MSOD 617 Dawnet Beverley, Ana L. Villarreal Garza, and Carol Watson Pepperdine University
September 23, 2013 Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 2 Futuring Capability Patagonias futuring capability is very strong as evidenced by the following: a) Strategies are developed and executed with eye on the future: In a statement by the founder of the company, decisions regarding growth are based on long-term view - being here for a hundred years. As such, huge investments in research and development are made and supplier relationships are on a long-term basis, rather than by short-term contractual basis. b) Catalyst for social change and a model for other companies: The CEO has stated that the products Patagonia make are not as important as what is done to promote a sense of community. Products are designed with the utmost attention to quality and a relentless focus on building a brand. This quality focus results in customers willingness to pay premiums. There is also the rigor of educating customers through their catalogs by having 50% of advertisement space dedicated to essays and other information about social change. Corporate Social responsibility is continuously demonstrated at Patagonia. All Stakeholders, employees, factories (suppliers) are held to the same standards, and communications about expectations are clear. Work place Code of Conduct based on standards found in the International labor Organization was developed and employed, for example. c) Financial discipline: The company is debt-free; revenues have doubled since 2008 and profit margins are well above market expectations. While being profitable is important, it is balanced with other priorities. In fact, they have been known to embark upon programs like their Buy Less campaign, which encourage consumers Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 3 to sell their used items. Conservation and preservation are definitely encouraged, and have proven to contribute to overall fiscal strength. d) Patagonia has been recognized by many leading organizations for its innovation and success. Its high integrity and commitment to the environment has put Patagonia on the Ethisphere Institutes Worlds Most Ethical Companies list for many consecutive years since the list was first developed in 2007 (Patagonia: A sustainable Outlook on Business). e) Words are backed up by actions at Patagonia. For example 1% of profits are donated to environmental initiatives. Patagonia has formed many alliances with other companies to reduce their environmental footprints. They are a catalyst for many of these initiatives (Conservation Alliance, Bluesign Standard, Conservacion Patagonia, Common threads initiative, as examples). Everyone at the company would agree that Patagonia plays well with the future; as would its current stakeholders. Founder, Yvon Chouinard is relentless in his pursuit and dedicated to advancing environmental awareness among businesses. Patagonia was described by Daniels Fund Ethics Initiative as an example of how strong corporate values and ethical leadership can create a company that is both successful and a role model for those who desire to make a positive difference. While the above is true, some will argue that Patagonias future is at risk, in that there is not a keen focus on addressing the next generation of customers and employees. Having someone responsible for noticing how consumers, competitors and employees are Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 4 responding to changes brought on by technology and world events, would enable Patagonia to play better with the future.
Identity and Intent Patagonias identity is based on being a role model organization. They want to inspire others to do good; economic good, good to society, and good to the planet. Patagonias identity of being a role model may be divided in five areas, each supported by actions that define the companys intent and determine how Patagonia creates value: 1. Be financially successful - Patagonias intent is not to be profitable just for the sake of it, but instead, they want to prove to other companies that profitability and environmentalism are no enemies. They want to promote competitive imitation of their environmentally focused strategy as a way of influencing others and have a more positive footprint on the planet. They know that competitive imitation will be driven by profits. They have been very conservative with their growth rate, thoughtful of their reputation and financials. Patagonias growth strategy is to grow at a modest rate, understanding that double-digit growth is unmanageable in the long run and that it conflicts with their other values. 2. Committed to the environment - When Chouinard equipment gear was damaging the rocks, the mainstay product was removed from the market. This was the first big environmental step. Since then, Chouinards intent is to minimize the environmental harm of his products and processes. To do so, life-cycle analyses (from raw material origin to final discarding of garment) were completed, resulting in building Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 5 relationships with outside suppliers and investing significantly in product research and development. 3. Promote a well-rounded lifestyle - Patagonias intent is to have more productive and better employees, more effectively supporting and carrying out the companys mission statement. Therefore, the company promotes a well-rounded lifestyle by creating an enjoyable workplace where people can dress as they wish (including barefoot), where people can either go surfing at lunch, or have lunch with their kids at the company heavily subsidized cafeteria before dropping them back off at the on- site childcare center. 4. Build a brand - For Patagonia, it is all about building a brand: the stronger the differentiation, the stronger the brand; the stronger the brand, the more the customer is willing to pay for the product. At Patagonia, brand is not about marketing, but about being authentic. Patagonias intent is to be respected by their small circle, to never loose credibility among mountaineers, climbers, friends and skiers. Patagonias authenticity comes from the core users designing the products, who understand what quality means: technical innovation and superior design. 5. Think in terms of reputation - Patagonia wont compromise integrity or quality. Patagonias sense of reputation goes beyond the final customer, integrating all stakeholders. To maintain its reputation, Patagonia competes against itself and against living up to its own standards. T his has been demonstrated through the companys evolution: Going from customer service not being a priority to offering world class customer service; improving relationships with dealers through investments in sales representatives instead of using independent sales reps; Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 6 hosting international vendor conferences to discuss environmental improvements, and admitting how everything we make pollute and reinventing processes to do the least amount of harm and to institute Earth Tax. Figure 1. Strategy - Identity and Intent
