Swann & Cassone On Patagonia MSOD 617

Strategonia: A Pair Paper

Natalie Swann & Marco Cassone










September 25, 2013

Pepperdine University
Dr Chris Worley
MSOD 617 Foundations of Large Systems

Swann & Cassone On Patagonia MSOD 617

The Power of Metaphor in Identity

In Morgans Images of Organization, the reader learns the value of metaphor as a tool
for understanding organizations. The author points out the importance of knowing what a given
metaphor lets one see and what it does not. Metaphor is also useful in defining organization
identity: the relatively enduring metaphor that explains long-term effectiveness and inspires
the organization. (Worley Agility series). This paper affirms the power of identity, addressing
what Patagonias dirtbag metaphor lets the company see and do, and more critically, what it
does not. If we consider that all organizations are perfectly designed to get the results they
get,

(Hanna) this paper will also study the consistent effect the founders values have had on
Patagonias futuring capabilities, its strategy, and its organization design. Recommendations
for Chouinard will follow. As a loose construct for our thinking, we start with and continually
address both sides of the deeply entrenched metaphor that is Patagonias identity.

The Dirtbags of Patagonia, Inc.

As stated in Management Reset, Identity flows from the values that define an
organizations culture and mission (Lawler & Worley, 2011). From the start, Patagonias
overarching directive has been uncompromising integrity around environmentalism, social
change, community, and superior products. Defined through these commitments, the company
is made of like-minded talent that understands and serves a core group of users known as
dirtbags (patagonia.com): consumers who prefer, the human scale to the corporate,
vagabonding to tourism, the quirky and lively to the toned down and flattened out. Eschewing
corporate values and concern for the competition, Yvon Chouinard guides the predominantly
internal focus: At Patagonia, making a profit is not the goal because the Zen master would
say profits happen 'when you do everything else right'. (Chouinard, 2005). Patagonias zen-like
and intransigent inner gaze served it well in many ways, namely in clear core values and
unwavering mission. When it comes to scanning the external environment, however,
Chouinards recycled plastic sports goggles leave him nearsighted at best.

On Futuring at Patagonia

Sustainably managed organizations (SMOs) have a different relationship to risk than
traditional command and control organizations (CCOs) because their economic logic is founded
on change and adaptation rather than stability and control. More important than achieving long-

Swann & Cassone On Patagonia MSOD 617
term competitive advantage, SMOs practice and can be said to be defined by their agility, a
dynamic capability that allows them to perceive internal and external changes and to capitalize
on a series of momentary advantages in a sustainable way.
Regarding social and environmental causes, Patagonia carries the SMO sustainability
banner like no other. Taken from our HBR case study (Reinhardt, Casadesus-Masanell, &
Freier, 2004), heres what Chouinard might highlight as Patagonias sustainable effectiveness:
Aggressively innovative, gathering product feedback from world-class ambassador
athletes (greater surface area), maintaining a lab to develop and test fabrics, and
spending $150,000 on in-the-field testing (double the spending of competitors) (p. 7);
Ambivalent about growth, limiting expansion to 2-4 retail stores per year;
Life-cycle analysis to understand & reduce environmental impact of each product;

Beyond innovation, cautious growth, and care for the planet, a core distinction of SMOs
is their more dynamic relationship to changethey continually scan for internal and external
developments that inform how they view and reconfigure their own resources in order to create
value. This happens through a sophisticated futuring process envisioning potential scenarios
across short-, medium-, and long-term horizons. Broadening our definition of environment to
include competitors, the market, and an increasingly uncertain world, Chouinards lack of
concern for much of anything outside his perspective has produced a tunnel vision that
ultimately undermines Patagonias potential SMO agility:
We tend not to look outside in terms of matching competitors: we compete against
ourselves (lack of dynamic relationship to the environment) (Arneson);
If Patagonia chases a fad, then we lose credibility (missing momentary advantages);
...Americans depend on the outdoors for healthy lifestyles and will always spend
money and time on outdoor pursuits (unaware of future business assumptions) (p. 2);
Single contractors instead of dual sourcing (lack of contingency or scenario planning);
We dont listen to the voice of millions. We listen to the voice of a few dirtbags (p. 3).

