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14 MAY 2018RESEARCH & IDEAS

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 Sandino discuss their new case
study.

36
Jamie_Hall
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.

“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.

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.”

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.”