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.

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MIT Sloan Expert Series — The Business Case for Good Jobs — Zeynep Ton

Zeynep Ton, MIT Sloan Professor and author of The Good Jobs Strategy, took part in a live conversation on how operational excellence enables companies to offer low prices to customers while ensuring good jobs for their employees and superior results for their investors. Also appearing on the program were Thomas E. Perez, U.S. Secretary of Labor and James Sinegal, co-founder and former CEO of Costco. The Business Case for Good Jobs is a part of the MIT Sloan Expert Series.

The most rotten part about Thanksgiving Day — It’s time for America’s retail industry to change its ways — Zeynep Ton

MIT Sloan Visiting Prof. Zeynep Ton

MIT Sloan Visiting Prof. Zeynep Ton

From Fortune

This year, all kinds of holiday shopping traditions are being upended as desperate retailers do everything they can think of to increase sales. On what’s being called “Gray Thursday,” retailers like Walmart WMT 0.85% , Toys“R”Us, Target TGT 0.37% , and Kmart are giving shoppers the jump on Black Friday by opening on the evening of Thanksgiving, presumably after you’ve had enough turkey and cranberry sauce. JC Penney JCP 1.57% is opening even earlier — at 3 p.m.

This is a rotten break for employees forced to work while the rest of the family gathers together, as I point out here. REI, the outdoor sports and gear retailer, seems to be taking another approach, closing its 143 outlets on bothThanksgiving AND Black Friday. This move may earn REI a lot of publicity and goodwill. It is also consistent with the company’s brand as an environmentally concerned business and its “get out there” message: In this busy world, you don’t get enough time with your family or with nature. Why not use the holiday to enjoy the very things that REI promotes? You can always shop for our products later.

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Why raising retail pay is good for the Gap — Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

From Harvard Business Review

Gap announced last week that it would increase its hourly minimum wage to $9 this year and $10 next year. Naturally, President Obama applauded the decision, which was in line with his own push to raise the minimum wage. But what Gap is after is not greater fairness or less income inequality. According to the chain’s CEO, Glenn Murphy, the reason for this move is that Gap implemented a“reserve-in-store” program 18 months ago, meaning that customers can order a product online and then pick it up at a particular store. Gap realizes that this program won’t work without skilled, motivated, and loyal employees.

This is hardly a surprise to me. Remember Borders bookstores? Almost 15 years ago, I studied Borders as it was trying to integrate its online store with its physical stores. Borders had great technology to tell online customers which book was available at which store. But there was a fatal hitch: the inventory data was not reliable. The system would tell a customer a book was in the store, but no one could find it. This happened 18% of the time! That’s way too many customers to let down and, in fact, Borders had to give up on the idea. Eventually, it went out of business.

Why were so many products not where they belonged? I found that stores that had fewer employees, less training, and more turnover had more of this problem. By going cheap on labor expenses, Borders made it hard to act on a strategic opportunity.

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Stop forcing employees to work on Thanksgiving — Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

From WBUR Cognoscenti

With retailers opening ever earlier on Thanksgiving Day and being rewarded with ever longer lines out their doors, it’s no wonder they see the holiday as a bottom-line bonanza that may benefit everyone — except employees who have to spend long hours at work and miss out on time with their families. Opening on Thanksgiving Day is yet another demonstration of how little retailers value their employees. That disregard is a natural result of the way most retailers view their labor force — a large cost that needs to be minimized. The result is millions of bad jobs with poverty-level wages, minimal benefits, very little training, and unpredictable work schedules.

Conventional corporate wisdom is that bad jobs are the only way to keep costs down and prices low. Otherwise, customers would have to pay more or companies would have to make less. But I have been studying retail operations for over a decade and have found that the assumed trade-off between good jobs and low prices is false.

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