Industry Update
Opinion Article11 February 2013

Whole Foods Case Study: A Benchmark Model of Management For Hospitality

By Arturo Cuenllas

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Cuenllas

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

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Charles Fishman at Fast Company
Imagine yourself working in any company surrounded by these working habits: passion, innovation, transparency, trust, self-management, teamwork, cooperation, federalism, community, strong sense of belonging, sincerity, integrative leadership, empowerment, knowledge, flexibility, dialogues, open-book-management, consensus, power of decision, initiative, pro-activity, commitment, organizational learning and pride in belonging, "We" instead of "I"… All these post tayloristic management concepts are usually treated in business schools, management forums, magazines or conferences held by gurus. These are strong post-bureaucratic working ideals, which are normally seen as utopian practises of management and seldom put into action. Of course, managers will recognize the importance of many of these management concepts; they would even assure that they are committed to some of them. But the reality is a very different picture, since managers never transform their words into actions. However, Whole Foods did it. They proved to all that a shift in the paradigm of management is possible, and, at the same time very profitable. Whole Foods has turned up side down all these management concepts, often treated with scepticisms, and made from them a new business model, no longer an utopia dream. A competitive business can be in perfect balance with stakeholders. Shareholders and profits are certainly important, but no more important than customers and employees. Whole Foods founder and CEO, John Mackey, goes even further with his commitment and vision of a Conscious Business and Conscious Capitalism.

Whole Foods has inspired the Collective Management thesis, and practice, in hospitality. Today most businesses focus on shareholders and profits. These are Milton Friedman and the Washington Consensus prescriptions; the main concern of any business must be to shareholders and its maximization of profits –they will say. This economic theory says that any other stakeholders such as workers or guests shouldn't be put in the same balance. This is the reason why management and managers have rooted mind-setsand professional bias against such innovative working practices. Continuous innovation happens if companies are managing with the appropriated leadership, empowering people and thus unleashing workers' potential. This is the good path to get any Competitive Advantage in hyper-competitive markets.

The following Business Case Study "Walk the Talk". It deals works with these innovative management premises. It is also a good example of an organization that follows its sense of purpose, transmitting it to all stakeholders. As a result, the company vision is shared first by all team members; producing then more passion and affecting all working activities. This radical management practice breaks with the conventional thought while still achieving spectacular results! Above all, what matters most in this shift in the management paradigm, is that this radical model of management is happening in a very commoditized and mature industry. Whole Foods has clearly shown us that, by focussing on workers and their contribution to constant company improvements, core values and customers, it is possible to get a real Competitive Advantage.

What is Whole Foods?
In 1978, twenty-five year old college dropout John Mackey and twenty-one year old Rene Lawson Hardy borrowed $45,000 from family and friends to open the doors of a small natural foods store called SaferWay, in Austin, Texas. When the couple got booted out of their apartment for storing food products there, they decided to simply live at the store. Since it was zoned commercial, there was no shower stall. Instead, they bathed in the Hobart dishwasher, which had an attached water hose.

Two years later, John and Rene partnered with Craig Weller and Mark Skiles to merge SaferWay with their Clarksville Natural Grocery, resulting in the opening of the original Whole Foods Market on September 20, 1980. At 10,500 square feet and a staff of 19, this store was quite large in comparison with the standard health food store of the time.

Today, Whole Foods Market, Inc. is the largest natural-foods grocer in the United States with more than 300 stores in the U. S., Canada and the United Kingdom. WF's 2012 annual sales are $11 billion, and net profit of $465,5 million. But what does John Mackey think about money? As he said in an interview: "I still grow in financial success because I have a numbers of investments that continue to flourish…but WF is trying to fulfil a deeper purpose, and I have to embody that deeper purpose. The money thing is a distraction, it´s so easy for people to judge you, saying that you did that, or got a lot of money…but if you are able to take the money out of the equation then you are doing it for the "service" to fulfil that mission for the organization, so that it creates a certain purity in your motive. One thing I know is what the right move is because of how the team members are responding. Team members are so excited. Why? Because these guys they really believe in their mission" Like he also said: "purpose inspires people, and purpose releases creativity".

