Whole Foods CEO’s poor excuse for poor performance – Jose Alvarez and Zeynep Ton

Harvard Business School Senior Lecturer Jose Alvarez

At a town hall meeting announcing Amazon’s purchase of Whole Foods, a Whole Foods employee had this question for CEO John Mackey:

“I have a question about Whole Foods’s commitment to those win-win-win-win partnerships with our suppliers, with our team members— and how that’s going to live on once this merger is complete.”

Mackey’s response was curious, to say the least:

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

“I think, sometimes, our company’s gone a little bit too much team-member focus at the expense of our customers. And that’s one definite evolution that’s gonna happen. I love the passion these guys [Amazon] have around the customer. They put the customer first in everything they do and think backwards. And— we— we’re gonna be the same way.”

If Mackey thinks that investing in people is part of the reason for Whole Foods’s poor performance, he’s wrong. From what we see, the real problem is a lack of operational excellence. Whole Foods may be paying its employees more than competitors do, but it has not created an operating system that leverages that investment. You can’t put premium gas in a clogged-up engine and expect to win a race.

Whole Foods strikes us as an organization that doesn’t standardize where it needs to and doesn’t empower where it needs to. Five stores within a city may have five different people purchasing from the same local farm in five different ways. Their information systems are mediocre at best.  John Mackey’s own words about Whole Foods technology are useful here: “So I think that we can expect that we’ll go to the front of the class, eventually, in the grocery business, from … the class dunce to… the class valedictorian.”

Poor systems and lack of appropriate standardization mean lower labor productivity and higher costs. At the same time, frontline team members appear to have little empowerment to satisfy customers. One of us recently wanted to return a $3 Whole Foods reusable shopping bag that had broken the first time it was used.  You would expect the cashier to just exchange the bag for a new one.  Instead, she called for her manager to resolve the problem.  It was a waste of time for all, including the other customers waiting in line. Paying team members more than competitors do won’t pay off if you don’t empower them to make a $3 decision! Lack of empowerment reduces not only motivation but also customer service.

Read More »

4.0 Lab: The future of food, finance, health, ed, & management–Otto Scharmer

MIT Sloan Sr. Lecturer Otto Scharmer

MIT Sloan Senior Lecturer Otto Scharmer

From Huffington Post

Last week, Amazon acquired Whole Foods in a move that has many wondering what this means for the direction of the economy. In my view, Amazon’s acquisition of Whole Foods does to organics what Uber did to the sharing economy: it takes something that was born out of a different economic logic (a grocery store dedicated to healthy food) and then molds and morphs it to fit into an economic operating system that is firmly based in the old paradigm—i.e. in a paradigm that aims for world domination rather than serving a goal of shared prosperity and well-being for all. 

In this post, inspired by a number of gatherings with change makers across sectors in China, Europe, and the Americas during the past few weeks, I outline a framework for understanding how the current limits of capitalism we are bumping up against in sectors such as food, finance, health, education and business are all related to the same outdated economic logic or “operating system” (OS). We need a new economic operating system, one that reinvents how we work together as neighbors, as businesses, as cities and as larger systems. Below I describe briefly the evolution of these five sectors from OS 1.0 to where we are today, which in most cases is OS 2.0 or 3.0.

The pressing challenges of our time, i.e. the challenge of losing our environment (ecological divide), our societal whole (social divide), and our humanity (spiritual divide) calls for reinventing our systems of food, health, education, finance and management towards 4.0. This essay lays out the rationale for OS 4.0 and a possible way to get us there through an Asian-American-European initiative called 4.0 Lab.

Five Sectors, One Problem

As the labels of the new economy have gone mainstream (green, organic, sharing economies) the underlying economic reality stays the same. That is to say, the immense buying power of giants like Amazon squeeze the supply chain, workers, farmers, and the planet through the same patterns of exploitation and structural violence that gave rise to the movement for a new economy in the first place.

On one level you could describe the problem by saying that companies like Amazon and Uber misperceive the new economy as just another app that runs on their old corporate operating system (i.e. world domination through economies of scale). In reality, though, the new economy is not just another app—it’s a radical upgrade of their entire operating system. The difference between the old and the new paradigms can be summarized in three words: ego vs. eco. Ego-system awareness means “me first”, while eco-system awareness means an awareness that focuses on the well-being of all.

