WHOLE FOODS MARKETMANAGEMENT CASE STUDY: ABENCHMARK MODEL FORHOSPITALITYBY ARTURO CUENLLAS

The 65-year-old supermarket industry is the last place to look for radical ideas about workand management. It’s a stumbling giant with shrinking sales, razor-thin margins, and chroniclabor troubles. Too often, the shopping experience is synonymous with bruised produce, badlighting, long lines, and surly cashiers. Supermarkets are about brawn not brains — it’s abusiness where every penny counts and double coupons qualify as a profound strategicinnovation.

-Charles Fishman at Fast Company.

Imagine yourself working inany company surrounded bythese working habits: passion,innovation, transparency, trust,self-management, teamwork,cooperation, federalism,community, strong sense ofbelonging, sincerity, integrative

leadership, empowerment, knowledge, flexibility,dialogues, open-book-management, consensus,decision-power, initiative, pro-activity, commitment,organizational learning and pride in belonging, “We”instead of “I”…All these post tayloristicmanagement concepts are usually treated inbusiness schools, management forums, magazinesor conferences held by gurus.

These ones are strong post-bureaucratic workingideals, which are normally seen as utopianpractices of management and seldom put intoaction. Of course, managers will recognize theimportance of many of these managementconcepts; they would even assure that they arecommitted to some of them. But the reality is paintin a different color, since managers never transformtheir words into actions. Nevertheless, WholeFoods did it. They proved to all that a shift in theparadigm of management is possible, and, at thesame time very profitable. Whole Foods has turnedup side down all these management concepts,often treated with skepticism, and made from thema new business model, no longer an utopia dream.Indeed, any competitive business can be in perfectbalance with all of the stakeholders. Shareholdersand profits are certainly important, but no moreimportant than customers and employees. WholeFoods founder and CEO, John Mackey, goes evenfurther with his commitment and vision of aConscious Business and what is meant to be aConscious Capitalism.

Today most businesses focus on shareholders andprofits. These are Milton Friedman and theWashington Consensus prescriptions; the mainconcern of any business must be to shareholdersand its maximization of profits –they will say. Thiseconomic theory says that any other stakeholderssuch as workers or guests shouldn’t be put in thesame balance. This is the reason why managementand managers have rooted mind-sets andprofessional bias against such innovative workingpractices. Most managers prefer to managethrough information, which means to sit two stepsremoved from the ultimate purpose of managing.

Henry Mintzberg referred to this function ofmanaging, when the information is processed bythe manager to encourage other people to take thenecessary actions. Controlling is a key function inthis role. Mintzberg states: “Ironically, while thiswas the classic view of managing, which dominatedperceptions of its practice for most of the lastcentury, it has again become prevalent, thanks tocurrent obsession with the “bottom line” and“shareholder values”: both encourage a detached,essentially information-driven practice ofmanaging”.

The problem with such obsessive controlling ofpeople is that, it usually implies a waste of humanresources and employee knowledge otherwisehelpful for innovation. Continuous innovationhappens if companies are managed with theappropriated leadership. Innovation is the outcomeof empowering people and unleashing workers’potential and the right path to get any competitiveadvantage in a hyper-competitive market.

The following business case model “walks the talk”.It deals with these innovative managementpremises. It is also a good example of anorganization that follows its sense of purpose,transmitting it to all stakeholders. In this case thecompany vision is shared among all members ofthe company, and generating more passion in all ofthe working activities. Whole Foods managementmodel breaks with the conventional mind-set inmanaging while still achieving spectacular results!

The interesting thing in this ‘radical’ model ofmanagement is that it happens in a verycommoditized and mature industry. Whole Foodshas clearly shown us that, by focusing on workersand their contribution to constant companyimprovements, it is possible to get a realcompetitive advantage.

What is Whole Foods?

In 1978, twenty-five year old college dropout JohnMackey and twenty-one year old Rene LawsonHardy borrowed $45,000 from family and friends toopen the doors of a small natural foods store calledSaferWay, in Austin, Texas. When the couple gotbooted out of their apartment for storing foodproducts there, they decided to simply live at thestore. Since it was zoned commercial, there was noshower stall. Instead, they bathed in the Hobartdishwasher, which had an attached water hose.

