Whole Foods has enjoyed an incredible history of success. Their co-founder and CEO, John Mackey, is an evangelist for "conscious capitalism" -- stressing purpose beyond profit -- and believes in fully empowering employees to make decisions and tailor their stores to meet local needs.

Mackey's decentralized leadership philosophy of love and care, passed down to his stores, catapulted Whole Foods to Fortune's illustrious "100 best companies to work for" list twenty years in a row. That is, until 2017. (More on that below.)

Peaking in 2013, Whole Foods started losing market share to traditional supermarkets offering more, and cheaper, organic products. By last year, Whole Foods had started closing stores. 

Mackey searched for buyers, met Amazon's Jeff Bezos -- who sprinkled the proverbial pixie dust on him -- and it was love at first sight. In August 2017, Amazon acquired Whole Foods Market for $13.7 billion.

The state of Whole Foods after the Amazon acquisition.

After the merger, reports streamed in about angry customers oddly encountering empty shelves at their favorite retailer. 

That got the attention of Harvard Business School professors Dennis Campbell and Tatiana Sandino. They decided to investigate the two cultures at work, which resulted in their case study, "Whole Foods Under Amazon." (The study looks at the limits of trying to force one culture or management style on another organization.) 

As Harvard Business School's Working Knowledge reports, Amazon's intense, data-driven mindset of efficiency being forced on Whole Food's team members was proving to be a bad fit for Whole Food's autonomous, employee-empowered culture. It was a classic case of culture clash.

Under their strict new parent's oversight, Whole Foods employees are now required to use checklists called "scorecards" and tests called "walks" to ensure stores comply with a new inventory-management system called order-to-shelf, or OTS.

In essence, OTS is a rigid set of procedures required for purchasing, displaying, and storing products on store shelves and in back rooms. This means team members are spending considerable more time bogged down in OTS-related paperwork than serving customers the Whole Foods way.

The new normal: Food shortages and crying employees.

Business Insider reports that team members blame the OTS system for confusion, crushed morale, and widespread food shortages in stores nationwide.

"At my store, we are constantly running out of products in every department," an assistant department manager of an Illinois Whole Foods told Business Insider. "Regional and upper store management know about this. We all know we are losing sales and pissing off customers. It's not that we don't care -- we do. But our hands are tied."

"The stress has created such a tense working environment, seeing someone cry at work is becoming normal," said a supervisor at a West Coast Whole Foods store.

Team members told BI that they don't understand how OTS works. Many of them are angry about new performance metrics with demerits if they fail to meet them. Others are terrified of losing their jobs under the new system.

Professor Campbell weighs in: "These new 'draconian' standards coming from Amazon, telling people where to put things on the shelves and the loss of autonomy, employees were feeling angry from that."

Not surprising, last year Whole Foods dropped from Fortune's best companies to work for list for the first time in two decades.

Amazon is only partly to blame for the culture clash.

While many will demonize and cast Amazon as the bad guy, Campbell and Sandino note that "the new inventory system was actually something Whole Foods had started to implement before the Amazon deal." (emphasis mine)

So who's the villain in the play that masterminded the "draconian" standards? None other than Whole Foods activist shareholders.

As stock and sales margins slipped for two years before Amazon's acquisition, activist shareholders turned the heat up to stay competitive and drive the bottom line. Whole Food's conscious, servant leadership approach bowed down to the rigorous, data-driven management we find today.

From the Harvard Business School article: "After Amazon's acquisition, Whole Foods pushed forward with the inventory system first introduced by the activist investors, started to centralize decisions about product selection, and slashed prices by as much as 40 percent on some items."

A solution to the culture clash.

Campbell gives us a hint to what the future may hold for this marriage of opposites: "It's not totally clear that data will be a perfect substitute for human judgment. [In] a store environment, there is a lot of learning that takes place from employees interacting with customers that can be very localized and specific."

So what's the ultimate solution moving forward?

Professor Sandino suggests the best of both worlds -- a happy compromise she calls "structured empowerment."

In this management scenario, Amazon continues to standardize operations with data but allows flexibility for Whole Foods team members to make their own choices where having high-touch contact with customers matters.

"Instead of this assumption that data should take over everything, there is a huge opportunity here for data to inform and complement human judgment," states professor Campbell.

I can only imagine that Bezos and Mackey, in all their prolific wisdom, may have seen this coming and are diligently working out a happy medium to make this marriage work for the benefit of all stakeholders, including valued Whole Foods employees.

Time will soon tell.

Published on: May 17, 2018
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