4QQMB100: INTRODUCTION TO

MANAGEMENT

TUTORIAL TASK 10

TOPIC:

ORGANIZATIONAL CULTURE

Read the following instructions and develop answers to the question after reading

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Amazon vs. Whole Foods: When Cultures Collide
by Michael Blanding

Amazon's acquisition of Whole Foods seemed a Wall Street dream come true. But
then Amazon's data-driven efficiency met the customer-driven culture at Whole
Foods—and the shelves began to empty. Dennis Campbell and Tatiana
Sandinodiscuss their new case study.

Amazon’s acquisition of Whole Foods last August was the corporate equivalent of
mixing tap water with organic extra virgin olive oil. You’d be hard-pressed to find two
companies with more different value propositions.

Even so, it was surprising to hear reports shortly after the marriage about Whole
Foods customers, really angry customers, regularly encountering empty shelves at
their favorite retailer. Then stories surfaced about Whole Foods employees
crying over their new performance-driven working conditions imposed by Amazon. 

“THIS IS NOT A STORY WHERE THERE IS A GOOD GUY

AND A BAD GUY" 
Harvard Business School professors Dennis Campbell and Tatiana Sandino
took notice, suspecting a clash of corporate cultures was at work. Their
forthcoming case study discusses the limits of trying to force one culture or
management style on another organization. The case was co-written with
James Barnett and Christine Snively.

A tale of two cultures

From the very start, Amazon made its name on being fast, cheap, and efficient
—using data to drive its product mix and enforcing strict employee discipline
to squeeze out cost savings to pass on to its customers.

Whole Foods, on the other hand, always prided itself on its personal touch,
empowering individual stores—even individual employees—to make decisions
about products that emphasize high quality, healthy, and local foods. That
decentralization, however, caused enormous inefficiencies that drove up
prices to the point where critics referred to the store as “Whole Paycheck.”

The acquisition was initially met positively by Wall Street, amid hopes that
Amazon’s data-driven mindset might be just the thing to enable Whole Foods
to scale up and add more stores while maintaining its employee-empowered
culture. 

That’s not quite what happened.

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“A lot of it from our perspective was centered on a culture clash,” says
Campbell. “Whole Foods has a very high-empowerment kind of culture, so
these ‘draconian’ standards, telling people where to put things on the shelves
and the loss of autonomy, employees were feeling angry from that.” 

The new inventory system was actually something Whole Foods had started
to implement before the Amazon deal, pressured by activist shareholders who
had seen the grocer’s stock and sales margins slipping for two years.

“This is not a story where there is a good guy and a bad guy,” says Campbell.
“It’s a story about what the limits are to scaling this high-empowerment model,
and what are the limits to a model where it’s all about standardization and
data.”

A model of empowerment
For decades after its founding in 1980, Whole Foods’ decentralized model had
earned a cult following, driving rapid growth from its Austin, Texas, home
across the country. Managers operated stores like autonomous fiefdoms, able
to tailor offerings based on customer preferences for fresh, local produce.
Employees—also known as team members—built relationships with
customers to cater to their needs and came up with ideas, like a bike
messenger service or a new bread recipe, that sometimes found their way to
other stores.

“That model of empowerment brings with it a lot of wonderful, creative

solutions and a great relationship with local suppliers—and customers are
very into that,” says Sandino. “They were appealing to a wealthy customer
with a curated selection of healthy products that people could trust.”

The company also earned loyalty from team members—it was named one of
America’s best companies to work for by Fortune magazine a staggering 20
years in a row.

“IT’S ONE OF THOSE CULTURES THAT WORKS FOR SOME

PEOPLE, BUT NOT OTHERS. THERE IS A LOT MORE
PERFORMANCE PRESSURE AND ACCOUNTABILITY"

In some ways, however, the company became a victim of its own success as
a pioneer of organic sustainable foods. Peaking in 2013, it started losing
market share to less pricey alternatives such as Walmart, which had entered
the organic space. By 2017, Whole Foods had started closing stores.

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Turning data into customer value
Amazon, by contrast, had always been about low costs and efficiency,
pursuing a frugal focus and rigorous performance measurement in its
warehouses and distributions centers. This sometimes resulted in reports of
workers stressed out and exhausted by the demanding environment.

“It’s one of those cultures that works for some people, but not others,” says
Campbell, “there is a lot more performance pressure and accountability.”

The model paid off for customers in low prices and fast shipping, and they
became intensely loyal: According to one survey, 85 percent of Amazon Prime
members visit the site, and 46 percent buy something at least once a week.

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.

Employees struggled, however. They were frustrated about having to do

paperwork instead of helping customers, and stressed over new performance
metrics with demerits if they failed to meet them. Last year, the company
dropped from Fortune’s best companies to work for list for the first time in two
decades.

What went wrong?

The question that Campbell and Sandino ask in their case is: Given the
pressures Amazon was facing to turn around Whole Foods’ slide, should they
have approached the acquisition differently?

While there are no easy answers, Campbell says that part of the issue is
realizing the limits of standardization, even for a company that has perfected
data-driven management.

“It’s not totally clear that data will be a perfect substitute for human judgment,”
he says. “That might work in a digital platform, where you have tons of data on
customer history you can use to drive a recommendation engine, but 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.”

That kind of tacit knowledge is not easily captured in data and performance
metrics, adds Sandino. “Amazon has been an expert on delivering non-
perishable foods, but that is different than learning how to prepare certain
foods, or knowing how customers want their fish or a cut of meat, which may
vary in the moment.” 

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She suggests Amazon may have been better off pursuing a management
concept known as structured empowerment, where a company standardizes
operations but allows flexibility for employees to make their own choices in
key areas where having high-touch contact with customers matters.

In addition, she says, Amazon might have changed its performance measures
to focus more on results rather than processes, holding employees
accountable for goals, but giving them more leeway on how they achieve
them.

“INSTEAD OF THIS ASSUMPTION THAT DATA SHOULD

TAKE OVER EVERYTHING, THERE IS A HUGE
OPPORTUNITY HERE FOR DATA TO INFORM AND
COMPLEMENT HUMAN JUDGMENT”

“They can make some tradeoffs and incorporate their own knowledge, rather
than having to follow a recipe,” she says. That, in turn, could give them more
incentive to use the data Amazon is serving up to further drive results.

Is the best yet to come?

Campbell stresses that the ideas in their case are speculative, based on
second-hand reports in the press. They can’t be sure how much Amazon tried
to integrate its culture with that of Whole Foods, or what its ultimate goal is for
the acquisition. There is always the possibility the company is just acquiring
the stores for their locations, and plans to phase out the Whole Foods brand.

Assuming that Amazon wants Whole Foods to succeed, however, it might do

well to consider the benefits of the grocery chain’s empowerment model, and
what elements of it to keep, before throwing out the proverbial olive oil with the
tap water.

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

Source: https://hbswk.hbs.edu/item/amazon-vs-whole-foods-when-cultures-
collide

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Question:

The case study talks about a ‘culture clash’. Cultural clashes might also appear in Merger’s &
Acquisation. Why is it difficult to change organizational culture and what do you see as the best
strategies to do so?