Case Analysis Description Complex Problem Solving Team Case Analysis For Marketing Strategy Introduction  You will be completing two team cases for this class. Information below outlines the approach you will use for the cases. You instructor will assign you to a team by the end of Unit 1. All teams should start working on the cases prior to the week they are due. A case is a summary of a business situation. Just as in an actual business environment, cases do not focus on a single problem, rather they describe a business situation at a particular point in time. Your case analysis must be centered on your use of the course marketing strategy concepts and terms used to analyze complex marketing problems faced by businesses. Click here for Learning Outcomes For this course, your case analysis will focus on complex problem solving methods through: Updating the case. Use the relevant unit concepts and terms to conduct an analysis. Relevant concepts should include using the concepts outlined in the unit assignments as appropriate.  Critical Analysis Identifying problems and/or opportunities Surface alternatives to address the problems and/or opportunities Evaluating the pros and cons of the alternatives Make recommendation based on the above analysis. Develop a tactical GANTT Chart The ability to solve complex problems is a highly sought skill. The following sources provide background on this complex problem solving process. American Society of Quality, What Is Problem Solving? (Links to an external site.) Sage Publications: Creative Problem Solving and Decision Making (Links to an external site.) For those of you who want to go much deeper: Oxford University Press: Solving Problems and Making Decisions (Links to an external site.) This case methodology is not writing intensive, but it is thinking intensive.  DO NOT WAIT UNTIL A FEW DAYS BEFORE THE CASE IS DUE TO START unless you don't mind staying awake at night. Most of your time should be spend in brainstorming and developing outlines. After the case is assigned, read the case. Then reread the case and make notes using the analysis framework outlined above. Your team should brainstorm opportunities and problems you see in the case. In your team list all of the problems/opportunities, determine which are clustered, what is relevant, and actionable. Cases Click each case for the submission page. Each case is available in your textbook. Zappos: Delivering Happiness Due by 11:59 p.m., Sunday, CT end of Unit 3 Netflix Fights to Stay Ahead of a Rapidly Changing Market Due by 11:59 p.m., Wednesday, CT of Unit 8 Grading Please refer to the Schedule page for rubrics and the Course Overview page for point distribution.  Directions and Format Below you will find the format your team should use for case analysis. Keep in mind that your research and analysis should be linked to the unit content and terms and come from credible sources. You should use APA formatting within the case citations and in your references. You should use the headings below to help focus your approach to the case write-up. Students often ask how long assignments should be. Suggestions are given below, but this can be adjusted based on the size of your team. An example of a previous case can be seen in this file: Group_4_Case_3_MBA_630.docx Download Group_4_Case_3_MBA_630.docx  Case #1 is found in Unit 4. You should not wait to start on this case. For Case #1, there are three components. The first will be your case analysis. For your instructor, will be a written case following the case format like the Group 4 Case 3 MBA 630.docx above. The second will be your team’s recorded Zoom PowerPoint presentation of the case (record this to the cloud so you can obtain the link to the video). Your team leader will post this recording (only one Zoom link is needed) into the Unit 5 Discussion for your assigned team to review and post questions. Your team members will then need to respond to the discussion posts. The goal of this process is to expand your team’s understanding of other team’s perspectives on the case. This should help you improve your team’s submission for the final case. Case Update (1-2 pages) Cases are always a snapshot in time. Your first task will be to provide a brief update of the current situation given the major changes (identified and justified by your team). Relevant material should be cited. For example, if you were doing a case on USA Today, this would need to be updated to reflect current trends in media consumption through electronic media and the overall general decline in newspaper circulation. Do not just give a summary of the case. Unit Concepts for Case Analysis (this will vary by case) Case analysis can take you in many directions, but remember that you are focusing on the unit concepts as outlined in the textbook chapters, Unit Learning Outcomes (ULOs), and the topics covered in your discussions and unit assignments. Be sure to conduct research and cite credible sources using an APA format. Each case should conduct an analysis based on the relevant units as indicated below: Case #1 will focus on the concepts and terms in Units 1-3. Case #2 will focus on the concepts and terms in Units 4-6. Case #3 will focus on the concepts and terms in Units 1-8. For example, in Case #1 you will focus on the concepts and terms in Units 1-4. One such example is in Unit 1, ULO 3: Evaluate business models to understand how businesses create value for customers. Your case may require an analysis of alternative business models. This should include and analysis of the current business model as well as other feasible business models used by competitors, in other industries, or emerging trends. Each business model alternative will have pros and cons. Other relevant concepts should include using the concepts outlined in the unit assignments as appropriate. Critical Analysis Under this section, you will: Identifying problems and/or opportunities, Surface alternatives to address the problems and/or opportunities, and Evaluating the Pros and Cons of the Alternatives. Each of these will be explained below followed by the format you should use for this section. DO NOT PREDETERMINE THE RECOMMENDATIONS YOU THINK FIT THE CASE! This will bias your analysis. It is best to develop your recommendations after completion of the case analysis. The cases can be fun because they make you think, but this can also be a great struggle. By the end of the semester the process should become second nature, but only if you practice your abilities to analyze.  