Whole Foods Under Amazon is a fascinating recent case study (conducted by Harvard Business School professors Dennis Campbell and Tatiana Sandino and co-written with James Barnett and Christine Snively) which considers the cultural challenges inherent in the acquisition the e-commerce giant agreed with the high-end supermarket chain last year. Historically, the two companies had very different approaches to business, the authors tell Michael Blanding at HBS Working Knowledge, with Amazon focused on driving costs down through data-driven supply chain efficiency and Whole Foods’ decentralized model, in contrast, allowing for a distinctive personal touch from store to store, which in turn justified a higher price point. In the case study, based on secondhand reports in the media of how the acquisition is working out, Campbell and Sandino speculate on how culture clash could be making the integration of these companies more challenging:
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.”
Whole Foods is still in its early days as an Amazon property, so it’s too soon to say with any certainty how prepared Amazon was for this culture conflict and how well they are handling it, especially without having an inside view of the acquisition. However, we do know from our research at CEB, now Gartner, that culture fit is a huge concern for CEOs when thinking about mergers and acquisitions and discussing the topic with investors. Our research shows that 20 percent of the time, when CEOs bring up culture on earnings calls, they are doing so in the context of M&A. CEOs leading through M&A are increasingly under pressure to provide details on how they are integrating two distinct cultures to satisfy investors’ concerns. (CEB Corporate Leadership Council Members can learn more in our Inside View on Discussing Corporate Culture with the Street.)
Amazon rocked the grocery world on Friday when the e-commerce giant announced that it had sealed a deal to acquire Whole Foods Market for $13.7 billion. The news sent the stocks of competitor grocery chains tumbling, indicating the degree to which investors expect this move to shake up the industry. However, the Washington Post’s Abha Bhattarai notes, “some analysts say Amazon is likely to face significant challenges as it expands into a notoriously difficult business with low profit margins”:
Amazon and Whole Foods are very different businesses: One is a technology company that wins over customers with sophisticated algorithms and low prices. The other, nicknamed “Whole Paycheck,” is known for the premiums it charges for specialty foods and its workplace culture that compensates cashiers and other staffers well. Both are led by hard-charging entrepreneurs who have spent decades turning their companies into iconic, multibillion-dollar businesses.
Similar questions were asked last year when Walmart acquired the e-tail startup Jet.com, as part of its own effort to compete with Amazon: How well will these two companies, with their very different cultures and business models, be able to integrate? But these differences between Amazon and Whole Foods may be part of what makes this acquisition such a game-changer, Slate’s Will Oremus figures:
Suddenly Amazon owns a nationwide network of already-popular grocery stores that have already solved the tricky logistical problems involved in sourcing and storing fresh food. What Amazon brings is the world’s largest online sales portal and its mastery of the home-delivery business. Scale, meet scale. Logistics, meet logistics. Loyal customer base, meet loyal customer base. If you’re in the grocery business and your name is not Amazon or Whole Foods, today is not a good day for you.
Hard times—specifically, a succession crisis—sometimes prompt boards of directors to appoint two or three individuals to play the role of CEO after a leader steps down and a permanent replacement can’t be found right away. That sort of arrangement can work out, particularly on a short-term basis, as long as it’s properly planned for. More permanent dual-CEO arrangements are rarer; Whole Foods has had two CEOs for the past six years, but last week, the supermarket chain announced that founder John Mackey would continue in the role alone while his former co-executive Walter Robb would shift into a senior advisory role and remain a member of the company’s board.
As Washington Post columnist Jena McGregor explains, Whole Foods’ decision to abandon joint leadership comes as it deals with heightened competition and dwindling sales—a situation that many organizations have found calls for the kind of decisive action that a unitary chief executive can take more readily than a team:
With that news, the number of major U.S. corporations that have two co-CEOs were just slashed by a quarter. Just three other companies in the S&P 500 — Chipotle, Oracle and Torchmark Corporation — have co-chief executives who share the company’s most powerful role, according to data from S&P Global Market Intelligence. The unusual leadership structure is one that management experts say can work well in certain circumstances, but is also fraught with potential problems, from personal infighting to slow decision-making.