Organization Design Companies compete in a world of temporary advantage and the time of advantage continues to be reduced according to Galbraith. The five organizational levers in the Five Star Model that apply to Patagonias approach are in alignment and both support and hinder their Be a role model organization Be financially successful Promote competitive imitation Committed to the environment Do the least amount of damage Promote a well- rounded lifestyle Let my people surf Subsidized cafeteria On-site childcare Build a brand Big on technical innovation Superior design Make best quality outdoor clothing Consumers viewed in psychographic terms Not fashion driven True to dirtbags Think in terms of reputation Long-term relationships Will never lowest cost provider Careful when entering new markets wont compromise integrity or quality Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 7 sustainability. Patagonias core customers are and will continue to be more knowledgeable and demanding and will require more accountability around sustainability and increased technological advancements as the competition continues to increase. The levers in the Star Model that Patagonia can shift will lead to different organizational outcomes. 1) The strategy and the direction of Patagonia to limit growth in products, accounts and customers has served to reduce the peaks and valleys of the economy. They have focused on high quality, customer service, technology, a passion for the environment and design and have achieved higher profitability and sustained growth over the years. Ignoring the industry trends and pressure for growth has stabilized the business. A focus on customer service is a strategy to increase loyalty resulting in consistent business growth from current customers and an integration of sustainability. The focus on the psychographic make-up of the customer and ignoring the aging of this core customer will impact the long-term sustainability of the customer target strategy. The values and mission espoused by the founder are so deeply reinforced that a long-term view and accepting changes might be jeopardized. Sustainability is integrated into their product sourcing: push for organic sourcing, long term contractor relationships, product construction and go to market strategy of environmentally responsible sourcing. An external focus to enlist competitors in the market to encourage and support organic cotton production is a sustainable management integration strategy. The alignment of the strategy is a strong driver throughout the culture impacting the decisions and reinforcing the brand value to the current customers, employees and stakeholders. A strategic point of difference of having values that represent a larger purpose than simply making profits has contributed to the employee and customer loyalty to the brand, further integrating sustainability into the strategy. 2) The structure and location of decision-making power is still driven in a hierarchical Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 8 model. The founder has a high involvement management style whose influence in product decisions and processes is felt throughout the organization. The founders view of marketing as suspicious is reflected in the structure and influence of marketing. The centralized distribution of power and limits to product selection, premium pricing and limited accounts is aligned with the overall strategy. The long-term relationship with contractors and a structure focused on deepening and limiting those relationships results in sustainable value in reduced defects in product and alignment with a strategy of high quality vs. their competitors. The dynamic capabilities of the contractors and reinforcement of quality standards and refined routines reinforces a sustainable process of high quality. 3) The processes to go to market intentionally limit the growth but contribute to sustainable customer loyalty. The length of time to develop products and fulfill customer orders aligns with the strategic values and structure. Time allocated to product development processes are usually longer than competitors and heavily researched and in alignment with the strategy and culture of the organization. The decisions on what and when to introduce products, production time-line and selling process are all focused on staying core to the values and mission with an eye on a core customer the dirt-baggers. A focus on the needs of the core customers is embedded into all areas of the process from raw materials to customer service to distribution. Alignment with a strategy of quality, impact on the environment, and aesthetics and technology in the product development and design phase resulted in sustained profitability through consistently premium pricing. Staying close to the ambassadors and professional athletes integrates a sustainable approach by staying connected to the core user and incorporating an in- the-field testing to ensure premium quality and technological innovation. 4) A strong quality of life employee reward system driven by values of an integrated and Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 9 well-rounded life of sports activities,-- paying for two months volunteer work and premium childcare-- contribute to the core strategic values of sustainability. Limited monetary rewards, yet competitive salaries, and low turnover maintain the motivation towards the goals of sustainability. Patagonia is able to reduce the pressure for high growth given the reward system as a private company resulting in a sustainable management practice in the reward system. 5) The people, skills and mindset at Patagonia and the recruiting of like-minded employees is integrated into the sustainable values and current success. The influence of the founder as the watchdog limits the breadth of skills and employee mindsets. The psyche of the management at Patagonia is the belief that change is the enemy and that financial success can be achieved best by remaining stable. New managers and previous CEOs that are not on board with the philosophy are let go. A homogeneous mindset and policies instilled by the founder, while in alignment with the strategy and resulting in past and current success, risks adaptability to changes and broader views of unanticipated changes in the marketplace.
Recommendations We recommend that Chouinard expand his board to include representatives of employees, communities, stakeholders from other industries, and multi-generational representatives in order to focus on medium to long term planning, including succession planning. Patagonia could benefit from adding independence to the board. This can be accomplished by maintaining the dependent members, but adding members that are not employed by the company or members who do not have any relationship (family or business) with Patagonia or Lost Arrow Corporation. Including a board chair role that adds an objective perspective Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 10 would also add value by, most likely, leading to unprejudiced decisions. This board chair could even, eventually, take on the CEO job. Secondly, a dedicated strategy around the onboarding of new employees to Patagonia would ensure more transparency, which would shorten the learning curve and provide for a better experience. This could favorably promulgate their reputation. Finally, we recommend that Patagonia expand on the futuring and sustainable strategic values and initiatives by increasing the adaptive capabilities in the key areas of the organization of human resources, vendor relationships and target customer acquisition. In Human Resources, increased adaptive capabilities could benefit employee onboarding, employee rewards and identifying skill sets and experiences that might be valuable if the environment changes. While the core consumer is crucial in the previous and current market, building adaptive capabilities to ensure that any changes in the customers make- up, generational differences, and buying habits can be adapted. The long-term relationship with vendors has been successful and building new vendor relationships and vendor capabilities can support any potential changes in the marketplace and create scenarios to respond. Building a process in those areas to capture information, developing scenarios and exploring new ideas for sustainability and regularly engaging top management and the board for medium and long term planning would be recommended.
Patagonia Case Study_ Beverley, Dawnet, Villarreal Garza, Ana L., and Watson, Carol 11 References Reinhardt, F., R. Casadesus-Masanell, and D. Freier. (2003). Patagonia. Cambridge, MA: Harvard Business School Press, 9-703-035.
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