To be an agile SMO takes more than a lofty mission serving people, planet, and profit. It
takes a change-friendly identity in which the capacity for ongoing adaptation is embedded in
the DNA of the organization. This is not to suggest neverending change for changes sake;
Patagonia is simply not set up to see, think about, or take advantage of internal or external
changes that are incongruent with its dirtbag metaphor. This inattentional blindness has
unfortunately kept their futuring capabilities underdeveloped with much room for improvement.


Swann & Cassone On Patagonia MSOD 617
Patagonia Strategy What Would Dirtbags Do?

Patagonias indelible identity sources both great strength and unintended constrain.
High on his peak with banner in hand, reluctant businessman Chouinard may approach key
business decisions like his product developers designa you-know-it-when-you-see-it
approach (p. 4). Depicted below is a visual representation of PTG strategy (read bottom up):

Strategy can be understood as the interrelated fusion of identity and strategic intent. An
interesting way to think of these is the being and doing of an organization: identity endures, yet
profoundly informs choice of next action. This is why a strong culture such at Patagonias may
resist strategy change and diminish responsiveness to developments in the marketplace.
Pervasive throughout the visual above is a clear Who we are and What we value, the
inward facing elements of identity (culture and mission). Guided by the principles at its peak

Swann & Cassone On Patagonia MSOD 617
(integrity, authenticity, and transparency), it makes sense that Patagonias outward facing
elements (brand and reputation) are virtually a one-to-one match:
Committed to the Core with products backed by an Ironclad Guarantee;
No franchising; all retail stores owned by PTG in order to control product presentation;
Create the best-quality stuff with the least amount of harm to the environment.

Strategic Intent (Minus the Intention Part)

Regarding dimensions of strategic intent, the HBR case study on Patagonia does
portray aspects of breadth, aggressiveness, and differentiation. More often than not, however,
these serve a fixed PTG identity more than they position the company for momentary strategic
advantage:
Product lines twice as broad as competitors, yet limited to one global product line;
More invested in systems (interrelated complementary products) than single products;
Development of a complete product line took twice as long as other specialists;
Two seasonal lines per year vs 4-5 lines produced by most sportswear companies;
50% non-selling space in catalog vs 90%-95% selling space by competitors (p. 11);
A fundamental point of differentiation for Patagonia is that it has a larger purpose than
that of simply making profits. This is what separates Patagonia from its competitors and
inspires loyalty to the brand (Arneson).

As defined in Management Reset, strategic intent is a flexible, momentary strategic
advantage that describes a way to win in the marketplace... built on ...a hit-and-run and entry-
and-exit logic that is responsive to changes in the business environment. Chouinards logic,
however, is more informed by what his inward gaze allows him to see, which often prevents
Patagonia from embracing and capitalizing on change in the external environment:
Products originally made for friends and family; suspicious view of marketing;
Four distinct sales channels treated equally and thought of as a single brand presence;
We always think in terms of our reputation before entering a new market. Are we able
to grow into a new market in such a way that wont compromise our integrity.

In this regard, Patagonia may tout sustainability throughout its identity, however it lacks
the nimble agility of a true SMO. Its economic logic is founded on involvement and commitment
more like a high-involvement organization (HIO), which paradoxically renders the organization
more change-resistant and less sustainable in the long run.

Swann & Cassone On Patagonia MSOD 617
Organization Design, Alignment, and
Sustainable Effectiveness

In this next section, we will review Patagonias organization design and its alignment
through the lens of Galbraiths Star Model (2002). We will conclude this section by commenting
on Patagonias implementation of sustainability into its organization design.

Strategy - Patagonias strategy is driven by the core values and passion for the
environment of its founder. Patagonias mission is to make the best quality, authentic and
innovative high-end outdoor apparel for a niche market, and not screw up the environment
even more in the process. The company differentiates itself from other outdoor apparel brands
by remaining committed to environmentalism, serving as a catalyst for social change, improving
the communities they impact, and to the quality of their products. Patagonia designs with their
core customer in mind: the dirtbag appreciates athletic endeavor for its own sake rather than
for the joy of conquering other competitors or nature (p 3). The sources of Patagonias
competitive advantage boil down to its founders reputation, the brands authenticity and
integrity to its values, customer and employee loyalty, and its dynamic capabilities in design
and production. Patagonias intentional choice of slow growth, lack of debt and minimal
marketing, and unwillingness to pursue fads or chase new non-core customers all speak to
the its desire for sustainable growth and the entrenchment of the founders values and mission
in the companys strategy.

