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Patagonia Case Study


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.

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

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

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