Two years later, John and Rene partnered withCraig Weller and Mark Skiles to merge SaferWaywith their Clarksville Natural Grocery, resulting inthe opening of the original Whole Foods Market onSeptember 20, 1980. At 10,500 square feet and astaff of 19, this store was quite large in comparisonwith the standard health food store of the time.

Today, Whole Foods Market, Inc. is the largestnatural-foods grocer in the United States with morethan 360 stores in the U. S., Canada and theUnited Kingdom. WF’s 2013 annual sales were$12.9 billion, with an operating profit of $893

million and cash flow of 472 million. But, what doesJohn Mackey think about money? He mentioned inan interview: “I still grow in financial successbecause I have a numbers of investments thatcontinue to flourish…but WF is trying to fulfil adeeper purpose, and I have to embody that deeperpurpose. The money thing is a distraction, it´s soeasy for people to judge you, saying that you didthat, or got a lot of money…but if you are able totake the money out of the equation then you aredoing it for the “service” to fulfil that mission for theorganization, so that it creates a certain purity inyour motive. One thing I know is what the rightmove is because of how the team members areresponding. Team members are so excited. Why?Because these guys they really believe in theirmission” Like he also said: “purpose inspirespeople, and purpose releases creativity”.

Their motto states —Whole Foods, Whole People,and Whole Planet—and emphasizes that on theirvision that reaches far beyond just being a foodretailer. Their success in fulfilling their vision ismeasured by customer satisfaction, team memberexcellence and happiness, return on capitalinvestment, improvement in the state of theenvironment, and local and larger communitysupport.

Their motto states —Whole Foods, Whole People,and Whole Planet—and emphasizes that on theirvision that reaches far beyond just being a foodretailer. Their success in fulfilling their vision ismeasured by customer satisfaction, team memberexcellence and happiness, return on capitalinvestment, improvement in the state of theenvironment, and local and larger communitysupport.

Whole Foods stores don’t stock products withartificial colors, flavors, or preservatives; offers asmuch organic produce as possible; only sell meatand seafood that are free of chemicals andhormones. WF prides itself on selling the highestquality, freshest, and most environmentally soundproduce. No one could argue that their selection oforganic food and take-away meals are whole,hearty, and totally delicious. “Whole Foods Marketis passionate about helping people to eat well,improve the quality of their lives, and increase theirlifespan.

The Whole Foods strategy combinesdemocracy with discipline in workingand management. Therefore itsculture braids a strong sense ofcommunity with a fierce commitmentto productivity. It’s a virtuous circle:rank-and-file participation reinforcesindividual attention to performanceand profits; solid financial resultsgive people more freedom toinnovate.

Their purpose is to teach people that what they putinto their bodies makes a difference, not only totheir health and to that of the people who supplythe food, but also to the health of the planet as awhole”, Mackey said. WF is a company verycommitted to its values and these core values areshared throughout the organization; (a) QualityStandards: they are very serious about qualitycarrying natural and organic products. (b) Organicfarming: farming without the standard array ofmodern toxic and persistent chemicals commonlyused in conventional food production. They supportlocal farms. (c) Seafood sustainability: they believethat sustainable seafood comes from responsiblymanaged fish farms and marine fisheries thatmaintain healthy fish populations and ecosystems.(d) Animal welfare rating standards: It is a tieredrating system developed to rank animal welfarepractices and conditions within farm-animalproduction systems. (e) Caring for Communities:Each of their stores has a lot of latitude in decidingthe best way to operate that individual store to meetthe needs of the local community. (f)Whole tradeguarantee: At Whole Foods Market, they’re not justabout selling groceries; they believe they have aresponsibility toward all people involved in theirbusiness. This includes shoppers, shareholders,team members and suppliers as well as producercommunities in developing countries.

The Whole Foods strategy combines democracywith discipline in working and management.

