Whole Foods Market - Case Study Example

?Whole Foods Market Table of Contents Introduction 3 WFM’s Business and Control Strategies 3 Business strategy of WFM 3 Control strategy of WFM 4 Type of change that characterizes WFM 6 Technology 6 Products and services 7 Strategy, structure and culture 8 Evolution in change policies of WFM 8 Virtual teams in the WFM organizorganisational setting 9 Summary and Conclusion 11 BibliographyReferences 13 Introduction Whole Foods Market (WFM) describes itself as “the world’s leading retailer of natural and organic foods and America’s first national ‘Certified Organic’ grocer” (WFM Form 10-K, 2013, p. 1). The first WFM store was opened in 1980 in is based in Austin, Texas. WFM’s mission is: “Whole Foods – Whole People – Whole Planet,” aiming “to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available” (WFM Form 10-K, 2013, p. 1) – thus the reference to Whole Foods. It follows, however, that the purity of the food provided WFM’s customers is directly determined by the quality of the environment, therefore the reference to Whole Planet. Finally, the provision of good, healthy food and maintenance of the environment can only be achieved by dedicated individuals working towards a common objective; therefore the reference to Whole People. This analysis explores WFM’s business and control strategies, adopting the paradigms of Porter’s generic strategies and the organisational theory by Coase/Williamson, respectively. It discusses the approach of WFM to substantial changes in terms of technology, products and services, and organisational structure, strategy and culture, and explains how change policies have evolved in WFM. Finally, discussion is focused on WFM’s virtual and self-managed teams which are the fundamental organisational units of the firm and the source of its competitive advantage. WFM’s Business and Control Strategies Business strategy of WFM A business strategy, in its simplest definition, is the means by which a business organisation identifies and attains its goals (Porter, 1996). Devising a strategy for business begins with identifying the firm’s goal, and then systematically formulating a plan by which the goal may be achieved. WFM’s purpose is embodied in its mission and core values. Its strategy goes well beyond merely providing fresh foods. The vision emphasises that “whole people” are as important as “whole foods” – that is, developing their human component to their fullest potential, allowing them the freedom to create and innovate, and the power to decide on matters that affect their sphere of work. Generic strategies based on Porter’s typology (Parnell, 2013, p 184) Emphasis on Entire Market or Niche Emphasis on Low Costs Emphasis on Differentiation Emphasis on Low Costs and Differentiation Entire Market Low-cost strategy Differentiation strategy Low cost differentiation strategy Niche Focus low cost strategy Focus differentiation strategy Focus low cost differentiation strategy WFM’s business strategy emphasises creativity and innovation which create a difference in the stores’ choice of product offerings and the quality of their service delivery, for the entire market. This is the differentiation approach. This is the strategy that is ideal in markets dominated by large market leaders – in this case, Wal-Mart which overshadows all other competitors in the grocery industry. Rather than going head-to-head with Wal-Mart and inevitably lose in the process, WFM could achieve greater business success if it distinguishes itself along key strategic points. These key attributes are those competitive factors that the smaller grocer can develop but which Wal-Mart cannot easily duplicate, such as less hectic stores, superior selection of certain food products, or greater convenience to the customer (Parnell, 2013). WFM’s favourable employee policies that develop a sense of engagement and ownership among its workers are evidenced by its annual inclusion in Fortune Magazine’s 100 Best Companies to Work For, only one of thirteen companies to be so included, ever since the award’s inception in 1998 (Harbin & Humphrey, 2009). Furthermore, the employment of self-managed teams drives empowerment and engagement within the company, further bolstering the clan relationship as the framework for control (Boone & Kurtz, 2011). The team structure shall be discussed in a subsequent section of this report. Control strategy of WFM Pursuant to an inquiry by Coase (1937) and developed by Williamson (1975), the control strategy of an organisation may be described as either bureaucratic, market, or clan. These categories pertain to the manner in which individuals within the organisation relate to and are interdependent upon each other. Transactions take place between persons where each party gives something of value and receives a commensurate value in return. In a market regime, the transaction between two individuals is mediated by a price mechanism in a competitive environment that assures both parties of the equitability of the terms of exchange. In a bureaucratic relationship, each person contributes his labour to the organisation that provides the mediating mechanism by assigning a value to each contribution and then compensating it fairly. The fairness or equity is founded on reciprocity and the perception that the social