Identifying problems and/or opportunities After you have updated the business case, you must develop a framework from which to look at developing strategic alternatives. The first step is to brainstorm problems and/or opportunities and then turn these into problem/opportunity statements. You should not focus on alternatives to these statements at this point because this can limit your brainstorming analysis. A problem/opportunity statement is a two sided coin. In example above Unit 1, ULO 3: Evaluate business models to understand how businesses create value for customers. You may have analyzed alternative business models. If in your team’s brainstorming process, you feel that the business should evaluate alternative business models, you could frame this as: Problem #1: Business X needs to consider alternate business models. (This should be used to if the business’ current model is no longer viable.) You should include a brief justification of this problem related to your case analysis. Opportunity #1: Business has an opportunity to consider alternate business models. (This should be used to if the business wants to shift or add to its current model.) You should include a brief justification of this problem as stated in your case analysis. You can brainstorm a series of problem and opportunity statements. For your Case #1 and Case #2 you should limit your problem and opportunity statements to four. These should be what your team considers to be the most important issues to be addressed. If you have more than four, you can list additional statements at the end of your case, but do not conduct alternative analysis or include in your recommendations. For Case #3, since this covers all units (and is worth almost twice the points), you should have no more than eight problem/opportunity statements. Surface alternatives to address the problems and/or opportunities After identifying each problem or opportunity, your next step is to determine alternatives to solve the problem. When surfacing alternative strategies to a problem, you must identify more than one alternative. If you limit yourself to one alternative you limit the choices you can make and limit your thinking proces­ses. If a problem has only one solution, it isn’t really a problem it is just something that has not been acted upon. The approach you should use to identify alternatives is to brainstorm all of the possible alternatives you or your group can surface and then determine what alternatives are relevant. Use course and unit concepts and your knowledge base for suggestions. This requires looking at the problem and finding out how marketing strategy principles would provide a solution. Alternatives should be statements. They don’t need to be justified, they are evaluated in the Pros and Cons. Evaluating the Pros and Cons of the Alternatives Each alternative will have its own pros and cons. These are strengths and weaknesses associated with the alternatives. The pros and cons provide the information that will be used by you to decide which of the alternatives will be recommended. Pros and cons should be fact based and ideally linked to cited research (using APA 7th edition). Note that in this class there is no expectation of primary research so your focus should be on secondary research. In your actual business’ environment, you may need to conduct or use primary research to justify action. For example, assume that an opportunity exists to change the business model outlined above and Alternative #1 is: Reposition the company’s product image to be higher quality than competitors. Pros can include (these are generic because they are not linked to research sources): Differentiates your products from competition (could require your team using positioning maps). Allows for higher prices increasing your margins (could require an analysis of competitive prices and break even points). Will allow for higher quality products with higher quality materials (you may want to link this to the consumer decision process). Cons can include: May require an increase in promotional budget to reposition products (use case related details if provided). Higher quality products could require a new sales approach for distributors (use case related details if provided). This may require targeting new market segments resulting in increased costs (use case related details if provided). Critical Analysis Section Format (Each problem/or opportunity with alternatives plus pros and cons should result in 1-2 pages of content. Four problems or opportunity is a max of 8 pages.) The write-up should outlined as follows: Problem/Opportunity #1 Statement: Short paragraph with statement and justification. Alternative Solution #1 (Statement) Pros: #1) Short Sentence or sentences justifying as a pro with citations as needed. #2) Short Sentence or sentences justifying as a pro with citations as needed. #3) etc. Cons: #1) Short Sentence or sentences justifying as a con with citations as needed. #2) Short Sentence or sentences justifying as a con with citations as needed. #3) etc. Alternative Solution #2 (Statement) Pros:  As above Cons: As above Alternative Solution #X. Problem #2 Statement: Alternative Solution #1 (Statement) Pros:  As above Cons: As above