Therefore its culture braids a strong sense ofcommunity with a fierce commitment to productivity.It’s a virtuous circle: rank-and-file participationreinforces individual attention to performance andprofits; solid financial results give people morefreedom to innovate. Mackey imagined the impact ifevery single person working for a company wereable to be a creator and innovator. A working place,in which team members could be enable, capable,empowered and challenged to unleash theirentrepreneurial energy and their creativity to helpimprove their team, store and company. He alwaysthought about innovation as a constant businessobjective also enhanced from bottom-up. As hementioned once: “Any organization that depends ona few geniuses at the top and outside consultants,regardless of how brilliant they are, is at acompetitive disadvantage to businesses that morefully utilize all of their intellectual capital anddecentralized knowledge”.

Whole Foods business model and managementoperates under these principles:

Self directed teams: competition -andcollaboration

The fundamental work unit of the company is theself-directed team. Such teams meet regularly todiscuss issues, solve problems and appreciateeach other’s contributions. Every employee belongsto team.

Whole Foods structural organization is verydecentralized, the basic operating unit is based onteams; each team -such as grocery, bakery, fruitsand vegetables, meat and seafood, cashiers,prepared foods- works as independent units withmuch decision power, committed to businessobjectives, company values and mission. Everyteam is also fundamental in company improvementand innovation.

Whole Foods recognizes the importance of smallertribal groupings to maximize familiarity and trust.Trust is the glue that holds everything togetherthroughout the company. They organize their stores–and company- into a variety of interlocking teams.Most teams have between 6 and 100 teammembers, and the larger teams are subdividedfurther into a variety of sub-teams. The leaders ofeach team are also members of the StoreLeadership Team, and the Store Team Leaders aremembers of the Regional Leadership Team.

This interlocking team structure continues all theway upward to the Executive Team at the highestlevel of the company.

Teams — and only teams — have the power toapprove new hires for full-time jobs. Store leadersscreen candidates and recommend them for a jobon a specific team. But it takes a two-thirds vote ofthe team, after what is usually a 30-day trial period,for the candidate to become a full-time employee.This hiring referendum affects the behavior ofeveryone involved in the process: the jobcandidate, the team, and the store team leader.Store leaders take great care not to recommendpeople they don’t think the team will approve.

The team is the cornerstone of Whole FoodsMarket. In this way, the team meeting is where allvalues come to reality. Each team in all 360 storesmeets continuously. Each store meets monthly as ateam as well. They have the opportunity to swapstories, constantly learn analyzing guest commentsand job improvement opportunities, solve problems,and share information. Teams are central to howstores operate and improve — an important ritualfor promoting group accountability and reinforcingthe company’s values. Trust, between teammembers and managers, is decisive. At WholeFoods that trust is optimized in this type of smallerteam organizational structure. This is because eachperson is a vital and important member of his or herteams. The success of the team is dependent uponthe invaluable contributions of everyone on theteam. Trust is optimized when it flows between alllevels within the organization.

.Teams compete against their own goals for sales,growth, and productivity; they compete againstdifferent teams in their store and against similarteams in different stores and regions. Thiscompetition is a major reason why performanceinformation is so available within an open-book-management philosophy. Since every team canmeasure other team’s performance, there is ahealthy competition among businesses comparingperformance indicators such as sales, profits, andcustomer satisfaction… The main vehicle forcompetition at Whole Foods is an elaborate systemof peer reviews through which teams benchmarkeach other. But they also collaborate sharingknowledge and best practices, as Mackey views: itis natural for people both compete and collaborate.

Empowerment

Mackey wrote in an article: “Empowerment must bemuch, much more than a mere slogan, however. Itshould be within the very DNA of the organization.Empowerment unleashes creativity and innovationand rapidly accelerates the evolution of theorganization. Empowered organizations havetremendous competitive advantage because theyhave tapped into levels of energy and commitmentwhich their competitors usually have difficultymatching”.

Empowerment is also based on self-responsibilitythat is, to take responsibility for their own successand failures. In WF team members celebratesuccess and see failures as an opportunity forgrowing. “Business must view people not asresources but as sources”. John Mackey said. “Aresource is like a lump of coal; you use it and it’sgone. A source is like the sun – virtuallyinexhaustible and continually generating energy,light, and warmth. There is no more powerfulsource of creative energy in the world than aturned-on, empowered human being.”

