “100 Best Companies to Work For,” and hit a $1 billion in gross merchandise sales goal — ahead of schedule (p. 210 of Delivering Happiness).  Zappos openness to learning, change, and communication means to me that they are constantly considering how things (technology tools, organizational practice, and people) might work together in new and different ways to better deliver Wow! experiences to their customers, employees, vendors, and everyone who interacts with Zappos.

More on this soon.  I’m taking the Zappos “Tour Plus” in August.  What questions would you like me to ask? Please add as a comment below.

If you’re a subscriber to this blog (and I hope you are), you know I’m intrigued by Zappos’ organizational design and overall management strategies. I find myself visiting three different Zappos sites regularly:

• ZapposInsights.com – site and web community around what makes Zappos unique and how Zappos does business. They offer free open tours, formal management training and the for-fee membership site even has a section called “Ask Anything.”
• DeliveringHappinessBook.com – site and web community around the ideas in Zappos CEO Tony Hsieh’s book, Delivering Happiness. They’re sharing and they want us to share too: “Our higher purpose? Delivering happiness to the world. Make it yours too and help spread the word to family, friends and colleagues alike!”
• Zappos.com (a girl does need shoes you know!)

What’s so intriguing to me is that through these sites and organizational activities Zappos seems to have found a way to help others develop culture savvy. Culture savvy, like systems savvy, is a complex area of organizational expertise that is often learned by experience and challenge, not by just by reading or hearing a lecture (for background, see Drinking Beer and Understanding Culture Embodiment). Zappos is offering us a way to learn their approach to organizational culture through a variety of rich experiences and dialogue. (For more on the value of dialogue, see Ed Schein’s article.)

Rich experiences, I believe, are at the heart of helping others learn any complex systems skills. Additional evidence? Consider leadership and design.

Leadership savvy is another complex area that is best taught through modeling, learning by doing, and reflection. Jim Kouzes and Barry Posner write in the 4th edition of The Leadership Challenge that leadership, like any skill, “can be strengthened, honed, and enhanced, given the motivation and desire, along with practice and feedback, role models, and coaching” p. 340. In the related instructors’ guide they continue:

In our own studies, as well as others by the Center for Creative Leadership and corporations like Honeywell, three major opportunities for learning to lead emerge: (a) trial and error, (b) observation of others, and (c) formal education and training. pp. ix-x.

From a design perspective, Dan Saffer, writing for the Adaptive Path blog similarly pushes for an active role,

I was taught that design has three components: thinking, making, and doing. (Doing is the synthesis, presentation, and evaluation of a design; the bridge between thinking and making.)…

Details often get overlooked in just “thinking” projects, as do constraints. Constraints are somehow less solid in the world of thought than they are in the world of making.

So, how do we help others learn systems savvy? By using the same ideas that Zappos, Kouszes, Posner, and Saffer offer for spreading other complex skills: Provide opportunities to try (and fail), observe others, and get formal training when it’s appropriate. We all have to get our hands dirty if we’re going to do this well.

Background examples from prior posts:

Stewart Mader and Sharing Systems Savvy – “Don’t let the words get in the way…. That is, don’t let the terms (e.g., wiki, open innovation) put a barrier between you and the people you’re helping to understand systems savvy. Focus on the work.”

Gaining Value from Blue & White Collar Systems Savvy – Ben Kepes – Value from diverse groups working together, “The mental models held by people in the two roles are different. One is not better or more sophisticated than the other, but they are different.”

Jennifer Kenny – Helping Others Become TOP Managers — “We knew that they knew a 1000 times more about their actual work than we did — training wouldn’t make sense. Instead, we helped them tap into their knowledge using the common language about their work — mobilization of their own ideas. Joint design, metrics and analysis.”

Transformation Through Demonstration: Megan Gailey and the Implementation of Meeting Support — “I tend to focus on the people who are the willing participants… the early adopters. Then through their demonstration and behavior change, show success. [The success] sways the resistors and the people on the fence. Get the earlier adoptors excited and the fence people come along.”

Don’t Hide Your Systems Savvy Practices – “Explicit use of systems savvy is better than tacit use because it allows others to coordinate. Think about the benefits gained in a kick-off project meeting if the group comes to a set of explicit decisions about where files will be stored, how sign-offs will be managed, and the best strategies for communicating.”

Think Out Loud With Me – Rhonda Winter, CIO of Indianapolis Motor Speedway — “If you say, “can you think out loud with me” then even the most bashful will enter the conversation. We may not make the decisions that day, but we get the conversation started.

[Thinking out loud is a] great teaching tool, helps make clear that it’s ok to make a mistake – creates an environment where you can play with the ideas out loud; first idea may not be best, but it’s the conversation starter.”

Delivering Happiness, Tony Hsieh’s book of the founding and nurturing of Zappos, and the Zappos community, releases today. From Twitter (@Zappos, @dhbook) to the CEO/COO blog, I’ve had the chance to follow the Zappos management story for a while (hiring & on-boarding, marriage to Amazon, starting a movement). With Delivering Happiness, I feel like I’m getting to play a part.