agreement possesses the legitimate authority to mediate. Finally, the clan relationship (so-called because it resembles the ties within a kin network) pertains to congruent objectives between the transacting individuals that allows them to forego the conventional mediation mechanisms of reciprocity and equity. This congruence is developed in a systematic way by the socialisation of individuals into the organisation that functions as the mediating mechanism (Ouchi, 2012). WFM operates in a clan relationship. As a large corporation, the formal bureaucratic factor could not be completely negated, because to some extent the value attributed to labour follows the pricing mechanism of a management endowed with authority and legitimacy. However, WFM fosters a culture and cult following, not only among its customers (Wolk, 2008), but also among its employees as internal stakeholders. In WFM, teams are endowed with real power; for instance, teams, and only teams, may hire new personnel to fill in full-time jobs. The store leader initially screens a candidate and recommends him or her to join a particular team. The candidate undergoes a thirty-day trial period with the team, after which the team votes on the recommendation. It is only if two-thirds of the team approve of the new hire that he or she becomes a full-time employee. Teams themselves routinely reject candidates. Because of this power of the team, seldom will the store leader recommend a potential new hire if he or she felt that the candidate will not be accepted by the team. Likewise, all new hires are oriented into the team and shown the behaviour that is expected of them. During the trial period, not only is the new worker provided the necessary job training, but is also socially acclimatized to how the group members rely on each other and are expected to work together as a unit. This fosters trust among team members, and is a vital force in achieving control in the organisation (Cuenllas, 2013; Fisher, 1996). Type of change that characterizes WFM Technology Changes in technology are a boon to WFM, particularly with respect to its “Whole Planet” approach. Increasingly efficient energy capture and utilisation technologies have enable the company to set the pace for green building, the use of solar power, company-wide recycling programs, internal green mission programs, and the firm has already offset 100 per cent of its energy use with wind credits (WFM, 2013b). Other than environment conservation, the firm’s operations rely extensively on technological advances to improve the quality, extend the life, and enhance the freshness of its food products during transport and storage. Digital technology updates are also vital for WFM’s information systems for point-of-sale processing in their stores, supply chains, financial reporting, human resources, and various other transactions and processes (WFM Form 10-K, 2013a). Changes in technology may also pose significant harm to WFM, particularly those that impact on the IT aspect of their business. According to the WFM Annual Report, when any of the technologies pertaining to these systems become outdated or obsolete, the firm has a need to upgrade them to keep itself in pace with the increasingly demanding competitive environment. Additionally, IT systems pertaining to online transactions must be kept secure against ever-increasingly sophisticated hacking technology. If information systems are breached and sensitive information, particularly confidential data that may have been compromised, then the company faces the prospects of costly litigation and damaged reputation to the firm, its brand, and its relationship with its customers going forward (WFM Form 10-K, 2013a). There is also a possibility that changes in technology may create problems in the firm’s enjoyment of its intellectual property rights and the protection thereof. The firm relies on a combination of trademark, trade secret and copyright laws, internal procedures, nondisclosure agreements to protect the company’s intellectual property. Furthermore, some foreign countries where WFM may wish to operate, but where the applicable laws do not sufficiently protect the intellectual property rights of the firm in the same manner as is applied in the United States (WFM Form 10-K, 2013a), for which reason WFM will need to adapt to new technology to more vigilantly monitor and protect its intellectual property. Products and services WFM’s products are not merely the foodstuffs they sell, but the service they provide in the course of selling these products. WFM is committed to abiding by Peter Drucker’s assertion that the only business purpose is to create a customer. The company’s activities are centred on the customers’ experience with their products; the customer experience is determined by (1) the kind of food the stores offer, (2) how the food is presented to the customer, and (3) how the food is transported to the store (Cunllas, 2013). In each of these aspects, change is not only expected but anticipated and even initiated. That is the very reason for the democratic-style team management paradigm, to build in innovation and entrepreneurship into the work routine, thereby constantly generating change (Denning, 2013). For instance, in the selection of what offerings to put on the shelves, the team has a say