Structure Patagonia is one of six brands under the corporate umbrella, Lost Arrow.
The decision to remain a privately held corporation allows the Patagonia brand to be run in
alignment with its values and to meet the needs of its strategic intent. The current functional
structure, as outlined in the organization chart, appears to support the need to control quality,

Swann & Cassone On Patagonia MSOD 617
monitor the integrity of sales channels, and provide enough fluidity in the structure to make
changes to products based on feedback solicited from Patagonias loyal customers, product
ambassadors, dealer networks, and wholesalers to ensure they are continuously learning and
improving. Overall their structure appears to support their narrow focus and high level of control
over quality. However, to support future growth and sustainability, they may need to consider
how they will organize more collaborative teams within the organization to keep fresh ideas
percolating and prevent departmentalization from keeping the focus too narrow.

Processes Patagonias strategy has a strong impact on their structure and processes.
Their commitment to product quality and aesthetics, innovation, and to limiting their impact on
the environment result in highly dynamic, highly interdependent manufacturing processes that
often include only one supplier of raw materials or one manufacturer of finished goods. Overall
Patagonia seems to run a tight ship and makes solid use of its core resources. The sales
design makes use of wholesalers and dealer networks thus reducing the cost of a sales staff.
The internal staff illustrated on the organization chart appears to meet the current demands of
the core processes performed in house, combined with outsourcing and their collaborative
approach to innovation and problem solving appears to serve them well, making up for their
limitation of resources and conserving labor costs. Although Patagonia's employs a
collaborative approach to product innovation and continuous improvement, their reliance on
long-term relationships instead of formal contracts and choice to often source key inputs (raw
materials) and key production resources (garment sewing) to sole suppliers could negatively
impact their sustainability. If one process, one input (e.g. cotton) or one supplier fails to meet
the intended quality, cost, or time criteria, the entire process and / or output is potentially
disastrously compromised. They could literally miss an entire season of sales.


Swann & Cassone On Patagonia MSOD 617
Rewards - Patagonias rewards reflect their understanding of and commitment to the
people who are motivated by the Companys values. They employ a mixture of recognition,
monetary and intrinsic rewards to maintain a culture of excellence and a strong sense of
community. For example, the company provides speakers series imparting brain food to
employees, provides paid time off to participate in environmental endeavors, their bonus pool is
tied to achievement of the organizations goals, creating a one-for-all community, rather than
just individual recognition. Patagonias employees also enjoy the reward of working for a
company in which they can take a great deal of pride. This is a company that not only promises
high ideals and integrity, they actually walk the talk. Although these choices appear to be
costly they align nicely with a sustainability outlook and will continually help the company attract
and retain the right kind of employees.

People The overarching theme of Patagonias culture is respect for people and the
environment. Patagonias HR policies (may not even be explicit) demonstrate their
commitment managing the organization like an SMO: respecting and promoting work-life
balance, encouraging flexibility in schedules (surfs up!), ensuring healthy and affordable food
on site, higher wages than the industry average; highly subsidized on-site childcare, matching
401(k), and transparency into organizations financial health. Their willingness to oust leaders
and employees who do not share the Companys values is a testament to the importance of
their commitment to sustainability and authenticity. It is unquestionably less costly and more
efficient to pay to retain loyal employees, however, one of the areas the company appears to
pay little attention to is succession planning and training. Although this may only be a factor the
article did not cover, these OD Consultants would question if a sustainable plan is in place to
ensure the company can attract the right people into the C-suite or various key roles over time.


Swann & Cassone On Patagonia MSOD 617
Alignment Overall Patagonias organization design appears to support their strategy
and the environment, although there is room for change and improvement. In alignment with
their strategy, theyve maintained a small core staff, enlisted the support of collaborative
mechanisms, and limited their growth to ensure they can deliver on their promises of quality,
innovation, environmental and financially responsibility. There appears to be enough
governance in the system to control the key inputs into its environment as well as the controls
necessary to ensure the brand identity is protected. The technology and processes appear to
support their ability to fulfill the planned production, maintaining their commitment to quality and
innovation. What is unknown is whether the product mix is too broad to remain dedicated to the
core customer. Although the reward systems and HR elements are aligned to the strategy and
values, it would be of value to investigate the reasons behind the previously high turnover in
the C-Suite, 20% layoffs in 1991, and a Iot of management teams that did not understand what
were about...the values here are so deep (p. 1). Also, is there room for more innovation in the
work systems in which cross-training and various idea teams could be adding value?

