Feedback Loops at Whole Foods Market

Introduction

In any business, feedback loops are present and influential. Effective businesses pay attention to the different feedback loops that exist, using them to support and enhance the organization in achieving its goals. Whole Foods Market has a number of different types of feedback loops. Looking at the firm in detail will allow these loops to be identified. This paper will start by discussing the manifestation of feedback loops and the different types that exist, then apply the theory to Whole Foods Market.

Different Types of Feedback Loops

Feedback loops may be divided into two categories: reinforcing loops and balancing loops (Bellinger, 2004). The category names are relatively self-explanatory, defining the way in which the two loops operate. The first category, the reinforcing loop, refers to a circular pattern of behavior and/or actions that amplify or magnify particular outcome patterns, such as attitudes or behavior (Bellinger, 2004). By comparison, a balancing loop is one in which positive and negative forces are in place that result in the maintenance of an existing position, with the positive and negative forces balancing each other (Bellinger, 2004).

Both reinforcing and balancing loops can result in beneficial outcomes or detrimental outcomes, depending on the type of situation in which they manifest. A reinforcing loop that supports increasing levels of motivation is likely to be desired in a firm because it results in a beneficial outcome, whereas a balancing loop, such as one that results in resistance to change, may be seen as detrimental.

Whole Foods Market Reinforcing Loops

An excellent example of a reinforcing feedback loop is seen in the "gainsharing" element of the employee remuneration package. Gainsharing is a way in which employees earn bonuses based on productivity levels. The system involves all employees, who receive a bonus calculated using an equation that includes the overall labor productivity of the teams in which they work—with each retail store making up a single team—as well as the firm's overall level of profitability. The feedback loop operates in the way the scheme functions, supporting self-managing teams that effectively utilize their own labor in order to gain rewards.

The system is effective because of the way it operates and connects employees directly with the rewards of good performance, with bonuses paid on a bimonthly basis. In 2013, the bonus scheme increased average wages for Whole Foods Market employees by approximately $0.86 per hour, which for an employee working 40 hours a week equated to an additional $1,788 for that year (Whole Foods Market, 2014). The process results in employees working hard but also expecting hard work from their peers, which can create a positive loop due to internal workforce influences. In the earnings report for the second quarter of 2009, co-president and chief operating officer A.C. Gallo noted that the gainsharing system resulted in the firm having self-managing labor costs with an extraordinarily high level of budget compliance.

The effectiveness of this reinforcing feedback loop stems not only from the direct financial rewards of the scheme but also from the process and communications involved. For each team, rewards are allocated based on total hours worked, with individual bonuses allocated on a proportional basis. The high level of motivation, combined with associated rewards, has resulted in an extremely low level of attrition—less than 10 percent annually (Whole Foods Market, 2014). When examining productivity per employee, the results are evident in financial statistics: the income per employee is more than 50 percent higher than the average for the grocery market industry (MSN Money, 2014). The benefits associated with the rewards reinforce the efficiencies gained and a positive culture, which are also supported by internal communications recognizing individual and team performances, providing both intangible and tangible rewards. It may also be argued that the distribution of bonuses on a regular basis—every other month—creates the ability to benefit in the short term. Many company bonus schemes operate on an annual or semiannual basis, which may not always motivate short-term behavior, as poor performance in one part of the year may impact another period. With monthly assessments paid every other month, there is a constant renewal of the positive cycle and the knowledge that additional effort and hard work will result in benefits in the near rather than distant future.

Another reinforcing loop may be seen in the way stock prices for the company move on the stock market. When management undertakes actions that investors generally approve of and believe are likely to improve organizational performance, the share price will increase. Therefore, management is likely to seek to continue with those types of actions in order to maximize share price movements for the benefit of the firm and shareholders. The moves seen as beneficial by stockholders are also likely to be the moves that will increase the possibility of firm growth, such as increasing sales, and may be seen as reinforcing the aggressive growth strategy that the organization has pursued for many years. However, like many other companies, the firm has seen some challenges in recent years, and the share price dropped, reflecting less positive outlook by stockholders. In recent months, the share price has once again increased. Notably, this has coincided not only with changes in strategy, such as store refurbishments and new facilities like wine bars and a golf course, but also with a rise in sales. Therefore, it is highly likely that the reinforcing loop will continue, with further innovations in strategies to improve business, accompanied by increasing sales and an increasing share price.

There are also a number of balancing loops in place at Whole Foods Market. One excellent example is the way the firm manages inventory. For any grocery firm, it is important to have good inventory management: there should be sufficient goods to sell to meet customer demand with good quality produce, but not so much that it spoils. For Whole Foods Market, this is particularly sensitive because approximately 60 percent of the inventory is perishable produce with only a limited shelf life. Too much stock may lead to waste, which will reduce productivity, while insufficient stock will reduce sales.

Whole Foods Market Balancing Feedback Loops

The inventory management system, which uses complex computer inputs, includes various factors that may impact demand to undertake forecasting for different products. For example, if hot weather is expected, more salad items will be sold; in cold weather, more root vegetables will be sold. Local marketing, promotions, events, and even trends, fashions, and local customer preferences may all need to be considered. The ordering process also considers issues such as past sales levels, current inventory levels, and the expected shelf life of products to arrive at a suitable inventory level by assessing the expected level of sales, adding a contingency level, and deducting existing stock levels. This process can also create organizational learning, as it reveals what customers do and do not want, especially if feedback from customer surveys and comments is sought and incorporated into the decision-making process.

A second balancing loop can be seen in the limits placed on executive pay at the firm, where there is a cap of 19 times the average wage for a full-time employee (Whole Foods Market, 2014). If the average wage increases, the executives' wage may increase, but if average wages decrease and result in executive wages being above the cap, they will be decreased, maintaining a direct link between executives' wages and employees' wages.

There are many types of feedback loops in Whole Foods Market, and the firm appears very adept at using them in order to learn and benefit the organization. The loops presented in this report have been discussed as independent loops, but in reality, they are interdependent due to the way in which they form part of the organizational culture. For example, the effective use of the inventory loop, which helps support productivity, works in conjunction with the reinforcing loop of gainsharing. Improved firm performance also increases the potential for stock prices to increase, another of the reinforcing loops. In all cases, the firm is able to leverage the results as long as it is aware of them and uses them to the benefit of the organization, which appears to be supporting the firm's goals and objectives, as seen in the high level of staff retention and performance as measured in terms of overall productivity, the rapid growth of the firm, and the rising share prices that have been seen in recent months.

Conclusion