Their motto states — Whole Foods, Whole People, and Whole Planet —and emphasizes that on their vision that reaches far beyond just being a food retailer. Their success in fulfilling their vision is measured by customer satisfaction, Team Member excellence and happiness, return on capital investment, improvement in the state of the environment, and local and larger community support.

Store opening in Charlotte, North Carolina
Whole Foods stores don't stock products with artificial colours, flavours, or preservatives; offers as much organic produce as possible; only sell meat and seafood that are free of chemicals and hormones. WF prides itself on selling the highest quality, freshest, and most environmentally sound produce. No one could argue that their selection of organic food and take-away meals are whole, hearty, and totally delicious. "Whole Foods Market is passionate about helping people to eat well, improve the quality of their lives, and increase their lifespan. Their purpose is to teach people that what they put into their bodies makes a difference, not only to their health and to that of the people who supply the food, but also to the health of the planet as a whole", Mackey said. WF is a company very committed to its values, these core values are shared throughout the organization; (a) Quality Standards: they are very serious about quality carrying natural and organic products. (b) Organic farming: farming without the standard array of modern toxic and persistent chemicals commonly used in conventional food production. They support local farms. (c) Seafood sustainability: they believe that sustainable seafood comes from responsibly managed fish farms and marine fisheries that maintain healthy fish populations and ecosystems. (d) Animal welfare rating standards: It is a tiered rating system developed to rank animal welfare practices and conditions within farm-animal production systems. (e) Caring for Communities: Each of their stores has a lot of latitude in deciding the best way to operate that individual store to meet the needs of the local community. (f) Whole trade guarantee: At Whole Foods Market, they're not just about selling groceries; they believe they have a responsibility toward all people involved in their business. This includes shoppers, shareholders, team members and suppliers as well as producer communities in developing countries.

Team Leader member
The Whole Foods strategy combines democracy with discipline in working and management. The Whole Foods culture braids a strong sense of community with a fierce commitment to productivity. It's a virtuous circle: rank-and-file participation reinforces individual attention to performance and profits; solid financial results give people more freedom to innovate. Mackey imagined the impact if every single person working for a company were able to be a creator and innovator. A working place, in which Team members could be enable, capable, empowered and challenged to unleash their entrepreneurial energy and their creativity to help improve their team, store and company. He always thought about innovation as a constant business objective also enhanced from bottom-up. As he mentioned once: "Any organization that depends on a few geniuses at the top and outside consultants, regardless of how brilliant they are, is at a competitive disadvantage to businesses that more fully utilize all of their intellectual capital and decentralized knowledge".

Whole Foods business model and management operates under these principles:

Self directed teams: competition -and collaboration

The fundamental work unit of the company is the self-directed Team. Teams meet regularly to discuss issues, solve problems and appreciate each other's contributions. Every Team Member belongs to a Team, being very committed to business objectives, values and performance.

Whole Foods recognizes the importance of smaller tribal groupings to maximize familiarity and trust. Trust is the glue that holds everything together throughout the company. They organize their stores –and company- into a variety of interlocking teams. Most teams have between 6 and 100 team members, and the larger teams are subdivided further into a variety of sub-teams. The leaders of each team are also members of the Store Leadership Team and the Store Team Leaders are members of the Regional Leadership Team. This interlocking team structure continues all the way upward to the Executive Team at the highest level of the company.