There is a profound systemic barrier that exists in all major sectors today. It’s not only the mainstream players like Amazon and Uber that are stuck in their current economic operating systems; many of the innovators who once broke through that model are now also stuck. The global food system is still profoundly destructive. The health system is still sick. The educational system is unable to learn. The global financial system is heading full throttle into the next crash—as if 2008 never happened. Foundations and philanthropists still place their assets in the old economy, thereby harming people and planet, in order to use some of the profits to fund projects that alleviate symptoms but don’t deal with root causes. The innovators in all these spaces are stuck in the niches that first gave them space to develop something new. But now these niches are increasingly crowded, and mainstream players adopt the new labels and sound bites while often perpetuating the old models.

Read More »

Is your organization ready to become an ecosystem driver? – Peter Weill

MIT Sloan Senior Researcher Peter Weill

MIT Sloan Senior Researcher Peter Weill

From Xconomy

Dominating business-to-consumer sales, Amazon seems ready to take over the world of business-to-business too. In its first year, Amazon Business generated $1 billion in sales. However, there is still room for competition. It’s not yet an ecosystem driver in B2B, although the longer it takes for other business supply companies to catch up, the harder it will be to beat Amazon.

This is a good example of the importance of learning how to thrive in a digital ecosystem. Companies must learn to become ecosystem drivers – even if only for a subset of their customers – in order to survive. These drivers have become the destination for their spaces like Amazon with consumer products, Aetna with healthcare needs, and USAA for life events. So what does it take to be a successful ecosystem driver?

The first step is to assess your current business model. Are you an omnichannel business with an integrated value chain? Are you a supplier that sells through another company? Or are you a modular producer that adapts to other companies’ ecosystems? Most businesses today generate revenue with one or more of these models.

Read More »

Tech could soon take over all of the sports you watch – Ben Shields

MIT Sloan Lecturer Ben Shields

From Fortune

The sports industry is engaged in a grand digital experiment with technology platforms. The latest test was announced last week, when the National Football League (NFL) sold its 10-game Thursday Night Football digital package to Amazon. As when Twitter held it last year, the games will be simulcast on network (CBS or NBC) and cable (NFL Network) television. However, unlike the free access Twitter offered, only Amazon Prime members will be able to watch Thursday night games this year. Given Prime’s non-exclusivity and pay wall, if Thursday Night Football on Amazon leads to increases in year-over-year viewership and contributes to the growth of Prime subscribers, the NFL and Amazon executives could call it a win.

As encouraging as that result would be, this experiment is really about the early 2020s, which is when the NFL will be making major decisions about distributors for its most valuable rights packages. How can tech companies like Amazon, Facebook, Google, Apple, Netflix, and Twitter become big rights winners at that point? And what can traditional broadcasters do now to avoid being left behind? This long-term sports rights game will be won through reach and revenue.

When sports leagues sell their live distribution rights, they want to maximize both reach and revenue. If technology companies can help leagues achieve these goals more effectively than their existing television partners, the sports media landscape will look dramatically different a decade from now.

Tech firms must prove their reach

There’s never been any doubt as to whether technology companies have the resources to invest in sports rights. The question has been whether such moves made long-term strategic sense for both parties. As technology platforms launch and grow competitive video businesses, they are beginning to put to rest concerns about their suitability as distribution partners, as they now have clear incentives to make rights deals successful over the long term.

Read More »

The store as a showroom: having your cake and eating it too – Elaine Chen

MIT Sloan Senior Lecturer Elaine Chen

From The Huffington Post

In 2005, I was shopping for an acoustic piano. Back then, piano shopping worked like this: Go to a showroom. Play every instrument. Pick one, and negotiate a price. Have it shipped to your house. Everyone understood that a piano store does not maintain much inventory on site.

Apparel shopping was completely different. Shoppers went to the store, tried things on, then paid and left with their purchase in a shopping bag.

The changing face of apparel retail

Fast forward to 2016. Piano shopping is still much the same, but apparel shopping has changed. While store sales still account for a majority of retail revenues, online sales for apparel has been growing explosively.

Nielsen found that in 2015, almost half of U.S. shoppers (41%) had bought clothes online in the last six months, and roughly 12% had made a mobile apparel purchase. Citing Morgan Stanley, Business Insider reported that Amazon has a 7% share of the apparel retail market, and will comprise a 19% of the market share by 2020. Another article cites a Cowen & Co. report which predicted that Amazon will overtake Macy’s by 2017.

Read More »