Alternative Solution #X… Opportunity #X Statement: Alternative Solution #1 (Statement) Pros:  As above Cons: As above Alternative Solution #X… Recommendations (Max 2-3 pages with GANTT Chart) You must give a recommendation for the case based on the above analysis. This will most likely be a combination of various alternatives to solve the identified problems and/or opportunities. You do not need to restate the reasons for recommending individual alternatives; their strengths and weaknesses are outlined in the case analysis pros and cons. If you state a problem, be sure you recommend a solution to that problem in your recommendation.You do however, need to justify the combination of alternatives you recommend and the order of your approach. This could be justified in terms of the synergies created or value creation for customers. Zappos: Delivering Happiness* Synopsis: This case examines Zappos’s unique marketing strategy and corporate culture, both of which focus on delivering happiness to the company’s varied stakeholders. Despite a few stumbles along the way, Zappos has been a role model of success since its founding in 1999. The company survived the dot-com collapse because its charismatic CEO, Tony Hsieh, created a corporate culture that put its customers and employees ahead of financial success. The case looks at Zappos’s business model and how it influences the company’s relationships with customers, employees, the environment, and its communities. The case also discusses some of the challenges the company faces and how it plans to move into the future. Themes: Marketing strategy, ecommerce, branding, long-term customer relationships, customer satisfaction, corporate culture, employee relations, social responsibility, customer loyalty, corporate reputation Can a company focused on happiness be successful? Zappos, an online retailer, is proving that it can. Tony Hsieh, Zappos’s CEO, says, “It’s a brand about happiness, whether to customers or employees or even vendors.” Zappos’s zany corporate culture and focus on customer satisfaction has made it both successful and a model for other companies. THE HISTORY OF ZAPPOS Nick Swinmurn founded Zappos in 1999 after a fruitless day spent shopping for shoes in San Francisco. After looking online, Swinmurn decided to quit his job and start a shoe website that offered the best selection and best service. Originally called ShoeSite.com, the company started as a middleman, transferring orders between customers and suppliers but not holding any inventory. The website was soon renamed Zappos, after the Spanish word for shoes (zapatos). In 2000, entrepreneur Tony Hsieh became the company’s CEO. Hsieh, 26 at the time, was an early investor in Zappos, having made $265 million selling his startup company to Microsoft in 1998. Hsieh wasn’t initially sold on the idea of an Internet shoe store. He told Inc. Magazine, “It sounded like the poster child of bad Internet ideas … but I got sucked in.” After becoming CEO, Hsieh made an unconventional decision to keep Zappos going, even selling his San Francisco loft to pay for a new warehouse and once setting his salary at just $24. Zappos struggled its first few years, making sales but not generating a profit. The dot-com crash forced Zappos to lay off half its staff, but the company recovered. By the end of 2002, Zappos had sales of $32 million but was still not profitable. In 2003, the company decided that in order to offer the best customer service, it had to control the entire value chain—from order to fulfillment to delivery—and began holding its own inventory. Zappos moved to Las Vegas in 2004 to take advantage of a larger pool of experienced call center employees. The company generated its first profit in 2007 after reaching $840 million in annual sales. Zappos also started to be recognized for its unique work environment and approach to customer service. CASE 13 * Harper Baird, Bernadette Gallegos, Beau Shelton, and Jennifer Sawayda developed this case under the direction of O.C. Ferrell and Linda Ferrell. It is intended for classroom discussion rather than to illustrate effective or ineffective handling of administrative, ethical, or legal decisions by management. All sources used for this case were obtained through publicly available materials. ©O.C. Ferrell and Linda Ferrell, 2015. 454 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 In 2010, Amazon bought the company for $1.2 billion. Although Hsieh had rejected an offer from Amazon in 2005, he believed that this buyout would be better for the company than management from the current board of directors or an outside investor. Hsieh said, “With Amazon, it seemed that Zappos could continue to build its culture, brand, and business. We would be free to be ourselves.” Amazon agreed to let Zappos operate independently and to keep Hsieh as CEO (at his current $36,000 annual salary). Hsieh made $214 million from the merger, and Amazon set aside $40 million for distribution to Zappos employees. After the merger, the company restructured into 10 separate companies organized under the Zappos Family. Zappos was able to keep its unique culture and core values. ZAPPOS’S BUSINESS MODEL AND OPERATING PHILOSOPHY Zappos has 10 core values that guide every activity at the company and form the heart of the company’s business model and culture: • Deliver WOW through service. • Embrace and drive change. • Create fun and a little weirdness. • Be adventurous, creative, and open-minded. • Pursue growth and learning. • Build open and honest relationships with communication. • Build a positive team and family spirit. • Do more with less. • Be passionate and determined. • Be humble. Zappos’s core values differ from those of other companies in a couple of ways. In addition to being untraditional, the core values create a framework for the company’s actions. This is exemplified in the company’s