Sustainable Effectiveness Overall Patagonia has implemented certain aspects of an
SMO and may be better served in the future by becoming more agile. Their identity, purpose
and environmental commitment support, doing well and doing good over the long run. (Lawler
& Worley, p. 58). Internally, it actively supports sustainable effectiveness values throughout its
culture, encouraging and rewarding employees to do the same. Externally, Patagonia makes a
clear brand promise of sustainable effectiveness and responds consistently to external
stakeholder feedback about its behavior. However, their steadfast desire to remain committed
to one type of customer, one supplier, one type of employee, one way of climbing the mountain
of growth could potentially threaten their ability to address the reality of todays new normal:
faster and faster change, global workforce diversity, and technological advancements.


Swann & Cassone On Patagonia MSOD 617
What Should Chouinard Do?

Recommendations for Patagonia depend on the outcome intended. To build a company
to last 100 years, Chouinard must recognize where his dirtbag perspective helps and where it
hurts Patagonias sustainability: If you want to understand the entrepreneur, study the juvenile
delinquent. The delinquent is saying with his actions This sucks. I'm going to do my own thing.
SMOs cannot ignore or have a counter dependent relationship to the changing, uncertain world.
Chouinard could also lessen his provincial leadership: When I feel like were getting too
numbers-driven or fashion-driven, that we are drifting away from the core, then I step in (p. 4).
Outwardly, Patagonia must grow its ability to perceive, make sense of, and be more
responsive to the outside environment. It must explore what it doesnt know and put structures
in place to allow for external focus. Inwardly, Patagonia must get better at playing with the
future. Internal and external change should inform strategic intent, and futuring across
medium- and long-term horizons will let the organization rethink and reconfigure resources to
create new value. Through scenario planning, Patagonia can better grasp how its
environmental stance might affect financial performance under different strategy alternatives.
The biggest issue for Patagonia is that its designed to appeal to a fixed psychographic
target market that is aging and less active. A higher price point and less-fashion-conscious
design are significant barriers to younger generations; Patagonia has little appeal to Millennials
and is failing to grow a future consumer base (Klebahn). It must expand its target market.
Patagonias innovation appears to be too collapsed into catering to its mature business
rather than taking on new business and expanding the market. The company should aim
creativity at anticipating the needs of the next generation of consumer, including how to reach
them in an updated and more relevant way. Appealing to youth via Patagonias commitments to
social change and community building could be promising. Chouinards suspicion of marketing
needs to go; improving social media presence is a must, as is a more fashionable aesthetic.
It is hard to say whether small victories would be more effective than a sweeping
redesign. Developing the agility to capitalize on momentary competitive advantages will require
enough of a cultural overhaul to diminish resistance to strategy change. Reshaping Patagonias
culture, however, would require a systemic rethinking of organization design. Employees need
to be rewarded for changing, not for becoming lifetimers. More diversity in shareholders would
also support less myopic and zen-like governance. Ultimately, Patagonia does not need to
change its core values much as aspects of its deeply entrenched dirtbag metaphor.


Swann & Cassone On Patagonia MSOD 617

References


Chouinard, Y. Let My People Go Surfing: The Education of a Reluctant Businessman

Galbraith, J. (2002). Designing Organizations. San Francisco: Jossey-Bass.

Hanna, D. Website quote. Retrieved on September 20, 2013 from: http://dave-hanna.net/

Lawler, E. and C. Worley. (2011). Management Reset. San Francisco: Jossey-Bass.

Reinhardt, F., R. Casadesus-Masanell, and D. Freier. (2003). Patagonia. Cambridge, MA:
Harvard Business School Press, 9-703-035.

Worley, C. Organization Design Through an Agility Lens Module 2: The Dynamics of a
Change-friendly Strategy, Pepperdine University.

www.Patagonia.com. Retrieved on January 6, 2003.