JultikaUniversity of Oulu repository

Nowadays, hierarchical organizational structure, which has been created and dominated in 20th century, still remain widely used. The success of hierarchy in organizations in a period of time from 1960 to 2000 had been justified by such factors as: the relatively steady environment and preference of transparency and predictability over flexibility. However, in 21th century the business environment changed, therefore, the relevance of hierarchy becomes questionable. The given study provides a comparison between the hierarchical organizational structure and a modern holacratic structure. The research problem for this study is the lack of scientific and empirical data on how organizations can embrace the change in its structure and increase its vitality and adaptivity. The purpose of the current master’s thesis is to resolve the stated problem by investigating the organizational change of US-based company Zappos that was established in 1999 as a pioneer of online retail company and became a large corporation 10 years later. Following the process of expanding in 2013, the company switched from hierarchical organizational structure to the holacratic. The study is divided into three historical embedded cases in order to evaluate the reasons and outcomes of the organizational change. According to the research findings, the premises of Zappos organizational change was exceptional culture, orientation on long-term perspective and the influence of CEO visionary leadership. Additionally, the outcome of this study indicated that for large organizations that have hierarchical organizational structure the transformation to holacratic structure is too risky due to the complexity and long duration of shifting process. It has also been stated that emerging and scaling enterprises should have a holacratic structure in order to support the growth of adaptivity by eliminating the hierarchical ladder, distributing authority to all employees, while ensuring the encouragement of active involvement into company’s operations and strategic developments.