commitment to their customers’ and employees’ well-being and satisfaction. ZAPPOS’S CUSTOMER-FOCUSED BUSINESS MODEL The Zappos business model is built around developing long-term customer relationships. Zappos does not compete on price because it believes that customers will want to buy from the store with the best service and selection. The company strives to create a unique and addicting shopping experience, offering a wide selection of shoes, apparel, accessories, and home products, free shipping to the customer, free shipping and full refunds on returns, and great customer service. Shopping and Shipping Zappos strives to make the shopping experience enjoyable. The website is streamlined for an easy shopping experience. Products are grouped in specialized segments, with some (like outdoor products) on their own minisites. Customers can view each product from multiple angles thanks to photographs taken at the company’s studio, and Zappos employees make short videos highlighting the product’s features. Zappos analyzes how customers navigate the site to improve features, adapt search results, and plan inventory. This spirit of simplicity, innovation, and great service extends to Zappos’s inventory and distribution systems as well. Zappos has one of the few live inventory systems on the web. If the Zappos website displays an item, it is in stock. Once the Case 13 • Zappos: Delivering Happiness 455 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 company sells out of an item, the listing is removed from the website. This helps to reduce customer frustration. Its inventory and shipping systems are linked directly to the website via a central database, and all its information systems are developed in-house and customized to the company’s needs. Their warehouses operate around the clock, which allows them to get a product to the customer faster. Fast shipping creates an instant gratification that is similar to shopping in a physical store. Most companies have a negative view toward returns, but Zappos’s mentality is the complete opposite. It sees returns as the ability to maintain customer relationships and to increase its profits. Zappos offers a 100% Satisfaction Guaranteed Return Policy. If a customer is not satisfied with a purchase, he or she can return it within 365 days for a full refund. The customer can print a prepaid shipping label that allows all domestic customers to return the product for free. This return policy encourages customers to order several styles or different sizes and return the items that do not work out. While this strategy seems expensive, it actually works to Zappos’s advantage. The average industry merchandise return rate is 35 percent, but Zappos’s most profitable customers tend to return 50 percent of what they purchase. The customers who have the higher return percentages are the most profitable because they have experienced Zappos’s customer service and return policy, which create loyalty to the company. These customers are likely to make purchases more often and to spend more on each purchase. This is what makes Zappos so successful. Customer Service What really makes the Zappos business model unique is the company’s focus on customer service. The company has established a method of serving customers and handling their issues that is distinctive from the rest of the industry. Zappos believes great customer service is an opportunity to make the customer happy. Customers are encouraged to call Zappos with any questions. The number is displayed on every page of the website. Hsieh says, “… At Zappos, we want people to call us. We believe that forming personal, emotional connections with our customers is the best way to provide great service.” Customer service representatives also actively use social media sites such as Facebook and Twitter to respond to customer issues. Another key aspect of Zappos’s customer service model is that nothing is scripted. Employees have free reign in their decision-making and are expected to spend as much time as they need to “wow” customers. They help customers shop, even on their competitors’ websites, encourage them to buy multiple sizes or colors to try (since return shipping is free), and do anything it takes to make the shopping experience memorable. Zappos’s customer service representatives try to develop relationships with their customers and make them happy. Stories about great customer service include customer support calls that last for hours, sending flowers to customers on their birthdays, and surprise upgrades to faster shipping. Some extreme cases have included Zappos hand-delivering shoes to customers who have lost luggage and to a groom who forgot the shoes for his wedding. Zappos has even sent pizzas to the homes of customers who have tweeted to the company about being hungry. Zappos believes that great customer experiences encourage customers to use the store again. In addition, Zappos’s long-term strategy is based on the idea that great customer service will help them expand into other categories. While around 80 percent of Zappos’s orders come from shoes, the markets for housewares and apparel are much larger. The company says it will expand into any area that it is passionate about and that meets their customers’ needs. The company also considers word-of-mouth marketing to be the best way to reach new customers. With over 75 percent of purchases made by repeat customers, 456 Case 13 • Zappos: Delivering Happiness Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 it is evident that Zappos’s mission to “provide the best customer service possible” is working well for the company. CORPORATE CULTURE AND WORK ENVIRONMENT The corporate culture at Zappos sets it apart from nearly every other company. As Amazon’s CEO, Jeff Bezos, says, “I’ve seen a lot of companies, and I have never seen a company with a culture like Zappos.” Zappos’s