Earlier I reviewed Delivering Happiness. Here I’m focusing on the the Delivering Happiness movement more broadly.

We’re asked on the Delivering Happiness site to:

Join the Delivering Happiness Movement!

One of the reasons why this book was written was to contribute to the existing happiness movements out there, all towards the cause of making the world a better place.

Over the next several months, the site will evolve to become a place for you to read and share your own stories about Delivering Happiness, passion and purpose, in business or in life.

In time, we hope this site will become a place people can play a part and learn about the ongoing movement of delivering happiness to ourselves and one another.

We have the chance to share our “experience and help others make actionable steps towards making positive changes in their lives.” You can read featured stories, or browse contributer stories by industry, region, company size, or core values. I searched on the core value of “Build Open and Honest Relationships With Communication” and was surprised that there weren’t any stories posted in that category yet.

So, I posted my own:

Transparency has been an important management topic (how much, with whom, about what) for decades — but now it has a chance of being more than a topic. I think we’re entering an era where transparency is going mainstream. Technology, organizational practice, and employee expectations are aligning in a powerful new way.

I expect this last point crosses roles and industry. Increased transparency will require management and employees to make adjustments. Increased transparency will require management and employees to make adjustments. As long is the communication lines stay open and we all are open to adjustments, I think we have a chance.

…now to see if my contribution is accepted. Turns out it’s not automatic: “We appreciate your time and generosity in sharing your story. While we won’t be able to publish every story we receive, your feedback means so much to us. Thank you for being a part of the Delivering Happiness movement.” I’ll link here if it goes live on the Delivering Happiness site.

What do you think? Are we in an organizational environment where a movement to more transparent organizations can take place? What evidence do you have that this is true/not true? Please comment below (by June 11, 2010) and I’ll draw a winner for my extra advance copy of Delivering Happiness.

For the first 54 pages of Delivering Happiness I could have been reading about any Silicon Valley 24 year-old entrepreneur with a success under his belt. The next 189 pages WOWed me. This isn’t just CEO Tony Hsieh’s story, but rather a transparent look at Zappos through thick and thin, and what the company has learned along the way. Many CEOs tell their stories after the fact. Tony Hsieh and Zappos tell their story as it develops. From Twitter (@Zappos, @dhbook) to the CEO/COO blog, I’ve had the chance to follow the story for a while (hiring & on-boarding, marriage to Amazon, starting a movement). With Delivering Happiness, I feel like I’m getting to play a part. I see the questions the Zappos community asks itself and I want to reply.

This is more than transparency. This is engagement. The folks at Zappos engage with their:

• customers – a hallmark, see p. 145 describing their call center approach
• vendors – see p. 187 where Fred Mossler describes how they came to give the same info to vendors as they do to their buyers
• future hires – they’re working on this one, but they want to build relationships, beginning with college freshmen, leading to internships and possible hires (p. 199)
• job candidates – the incredibly interactive interview process includes questions like “If it was your first day on the job at Zappos and your task was to make the interview/recruiting process more fun, what would you do for those eight hours?” (See Christa F.’s story starting on p. 169)
• employees – for example, open town hall meetings, the value put on recognizing/knowing fellow employees (the login-in “Face Game” and even how the building entrances are set up, p. 150), and the famed Culture Book (p. 134).

The Culture Book: During drinks at a local bar (a common form of Zappos engagement), Tony asked the group to talk about the Zappos culture for the benefit of a new hire who was with them. As they finished telling their stories, they realized that story-telling was an amazing way to bring the culture to life. Thus began the Culture Book. Every year employees are asked to send an email describing the culture in 100-500 words. This (unedited, except for typos) material is published in a book they give to prospective employees, vendors, and via request (yes, I have one!). The process isn’t just about building the book and documenting the culture. It’s an open-ended way of interacting with the employees and has resulted in other changes, including a monthly newsletter response to emails that “Ask Anything.”

This level of engagement is raising the bar for all of us. Zappos has approximately 10 million customers. That’s 10 million people who see what engagement can be like. True to their values, Zappos isn’t trying to hoard the insights that lead to this engagement — Zappos would like us all to join the Delivering Happiness Movement:

Over the next several months, the site will evolve to become a place for you to read and share your own stories about Delivering Happiness, passion and purpose, in business or in life.

In time, we hope this site will become a place people can play a part and learn about the ongoing movement of delivering happiness to ourselves and one another.

I think they’re on to something. I’ve said that transparency is the concept of the quarter, and I’m thinking that that if we talk about transparency and engagement we may have the concept of the decade. I’ll return to these ideas in a post on June 7 (release date for Delivering Happiness). I’m looking forward to thinking more about the impact the Zappos experience can have through the book release and the continued growth of Zappos Insights.

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I’ve based this blog on an advance copy of Delivering Happiness, so please note that the page numbers may shift a bit in the final version. Bloggers, here’s the link to request your own advance copy.