on what items should be included and excluded, based on customers’ feedback and reactions in the store as they shop (Fishman, 1996a). The apparent question is therefore: Would not relegating to employees at least a participative role in the choice of products and determination of services result in a broad range of products that vary from one locality to another, and a wide variation in quality of service that makes standardisation impossible? That would be true, if across-the-board standardisation were the aim. However, WFM’s strategy moves exactly in the opposite direction: the aim is to concentrate on what the customers want, and customers in different localities want different things in different ways (WFM, 2013b). This makes the observations and experiences of front-line store personnel more significant. As for variation, this is not adverse to WFM’s strategy to cater to customers’ preferences as long as it does not fall below the quality goals of the company. With the employee engagement and identification with the company as a result of democratization, team structure and empowerment, quality standards are closely adhered to a high degree, and in many cases even enhanced (Denning, 2013). Strategy, structure and culture The strategy of Whole Foods hinges upon the combination of democracy with discipline both in management approach and in the day-to-day working environment. The WFM culture infuses strong sense of community with unwavering commitment to corporate productivity. There is a cycle of interactivity, with (1) the participation of rank and file personnel reinforcing individual attention to profit and performance; (2) profit and performance lead to solid financial results, and (3) greater financial resources enable the firm to allow greater freedom to their workers to innovate. The impact of enabling each individual in the organisation to unleash their innovativeness and creativity would (4) enhance their entrepreneurial initiative and teamwork, improve their store’s performance, and reap benefits for their company. The result is a bottom-upward wellspring of innovation that creates a sustainable competitive advantage for the firm. In sum, the team structure and democratic culture of the firm allows for the differentiation strategy enabled by the competitive advantage of “intellectual capital and decentralised knowledge” (Cuenllas, 2013). Thus is change incrementally and progressively introduced into the working environment through the teams’ innovative and entrepreneurial achievement. Evolution in change policies of WFM There has been an evolution in the change policies of WFM in recent years, compared to the time the firm first entered the market. In the beginning, WFM’s strategy towards change was more bureaucratic and hierarchical, which was evident through its traditionally divisional organisational structure. The management teams were organised by geographical regions, which worked well when operations were still relatively localised. However, the company eventually expanded into global operations, and the centralized structure presented problems, such as: (1) Inconsistency in training the team members from different parts of the world because it requires knowledge about specific cultures and regions; (2) Extensive collaboration was required from all upper management, which became too complicated and eventually ineffective; (3) Difficulty in devising a way to equitably evaluate team members and management because of the broad scope of the organisation; and (4) Motivational factors may vary widely among regions, which a rigidly structured organisation may not be able to deal with (MIT Sloan Management, 2010). The problems developed with global expansion merely underscored the untenability of the divisional structure. The organisation under this structure lacked flexibility and adaptability to change. It was then that management gradually adopted a barrier-free organisational design, which enabled team members to be empowered with a measure of decentralisation and autonomy so that they make decisions relatively quickly and are able to quickly adapt in the face of environmental and market changes. Virtual teams in the WFM organisational setting The team is “the philosophical building block of Whole Foods Market” (Fishman, 1996b) and is the fundamental work unit of WFM (Cuenllas, 2013). WFM is structured based on self-managed work teams. A self-managed team is empowered with authority to decide how its members are to undertake their daily tasks, and it functions most effectively when it is comprised of workers capable of a variety of functions and skills. Members are also cross-trained in order to perform each other’s jobs when necessary. Managers at WFM believed that delegating decision-making authority not only enables the employees to concentrate better on serving the customers, but also frees them up to become most innovative and take greater initiative (Boone & Kurtz, 2011). The attitude towards good teamwork is so important that successful applicants for supervisors’ positions would have to “work well with others and convey enthusiasm…train and inspire Team Members to excellence in all aspects of the department,” and build credibility and confidence, as expressed in WFM’s Career Opportunities (Lumsden, et al., 2010, p. 43). Every WFM employee