Teams — and only teams — have the power to approve new hires for full-time jobs. Store leaders screen candidates and recommend them for a job on a specific team. But it takes a two-thirds vote of the team, after what is usually a 30-day trial period, for the candidate to become a full-time employee.This hiring referendum affects the behaviour of everyone involved in the process: the job candidate, the team, and the store team leader. Store leaders take great care not to recommend people they don't think the team will approve. The team is the cornerstone of Whole Foods Market; thus the team meeting is where all values come to reality. Each team in all 300 stores meets continuously. Each store meets monthly as a team as well. More often, they are an opportunity for team members to swap stories, constantly learn analysing guest comments and job improvement opportunities, solve problems, and share information. They are central to how stores operate and improve — an important ritual for promoting group accountability and reinforcing the company's values. Trust, between team members and managers, is decisive. At Whole Foods that trust is optimized in this type of smaller team organizational structure. This is because each person is a vital and important member of his or her teams. The success of the team is dependent upon the invaluable contributions of everyone on the team. Trust is optimized when it flows between all levels within the organization. Whole Foods structural organization is very decentralized, the basic operating unit is based on teams; each team such as grocery, bakery, fruits and vegetables, meat and seafood, cashiers, prepared foods…works as independent units with much decision power, committed to business objectives, values and mission. Teams are also fundamental in company improvements and innovation.

Teams compete against their own goals for sales, growth, and productivity; they compete against different teams in their store and against similar teams in different stores and regions. This competition is a major reason why performance information is so available within an open-book-management philosophy. Since every team can measure other team´s performance, there is a healthy competition among businesses, comparing performance indicators such as sales, profits, and customer satisfaction… The main vehicle for competition at Whole Foods is an elaborate system of peer reviews through which teams benchmark each other. But they also collaborate sharing knowledge and best practices, as Mackey view: it is natural for people both compete and collaborate.

Empowerment

Mackey wrote in an article: "Empowerment must be much, much more than a mere slogan, however. It should be within the very DNA of the organization. Empowerment unleashes creativity and innovation and rapidly accelerates the evolution of the organization. Empowered organizations have tremendous competitive advantage because they have tapped into levels of energy and commitment which their competitors usually have difficulty matching".

Empowerment is also based on Self-responsibility that is, to take responsibility for their own success and failures. They celebrate success and see failures as opportunities for growth and recognize that they are responsible for their own happiness and success. "Business must view people not as resources but as sources". John Mackey said. "A resource is like a lump of coal; you use it and it's gone. A source is like the sun – virtually inexhaustible and continually generating energy, light, and warmth. There is no more powerful source of creative energy in the world than a turned-on, empowered human being." Innovations thus happen from bottom up, and merge strategies show up frequently, since all this working freedom allows organizational learning and job improvement to flourish constantly. When people are expected to take more responsibility from their jobs, they normally boost their strengths making the company working processes advance better. Organizations such WF believes in workers and team self-responsibility, self-management and empowerment. People don't need to be controlled or supervised in order to ensure job performance. Paradoxically, those companies that empower their workers-and reduce bureaucratic controls- are the ones having more control. The style of management based more on command and control, has the pretension of better controlling jobs and workers performance, but the reality is that, once the manager or supervisor is not there to control, performance certainly decreases. A sort of self-fulfilling prophecy takes its place. Contrary to this mind-set and as a direct consequence of trusting in workers we have companies like WF that over-perform expecting from teams and individuals self-management. Mackey referred to Control by saying: "Conscious managers exercise a minimal amount of control. Their role is not to control other people; it is to create the conditions that allow for more self-management". Their conditions are basically based on strong and shared values, as well as greater sense of responsibility from each one of the team members.

Customer -and product- experience
Whole Foods is very committed with Peter Drucker statement, which said that the only business purpose is to create a customer. Customers are the reason for being of every business. Without customers there is no business, nor employments.