Innovations can happen also from bottom up, andmerge strategies show up frequently, since all thisworking freedom allows organizational learning andjob improvement to flourish constantly. Whenpeople are expected to take more responsibilityfrom their jobs, they normally boost their strengthsmaking the company working processes advancebetter. Organizations such WF believes in workersand team self-responsibility, self-management andempowerment.

The team is the cornerstone of WholeFoods Market. In this way, the teammeeting is where all values come toreality. Each team in all 360 storesmeets continuously. Each storemeets monthly as a team as well.They have the opportunity to swapstories, constantly learn analyzingguest comments and jobimprovement opportunities, solveproblems, and share information

People don’t need to be controlled or supervised inorder to ensure job performance. Paradoxically,those companies that empower their workers-andreduce bureaucratic controls- are the ones havingmore control. The style of management basedmore on command and control, has the pretensionof better controlling jobs and workers performance,but the reality is that, once the manager orsupervisor is not there to control, performancecertainly decreases. Contrary to this mind-set andas a direct consequence of trusting in workers wehave companies like WF that over-performexpecting from teams and individuals self-management. Mackey referred to Control bysaying: “Conscious managers exercise a minimalamount of control. Their role is not to control otherpeople; it is to create the conditions that allow formore self-management”. Their conditions arebasically based on strong and shared values, aswell as greater sense of responsibility from eachone of the team members.

Customer -and product- experience

Whole Foods will fully agree with Peter Ducker’sstatement, that what said that the only businesspurpose is to create a customer. Customers are thereason for being of every business, withoutcustomers there is no business, nor employments.

Part of Whole Foods’ success, part of its style, is toconstantly up the bar in terms of the kinds of foodsit offers, how it presents that food, and what it tellsyou about how the food got to the store. Satisfyingand delighting their customers, is it’s a primary corevalue. WF writes about customers on its Web:“They are their most important stakeholders in ourbusiness and the lifeblood of our business. Only bysatisfying our customers first do we have theopportunity to satisfy the needs of our other

stakeholders”. It’s a main commitment to allemployees to serving customers and informingthem about the advantages of the healthy food thatthey are selling. Whole Foods team members arethe best ambassadors of their brand; they are thebest “actors and actress” of this “performance” –they called it, of selling food to customers. It is notjust selling food, it is about fulfilling the company’spurpose and core values, and they do it withpassion, transmitting it to their guests. Service tocustomers though becomes more natural andauthentic since it´s deeply rooted in employees’behavior. Whole Foods Market is passionate abouthelping people to eat well, improve the quality oftheir lives, and increase their lifespan. Passion isthe right word to show how service is provide toguests. Their purpose is to teach people that whatthey put into their bodies makes a difference, notonly to their health and to that of the people whosupply the food, but also to the health of the planetas a whole.

Transparency

There isn’t sufficient trust between team membersand mangers without the proper transparency. JohnMackey stated in this way: “if we want to optimizetrust then we must optimize transparency”.Nevertheless many companies act in the oppositeway, hiding information, or selecting some peopleto whom trust and share relevant information. Thislack of honest, authentic communication andtransparency usually boomerangs because itundermines trust and creates cynicism. Yet in WF,such grade of trust it’s shown everyday to all teammembers, by acting with full transparencythroughout all working activities.

The open-salary policy is undeniably radical. But itstrust-building payoff is substantial. CEO Mackeyinitiated the policy in 1986: “I kept hearing frompeople who thought I was making so much money.Finally, I just said, ‘Here’s what I’m making; here’swhat Craig Weller –co-funder-is making — heck,here’s what everybody’s making.’” All salaries areopen; if someone is making more money it isbecause he or she is performing better within his orher team.

By sharing much information, do we risk revealingimportant information to competitors? Maybe wedo, but overall the advantages outweigh thedrawbacks

Mackey make it clear writing: “The high-trustorganization takes the risk of revealing too muchinformation. We must be willing to take the risk thatsome valuable information may fall into the wronghands because our commitment to empowermentand trust necessitates taking that risk. Creatingtransparency and authentic communication is anongoing challenge that every organization faces.We must continually strive to remove the barriersthat prevent it, knowing that we can’t maintain highlevels of organizational trust without it.”