is a member of a team, and in each store there are about ten teams that handle separate functions such as groceries, bakery, produce, nutrition, and customer service. Each team is expected to discharge their responsibilities related to reviewing goals and performance, hiring and training employees, scheduling team members, and purchasing goods to replenish stock. At least once a month, teams meet to review their goals and performance, solve problems, and explore new ideas. WFM reinforces the team structure by awarding bonuses based on the performance of the teams measured against their goals (Boone & Kurtz, 2011). At WFM, not only are there self-managed functional teams, but also virtual teams. These teams are comprised of geographically or organisationally dispersed co-workers who use various combinations of telecommunications and information technologies in order to accomplish a task. Because of the availability of various digital communication facilities such as email, videoconferencing, and group communications capabilities, the members of virtual teams have little need to meet face-to-face, but may discharge their functions effectively even while relatively far apart. There is some difficulty in managing virtual teams because of the distance among them, but there are strategies that enable the effective coordination of virtual teamwork (Boone & Kurtz, 2011). The team approach in WFM fosters trust and therefore makes each member of the team feel important to the workings of the entire organisation. Emphasis on team empowerment causes the structural organisation to be very decentralised, drawing its driving force from the contribution of each member of the team and each team to the organisation. Teams are organised around specific functions, working as independent teams in charge of grocery, bakery, fruits and vegetables, meat and seafood, cashiers, prepared foods, and so on. They work as independent units, but also interact with each other, both through collaboration to advance the interests of the firm, but also in healthy competition with each other to hone their skills and be challenged to perform better. The main vehicle for WFM involves an elaborate system where peer reviews are given; the teams benchmark each other even as they collaborate by sharing knowledge and best practices (Cuenllas, 2013). Summary and Conclusion WFM is the leading retailer of natural and organic foods in the world. It was the first to distinguish and differentiate the contemporary meaning of “organic foods” which has since been adopted by an entire industry. This is testament to the pioneering vision of the company’s leadership, a vision which has since extended to how WFM engages its employees and allows them to unleash their creativity and innovativeness, to develop their socialization and decision-making skills, and to realize the full value of their potential. The vision also encompasses the stewardship of the environment and advancement of sustainability practices to ensure that the wellspring from which healthy and organic foods are sourced will continue to be viable into the distant future. The strategies adopted by WFM have enabled it to achieve a measure of versatility and flexibility, such that the firm can quickly adapt to, and even anticipate, changes in technology, products and services, and issues that impact on organisational strategy, structure and culture. The change process is sustained by a self-sustaining cycle where the organisation empowers the workers, and the workers in turn use that power to generate the profits that enable the firm to provide them with greater incentives. Such a complex and subtle arrangement is difficult for competitors to emulate within a short period of time, and therefore constitute part of WFM’s competitive advantage. The secret lies in its self-managed team structure which is its fundamental organisational unit. The team is empowered with decision-making prerogatives that make them real agents of innovation and change to respond to customers’ needs and expectations. In light of these insights into WFM’s business strategy and organisational structure, it may be concluded that the firm has come to embody a flexible and powerful business model that greatly enhances its future prospects for success and continued expansion. While it will be a difficult model to replicate outright, the principles it embodies – worker empowerment, sustainability, and customer-centricity – would become viable guideposts for other business firms in the development of their own competitive strategies. References Boone, L E & Kurtz, D L 2011 Contemporary Business 2010 Update, 13th edition. Hoboken, New Jersey: John Wiley & Sons, Inc. Coase, R H 1937 “The nature of the firm.” Economica, new series, 4: 386-405 Cuenllas, A 2013 “Whole Foods Case Study: A Benchmark Model of Management for Hospitality.” Hospitalitynet. 11 February. Retrieved 5 December 2013 from http://www.hospitalitynet.org/news/4059396.html Denning, S 2013 “The New Management Paradigm & John Mackey’s Whole Foods.” Forbes. 1/05/2013. Retrieved 4 December 2013 from http://www.forbes.com/sites/stevedenning/2013/01/05/the-new-management-paradigm-john-mackeys-whole-foods/ Fishman, C 1996a “The Whole Foods Recipe for Teamwork” Fast Company. 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