Part of Whole Foods' success, part of its style, is to constantly up the bar in terms of the kinds of foods it offers, how it presents that food, and what it tells you about how the food got to the store. Satisfying and delighting their customers, is it´s primary core value. WF writes about customers on its Web: "They are their most important stakeholders in our business and the lifeblood of our business. Only by satisfying our customers first do we have the opportunity to satisfy the needs of our other stakeholders". It is the first commitment of all employees, serving customers and informing them about the advantages of the healthy food that they are selling. Whole Foods team members are the best ambassadors of their brand; they are the best "actors and actress" of this "performance" –they called it, of selling food to customers. It is not just selling food, it is about fulfilling the company's purpose and core values, and they do it with passion, transmitting it to their guests. Service to customers though becomes more natural and authentic since it´s deeply rooted in employees' behaviour. Whole Foods Market is passionate about helping people to eat well, improve the quality of their lives, and increase their lifespan. Passion is the right word to show how service is provide to guests. Their purpose is to teach people that what they put into their bodies makes a difference, not only to their health and to that of the people who supply the food, but also to the health of the planet as a whole.

Transparency

There isn't sufficient trust between team members and mangers without the proper transparency. As Mackey stated, "if we want to optimize trust then we must optimize transparency" Many companies act in the opposite way, hiding information, or selecting some people to whom trust and share relevant information. This lack of honest, authentic communication and transparency usually boomerangs, however, and undermines trust and creates cynicism. But in WF, such grade of trust it´s shown everyday to all team members, by acting with full transparency throughout all working activities.

The open-salary policy is undeniably radical. But its trust-building payoff is substantial. CEO Mackey initiated the policy in 1986: "I kept hearing from people who thought I was making so much money. Finally, I just said, 'Here's what I'm making; here's what Craig Weller –co-funder-is making — heck, here's what everybody's making.'" All salaries are open; if someone is making more money it is because he or she is performing better within his or her team.

By sharing much information, do we risk revealing important information to competitors? Maybe, but overall the advantages outweigh the drawbacks. Mackey make it clear writing: "The high-trust organization takes the risk of revealing too much information. We must be willing to take the risk that some valuable information may fall into the wrong hands because our commitment to empowerment and trust necessitates taking that risk. Creating transparency and authentic communication is an ongoing challenge that every organization faces. We must continually strive to remove the barriers that prevent it, knowing that we can't maintain high levels of organizational trust without it."

Innovation

Innovation is a purpose that affects everyone. It is not a business task only assigned to centralized offices, coming from the top-down. Contrary to this tayloristic view, WF's basic unit is the team within a very decentralized organization structure. Teams, especially teams, are responsible for improving jobs and developing new ideas –respecting core values. Innovation thus happens as a social process within a team, in-group, and by analysing jobs and guest feedback. Innovation is democratized and expected to happen, especially, from the bottom-up. Here is how Mackey sees it: "Imagine the impact if every single person working for a company were able to be a creator and innovator. Team members should be enabled, empowered, and challenged to unleash their entrepreneurial energy and their creativity to help improve their team, store and company".

The common wisdom about innovation is either by focusing on the result, forgetting that first of all it is a process -indeed, a social process- or referring innovation to technology or technological industries. But innovation refers also small working improvements seeking to provide more value to your guests. That is how WF focuses on innovation, by developing ideas that appeared as a job reflection, and closely, monitors it. Then, if the idea has been proved with measured results, they may share it as the best practice. John Mackey also demystifies the common view about innovation by saying: "In the United States, there is a myth of the lone genius coming up with brilliant ideas that change the world. While that occasionally happens, the more common scenario is that an individual comes up with an idea and shares it with other members of his or her team; they become excited and improve upon it. The spirit of collaboration allows the idea to evolve and mature".

Innovation has basically two financial purposes: (1) to increase revenues by providing more value to guests, and (2) to reduce costs by making operations more effective. All teams and members are focusing their efforts on them.

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Arturo Cuenllas

Founder of Conscious Hospitality: a Hospitality Educational Consultancy in Management, Leadership and Sustainability | MBA professor at BHMS –City University of Seattle- in Luzern, Switzerland | MBA associate professor at ESCP Europe Business School in Madrid, Spain | Experienced Hotel General Manager, 20 years overall international experience in the hotel industry; luxury and upscale city hotels and resorts.

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