unorthodox culture is the work of CEO Tony Hsieh, an innovative and successful entrepreneur. Hsieh built the culture on the idea that if you can attract talented people and employees enjoy their work, great service and brand power will naturally develop. Zappos is famous for its relaxed and wacky atmosphere. Employee antics include Nerf ball wars, office parades, ugly sweater days, and donut-eating contests. The headquarters features an employee nap room, a wellness center, and an open mic in the cafeteria. Other quirky activities include forcing employees to wear a “reply-all” hat when they accidentally send a company-wide e-mail. This environment isn’t just fun; it’s also strategic. According to Zappos, “When you combine a little weirdness with making sure everyone is also having fun at work, it ends up being a win-win for everyone: Employees are more engaged in the work that they do, and the company as a whole becomes more innovative.” Hiring and Training The key to creating a zany work environment lies in hiring the right people. The job application features a crossword puzzle about Zappos and asks employees questions about which superhero they’d like to be and how lucky they are. They may also check how potential employees treat people like their shuttle driver. Zappos is looking for people with a sense of humor who can work hard and play hard. Potential employees go through both cultural and technical interviews to make sure they will fit with the company. However, even Hsieh admits that finding great employees is tough. “One of the biggest enemies to culture is hyper-growth. You’re trying to fill seats with warm bodies, and you end up making compromises,” says Hsieh. All new employees attend a 5-week training program, which includes 2 weeks on the phones providing customer service and a week fulfilling orders in a warehouse. To make sure that new employees feel committed to a future with the company, Zappos offers $2,000 to leave the company after the training (called the “The Offer”). Amazon has since adopted a similar practice. Even after the initial training is over, employees take 200 hours of classes—with the company covering everything from the basics of business to advanced Twitter use—and read at least nine business books a year. Benefits Another aspect of Zappos that is unique is the benefits that it provides to its employees. The company has an extensive health plan, where it pays 100 percent of employee’s medical benefits and on average 85 percent of medical expenses for employees’ dependents. The company also provides employees with dental, vision, and life insurance. Other benefits include a flexible spending account, prepaid legal services, a 40 percent employee discount, free lunches and snacks, paid volunteer time, life coaching, and a car pool program. Along with the extensive benefits package, Zappos has developed a compensation model for its “Customer Loyalty Team” (call center representatives) that incentivizes employee development. At Zappos the goal is to answer 80 percent of customer inquiries within 20 seconds, although employees are encouraged to take the time Case 13 • Zappos: Delivering Happiness 457 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 needed to ensure quality service. Initially, employees were paid $11 per hour for the first 90 days. After 90 days, the employee moved to $13 per hour. To move beyond $13 an hour, employees had to demonstrate growth and learning by completing specific skill set courses that allow employees to specialize in certain areas of the call center. Employees were given freedom to choose the shifts they wanted based on seniority. Although the reasoning for Zappos’s compensation model is to motivate employees and promote personal growth, the base pay was less than the national hourly average of $15.92 earned by call center representatives. Zappos determined that the pay structure and the process for employee shift sign-ups were inefficient for the company’s needs. With Hsieh’s encouragement, the company adopted scheduling software called Open Market. Under this new system, call center employees would be given 10 percent time flexibility to pursue their own projects. Employees could decide when to work, but the compensation system was revamped to mimic the surge-time pricing of popular ride-sharing service Uber. With this compensation system, call center employees working during periods of high demand would receive higher pay. In other words, Zappos hourly compensation for its call center employees would be based on demand. Zappos hopes to expand this system to all departments eventually. For seniority-based jobs, this system holds risks. For instance, seniority-based incentives also take into account company loyalty, camaraderie with co-workers, and dedication that are also important to work productivity. However, Zappos believes the system works well for its call center employees because many are employed for shorter periods. Work–Life Integration One of Zappos’s core values is “Build a positive team and family spirit,” so the company expects employees to socialize with each other both in and out of the office. In fact, managers spend 10 to 20 percent of their time bonding with team members outside of work. Zappos outings include hiking trips, going to the movies, and hanging out at bars. Hsieh says that this increases efficiency by improving communication, building trust, and creating friendships. Along with creating friendships, employees are encouraged to support each other. Any employee can give another employee a $50 reward for great work. Zappos employees compile an annual “culture book” comprising essays on the Zappos culture and reviews of the company. The culture book helps employees to think about the meaning of their work and is available unedited to the public. This positive work environment comes with the expectation that