Innovation.

Innovation is a purpose that affects everyone. Itshould not be a business task only assigned tocentralized offices, and coming from the top-downin the organization. Contrary to this tayloristic view,WF’s basic unit is the team within a verydecentralized organization structure.

Teams, especially teams, are responsible forimproving jobs and developing new ideas –respecting core values. Innovation thus happens asa social process within a team, in-group, and byanalyzing jobs and guest feedback. Innovation isdemocratized and expected to happen, especially,from the bottom-up. Here is how Mackey sees it:“Imagine the impact if every single person workingfor a company were able to be a creator andinnovator. Team members should be enabled,empowered, and challenged to unleash theirentrepreneurial energy and their creativity to helpimprove their team, store and company”.

The common wisdom about innovation is either byfocusing on the result, forgetting that first of all it isa process, indeed, a social process. It is alsocommon to referring innovation to technology ortechnological industries. But innovation refers alsoto small working improvements when seeking toprovide more value to customers. That is how WFfocuses on innovation, by developing ideas thatappeared as a job reflection, and closely, monitorsthem. Then, if the idea has been proved withmeasured results, they may share it as the bestpractice.

John Mackey also demystifies the common viewabout innovation by saying: “In the United States,there is a myth of the lone genius coming up withbrilliant ideas that change the world. While thatoccasionally happens, the more common scenariois that an individual comes up with an idea andshares it with other members of his or her team;they become excited and improve upon it. The spiritof collaboration allows the idea to evolve andmature”.

Teams, especially teams, areresponsible for improving jobs anddeveloping new ideas –respectingcore values. Innovation thus happensas a social process within a team, in-group, and by analyzing jobs andguest feedback. Innovation isdemocratized and expected tohappen, especially, from the bottom-up.

Innovation has basically two financial purposes: (1)to increase revenues by providing more value toguests, and (2) to reduce costs by makingoperations more effective. All teams and membersare focusing their efforts on them. In this way, theinnovative process is more translated into actionbecause of the empowered employees,collaboration and decentralized management.Gordon Bethune, former CEO for ContinentalAirlines and responsible for the companyturnaround in 1995, remarked the importance ofputting ideas into action even more than creativity.“Good, ideas are everywhere. The average personon a street corner has more ideas than he or sheknows what to do with, and new ones arrive every15 minutes. Same with me, same with you, samewith every person who works at or runs everybusiness in the world. A couple of ideas that helpedturn Continental around, in fact, we alreadybubbling around Continental before got there. Thetrick is to translate a good idea into action”.

Whole Foods innovates faster than competitorsbecause they have developed a strongorganizational capacity or taking ideas, growingthem, improving them, and spreading themthroughout the company rapidly. It doesn’t matterwhere the idea originates, what matters is how isthis idea put into action and closely monitored tosee if it is working or not. It also requires a greatculture of collaboration (asides competition) amongteams and units. Innovation and creativity wouldn’twork if successful ideas are not shared throughoutthe organization. Mackey, mentioned as anexample of this, the rapid spread of taprooms andbars within Whole Foods Market’s stores. While a

few of the stores sold beer and wine from variousprepared-food venues within the store, none had adedicated space for a bar that primarily sold beerand wine. At first thought, having a bar in asupermarket doesn’t seem like a terribly good idea;people tend to think of bars as a part of arestaurant or a stand-alone location. However, theNorthern California region decided to experimentwith a bar in a new store that opened in SantaRosa in 2010. And the customers love it. Thissuccessful entrepreneurial idea was quicklystudied, copied, and improved throughout WholeFoods Market.

Whole Foods innovates faster thancompetitors because they havedeveloped a strong organizationalcapacity or taking ideas, growingthem, improving them, and spreadingthem throughout the companyrapidly. It doesn’t matter where theidea originates, what matters is howis this idea put into action and closelymonitored to see if it is working ornot.