Patagonia Case Study
Key Strategic Issues (Why Important / Summary of Internal / External Analyses)
1) Balancing Commitment to Business with Commitment to Environment A key issue facing management was balancing the company’s desire for environmentalism with its existence as a for-profit business. The idea of running a for-profit business implies operating at the lowest cost, growing as rapidly as financially feasible, and maximizing returns to financial stockholders ( I think it should be stockholder since it is financial return). A commitment to the environment can raise costs and hurt margins because environmentally-friendly policies are not the most financially savvy. This issue is important because Patagonia’s entire brand and business is associated with preserving the environment. Externally, this gave Patagonia a competitive advantage because of the brand loyalty it developed. The company had an unusually strong commitment to the environment – so much so that management was willing to internally implement a slow growth policy in order to promote a more environmentally-sustainable business model. Beyond simply slowing growth, the company undertook several energy-efficiency and recycling initiatives for its customer service center and retail stores.
2) Attracting Younger Demographic without Alienating Existing Aging Customer Base Patagonia’s existing customer base rose in median age to approximately 44 years old in 2002. Externally, this proved to be a significant strategic issue because competition brands like Columbia and North Face were able to attract younger demographics, which represented a significant source of future income. Internally, the company has been strategically opposed to using its resources for chasing fads and fashion trends – for fear of losing credibility and diluting brand. So far, it focused on “classic” designs, with minimal pursuit of fashion trends. In addition, chasing fads creates a tension in the company’s operations because of its very slow turnaround time for product development. Average development of a complete product line took a year and a half – which is double the industry standard.
3) Maintaining Quality while reducing Turnaround Time and Costs Patagonia experienced a tension between achieving high-quality and low-turnaround times. Externally, competitors in the industry were more agile (half the turnaround time) in catering to consumer demand, which represented a significant strategic issue. Internally, Patagonia’s inefficient sourcing process (collaborating with only a few suppliers of raw materials) led to lengthy lead times– up to four months. These long lead times contributed to the long overall turnaround time. Some executives believed that high turnaround times were costing the company up to 20% in potential revenue. Patagonia also experienced a tension between maintaining high-quality while lowering procurement costs. Internally, management relied on long-term relationships with a few key fabric manufacturers – usually a single contractor per garment. Many of the products required very specialized equipment and were ordered in quantities too small to justify additional suppliers. This contributed its high procurement costs.
Recommendations to the Manager
Balancing Commitment to Business with Commitment to Environment Patagonia should maintain its strong dedication to the environment while balancing its business interests. Its brand is closely tied to environmentalism, thus contributing to a loyal customer base that can weather industry cycles. We recommend several implementation actions: 1)
Continue donating the higher of 10% of profit or 1% of revenue to environmental non-profit organizations. As we believe that focusing these funds towards organizations that are directly related to Patagonia’s business – Yosemite National Park rock climbing organizations, skiing organizations for underprivileged children, camping initiatives, boy scouts, girl scout...
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