employees will work hard. Employees are evaluated on how well they embody the core values and inspire others. Zappos will fire people who are doing great work but don’t fit with the culture of the company. Hsieh says, “We definitely don’t want anyone to feel that they’re entitled to employment for life. It’s more about us creating an environment and growth opportunities for our employees such that they want to be employees for life.” Transparency As with its customers, the foundation of Zappos’s relationships with its employees is trust and transparency. The company wants its employees, like its customers, to actively discuss any issues or concerns that may come up. Hsieh does not have an office; he sits in an open cubicle among the rest of the employees. He believes that “the best way to have an open-door policy is not to have a door in the first place.” Zappos’s management is very open with employees by regularly discussing issues on the company blog. Employees receive detailed information about the company’s performance and are encouraged to share information about the company. Zappos believes that employees should develop open and honest relationships with all 458 Case 13 • Zappos: Delivering Happiness Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 stakeholders with the hope that this will assist in maintaining the company’s reputation. Hsieh uses Facebook and Twitter to share information with employees and customers (he has over 2.78 million followers). Despite the benefits of transparency, it can also be painful at times. In October 2008, Sequoia Capital, a venture capital firm and controlling investor in Zappos, told the company to “cut expenses as much as possible and get to profitability and cash flow positive as soon as possible.” As a result, Hsieh had to make a difficult decision and lay off 8 percent, or 124, of Zappos’s employees. Hsieh strived to handle the layoffs in a respectful and kind manner. He sent an e-mail notifying employees of the layoff and was honest and upfront about the reasons behind the decisions, even discussing the move on Twitter and his blog. Employees who were laid off received generous severance packages, including 6 months of paid COBRA health insurance coverage. Because of the company’s honesty and transparency, employees and customers were more understanding of the tough decision Hsieh and Zappos had to make. Although some companies may hesitate to open themselves to public criticism, Zappos feels it has nothing to hide. In fact, most of the public posts on Zappos’s social media sites are praise from customers. CORPORATE SOCIAL RESPONSIBILITY Zappos also takes an unconventional approach to corporate social responsibility and philanthropy. Many companies have CSR programs that are dedicated to a certain area or cause such as education, but Zappos prefers to support a variety of programs based on the needs of communities and the interests of employees. Zappos is involved in a variety of philanthropic efforts. Programs include donating shoes and gifts as well as giving gift cards to elementary school students. Zappos donates money to organizations such as the Shade Tree, a nonprofit that provides shelter to women and children, and the Nevada Childhood Cancer Foundation. The company even partnered with Britney Spears to hold an event at the zoo to raise money for the foundation. Zappos also has a donation request application available on its website. Zappos also started a campaign to improve the company’s impact on the environment. A group of employees created the initiative, which is known as Zappos Leading Environmental Awareness for the Future (L.E.A.F.). The campaign focuses on several environmental efforts, including a new recycling program, community gardens, and getting LEED certification for the company. For instance, Zappos created an annual children’s art contest that awards prizes for the best drawing involving a recycling-based theme. The winner is awarded a $50 Zappos.com Gift Card. Like the rest of the company, L.E.A.F. is open, with its progress posted on its Twitter account and blog. Another area on the company’s blog is a section on “Eco-friendly Products.” Here, the company highlights new products that are organic or were manufactured using environmentally friendly procedures. The postings also list ways that customers can live more sustainable lifestyles, including tips on how to throw an ecofriendly party. ZAPPOS’S NEW STRUCTURE In 2015, Tony Hsieh made a controversial decision to completely change the structure of the organization. For the past year, the company had been transitioning toward an organizational structure that abandons the top-down managerial hierarchy in favor of a redistribution of power. Called a Holacracy, this organizational structure places empowerment at the core of the organization. Case 13 • Zappos: Delivering Happiness 459 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Every employee becomes their own leader with their own roles. To be effective, a Holacracy requires periodic governance meetings where each employee understands his or her roles and responsibilities. Teams hold tactical meetings to discuss key issues. While governance meetings focus on clarity and role structure, tactical meetings are used to “sync and triage next actions.” It is believed that this distributed authority increases clarity and transparency and decreases cognitive dissonance by recognizing tensions before they become a problem. As Zappos continues to grow, there is a risk its expansion will make it harder to manage employees and control productivity. Hsieh cites statistics that demonstrate how growth often causes innovation and productivity per employee to go down. However, he also claims that when cities double in size, productivity and innovation per resident increases by 15 percent. Hsieh believes that the key to sustainable growth at Zappos is to operate more like a city than a business. He feels the best way to handle growth is to become a Teal organization, starting out by using a Holacracy structure and evolving from there. In his book Reinventing Organizations, Frédéric Laloux uses a color scheme to describe the development of human organizations, with Teal being the highest. The concept of a Teal organization is based on three premises: self-management developed through peer relationships; involving the whole person in the work; and allowing the organization to grow and adapt instead of being driven. A Teal organization is structured under the premise that all units will work “together to support the whole.” For Zappos, this involves adopting a new structure promoting self-organization and selfmanagement. The transformation of Zappos’s organizational structure started off slowly. However, Hsieh believed this slow transition was hindering the company’s transformation toward self-organization and self-management. Hsieh sent an e-mail to all 1,500 employees to inform them that the organization was going to take immediate action to transform Zappos into a Teal organization. This involved eliminating bosses and the traditional functions of finance, technology, marketing, and merchandising to create task-oriented circles structured around specific businesses. Managers became employees and no longer engaged in traditional management functions, although their salaries stayed the same throughout 2015. Hsieh handled the e-mail carefully, making sure to praise traditional managers for their past contributions but stating they are no longer required for a Teal organization. He realized there was likely going to be much resistance from managers and other employees who did not agree with the new system. To address these concerns, Hsieh extended “The Offer.” Zappos agreed to provide employees who wanted to leave severance pay for 3 months. Approximately 14 percent of employees chose to take the package. This will have strong implications for Zappos, but Hsieh believes employees must be committed to the changes and acknowledges that some will not feel that the new structure is right for them. It is clear that this new organizational approach has divided up the company, but Hsieh believes this approach is necessary to handle Zappos’s growth and maintain the same quality service and zany culture that have made it so successful. ZAPPOS’S MARKETING CHALLENGES Like any company, Zappos has faced some challenging business and ethical issues in the past. When these issues occur, Zappos attempts to handle situations in a professional and efficient manner. However, the transparency at Zappos makes some business and ethical issues more complex as the company strives to solve problems while keeping its stakeholders informed. 460 Case 13 • Zappos: Delivering Happiness Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 MERGER WITH AMAZON In 2009, Zappos was acquired by e-commerce giant Amazon.com. Many Zappos customers were confused by the unexpected move and expressed concerns about the future of the company’s culture and customer service. Most CEOs would not have felt any obligation to address customer concerns over the merger, but Tony Hsieh valued the support of Zappos’s employees and customers. Shortly after the acquisition, Hsieh issued a statement about why he sold Zappos to Amazon. In the statement, Hsieh discussed the disagreement between Zappos and Sequoia Capital over management styles and company focus. Specifically, Hsieh said, “The board’s attitude was that my ‘social experiments’ might make for good PR but that they didn’t move the overall business forward. The board wanted me, or whoever was CEO, to spend less time on worrying about employee happiness and more time selling shoes.” Hsieh and Alfred Lin, Zappos’s CFO and COO, were the only two members on the board committed to preserving Zappos’s culture. The board could fire Hsieh and hire a new CEO who would focus more on profits. Hsieh decided that the best way to resolve these issues was to buy out the board, but he could not do this on his own. After meeting with Amazon CEO Jeff Bezos, Hsieh committed to a full acquisition, as long as Zappos could operate independently and continue to focus on building its culture and customer service. Many customers were concerned that Amazon was not a good fit for Zappos, but Hsieh addressed those concerns, saying, “Amazon wants to do what is best for its customers—even, it seemed to me, at the expense of short-term financial performance. Zappos has the same goal. We just have a different philosophy about how to do it.” Although consumers were not pleased with the acquisition, they at least understood why it occurred. Moreover, Hsieh’s commitment to his beliefs and management style resonated with customers and employees. MORE THAN SHOES CAMPAIGN To bring awareness to the fact that Zappos sells more than just shoes, Zappos created a marketing campaign in 2011 that was designed to catch people’s attention. The company released several advertisements that featured people who appeared to be naked doing daily activities such as running, hailing a cab, and driving a scooter. The creative advertisements had certain parts of models’ bodies blocked off with a box that said “more than shoes.” The campaign received criticism from several groups because of its sexual nature. However, the catch with these ads was that the subjects of the ads were not actually nude; they wore bathing suits or small shorts that were later covered by the box. Because of the negative attention, Zappos pulled the ads and released an apology that explained the production process. TECHNICAL DIFFICULTIES Also in 2011, Zappos experienced some technical difficulties that resulted in delays and problems in customers’ orders and shipments. Zappos upgraded one of its processing systems, and in the process many orders were deleted or delayed. Some orders had the incorrect shipping information, and products were shipped to the wrong location. Although this upset several customers, Zappos handled the problems and reassured customers that it would get their merchandise as soon as possible. The company also offered different perks, depending on the circumstances of each customer experience. Another problem Zappos encountered was that every item from 6pm.com, one of its websites, was priced at $49.95 for 6 hours in 2010. The company had to shut down Case 13 • Zappos: Delivering Happiness 461 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 the website for a few hours to solve the problem. Zappos honored all the orders from the pricing mistake, which resulted in a $1.6 million loss. In 2012, hackers broke into Zappos’s computer system, and the company had to respond to the theft of 24 million customers’ critical personal information. The stolen data included customers’ names, e-mail addresses, shipping and billing addresses, phone numbers, and the last four digits of their credit cards. Zappos immediately addressed the situation by sending an e-mail to customers notifying them of the security breach. Zappos assured customers the servers containing their full credit card information were not hacked. Zappos’s next move was to disconnect its call center, reasoning that the expected number of calls would overload its system. While Zappos has a reputation for delivering customer service that is unmatched by any competitor, some customers were unhappy with how Zappos handled the hacking. Many customers were upset by their information being hacked, but the situation was made worse by Zappos’s action of disconnecting its call center. Although this situation caused problems for Zappos and blemished its customer service record, the company has worked to restore its reputation. THE FUTURE OF ZAPPOS Zappos remains committed to serving its customers and employees. So far, the company has retained its unique culture and continues to expand into new product categories. In one interview, Hsieh talked about the growth of Zappos and how he believes that expanding into the clothing and merchandise market will help the company to grow. Hsieh says that “the sky is the limit” for Zappos, and that growing and expanding into many different types of businesses is Zappos’s future. Hsieh continues to look for talented and creative individuals. He has pledged $1 million in partnership with Venture for America to bring at least 100 graduates to the Las Vegas area over a 5-year period. As Zappos expands, it will have to work harder to hire the right people, avoid ethical issues, and maintain its quirky culture. The company’s new organizational structure and compensation system for its call center employees are major steps to expand without compromising Zappos’s unique culture. Although many employees ended up leaving the company, Zappos believes these moves are the right ones to make and will enable the firm to continue growing both in employees and productivity. Leadership is a key factor in the success of any company, and for Zappos, having Tony Hsieh as a leader is a strong indicator for future success. Hsieh has expressed that he will do whatever it takes to make his employees, customers, and vendors happy. The future for any company looks bright when its leadership is committed to such strong values. However, Zappos needs to make sure that it continues to focus on its stakeholders and its long-term vision with or without Hsieh. Ultimately, Zappos intends to continue to deliver happiness to its stakeholders. Hsieh says, At Zappos, our higher purpose is delivering happiness. Whether it’s the happiness our customers receive when they get a new pair of shoes or the perfect piece of clothing, or the happiness they get when dealing with a friendly customer rep over the phone, or the happiness our employees feel about being a part of a culture that celebrates their individuality, these are all ways we bring happiness to people’s lives. Zappos’s success and innovative business model have caught the attention of many other companies. The company has appeared on several prestigious lists including Fortune’s “Best Companies to Work For,” Fast Company’s “50 Most Innovative Companies,” BusinessWeek’s “Top 25 Customer Service Champs,” and Ethisphere’s “World’s Most Ethical Companies.” Zappos’s business model is so successful that the company offers tours and workshops. Its 3-day culture camp 462 Case 13 • Zappos: Delivering Happiness Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 costs $6,000 and teaches participants about the Zappos culture and how to develop their own successful corporate cultures. The company also created Zappos Insights, an online service that allows subscribers to learn more about Zappos’s business practices through blogs and videos. These programs have high profit potential for the company because they are built on what Zappos already does best. As the company continues to gain recognition for its efforts in creating a vibrant and transparent corporate culture and business model, Zappos’s success among its varied stakeholders looks promising. 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This group project requires the use of EXCEL spreadsheets to prepare various budgets for a manufacturing company. For this purpose the class is asked to form groups of 4 students and allocate the task among them equitably. It is important that all participants contribute to the effort and share the overall task. All the facts and figures about the company’s operations are supplied below: Sprinkler Corporation produces plastic garden sprinklers. The company is preparing its budget for 2015. The first step is to plan for the first quarter of that coming year. Sprinkler has collected the following information from the managers.