patagonia case study harvard business school

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Patagonia: "Earth Is Now Our Only Shareholder"

By: Brian Trelstad, Nien-he Hsieh, Michael Norris, Susan Pinckney

Patagonia's change of ownership from a privately held company to a perpetual purpose trust and 501(c)(4) nonprofit in order to use the company's profit to fight the environmental crisis and be a…

• Length: 22 page(s)
• Publication Date: Mar 17, 2023
• Discipline: Business Ethics
• Product #: 323057-PDF-ENG

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Patagonia's change of ownership from a privately held company to a perpetual purpose trust and 501(c)(4) nonprofit in order to use the company's profit to fight the environmental crisis and be a model for future businesses.

Learning Objectives

Corporate Responsibility, Shareholder Value, Ownership Structures

Mar 17, 2023 (Revised: Sep 21, 2023)

Discipline:

Business Ethics

Geographies:

United States

Industries:

Apparel accessories

Harvard Business School

323057-PDF-ENG

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• Harvard Business School →
• Faculty & Research →
• January 2014
• HBS Case Collection

Patagonia (B)

• Format: Print
• | Language: English
• | Pages: 15

About The Authors

Forest L. Reinhardt

Ramon Casadesus-Masanell

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Product details

Teaching and learning

Time period, geographical setting, featured company.

Technology and Operations Management

Mba student perspectives.

• Assignments
• Assignment: The TOM Challenge: TOM…

Patagonia: Don’t Buy this Jacket

How tight alignment between its business and operating models has allowed this outdoor clothing company to reap profits while bettering the world.

Introduction

Yvon Chouinard is not your typical corporate businessman. The 77-year-old rock climber and environmentalist turned CEO is the founder of Patagonia, an American clothing company that sells high-end outdoor clothing. [i]  Chouinard, now retired, has developed Patagonia into one of the world’s most environmentally-conscious and socially-responsible brands. Not only does Patagonia urge their customers to consume sensibly, they have also developed an operating model that minimizes Patagonia’s ecological footprint. And the company’s anti-consumerist message has resonated with consumers – according to Business Insider , the company tripled its profits between 2008 and 2014. [ii]

For these reasons, I believe Patagonia is a clear TOM Challenge “Winner” – the company’s tight alignment between its business model and its operating model has allowed Patagonia to grow revenues while staying true to its mission statement. Below I outline the core elements of Patagonia’s two models in order to concretely illustrate the ways in which they work together to create and capture value for Patagonia, and for society more broadly.

Business Model

Patagonia’s mission statement is “to build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.” [iii] This mission statement is reflected in the following core tenets of Patagonia’s business model:

Pathways to Just Digital Future

• High-Quality Products that Last: Chouinard has long been guided by principles of functionality and simplicity. [iv] As such Patagonia’s focus is on using high-quality material and cutting edge technology to build durable, highly functional products that last a long time.
• Premium Pricing:  The quality of its products is rationalization for the company’s premium pricing policy. The extended useful life of its products allows Patagonia to charge a higher price as customers are able to buy fewer items over time.

• Consumer Trust: Finally, Patagonia has very purposefully built strong and trusting relationships with its consumers. Patagonia recognized early on that individuals want to purchase from brands they trust, admire, and identify with. As a result of its focus on trust, Patagonia has built a very loyal (some call it fanatic) customer base. [vii] [viii]

Operating Model

I’ll turn now to Patagonia’s operating model (which features investments in primarily scope, processes, and human capital) in order to demonstrate how Patagonia’s operating decisions are closely linked to and reinforce the business strategy discussed above.

• Supply Chain Management : In order to adhere to their mission statement and to maintain the trust with consumers (as outlined above) , Patagonia chooses its supply chain collaborators carefully, placing great emphasis on ethical labor practices and environmental impact. According to to their website Patagonia “builds relationships with the right suppliers [and] … requires that all fabric and trims suppliers audit their factories for key social responsibility indicators, such as hiring practices, employee grievance mechanisms, recycling policies and other social and environmental efforts.” [x]  According to Chouinard, the company follows every one of their products all the way from the farmer to the end of the production process to ensure there are no “unintended  consequences” of Patagonia’s supply chain decisions. [xi]
• Recycling: In alignment with Patagonia’s anti-growth messaging, the company has introduced a recycling element into their production process. Patagonia works with consumers to collect old clothing that can’t be resold and then sells the used materials back to its upstream suppliers “at a lower price than comparable virgin materials.” [xii] The creative recycling campaign has allowed Patagonia to adhere to its mission to reduce waste, while generating a new (albeit small) revenue stream.

• Human Resources: Finally, Patagonia considers labor a critical part of their operating model. Patagonia subscribes to the belief that happy and productive employees leads to high-quality final products. The title of Chouinard’s memoir, “Let My People Go Surfing” is reflective of the company’s approach to human capital development – many Patagonia employees hit the waves during lunch time, employees are actively encouraged to balance their work and personal lives, and all employees can take a two-month sabbatical to work on an environmental project of their choice. These, along with other benefits, ensure Patagonia continues to attract and retain high quality talent – according to the Patagonia website the company receives around 200 resumes every month and turnover is in the “single digits”. [xiv]

Alignment Overview & Summary

Not only has Patagonia developed a winning business proposition, but just as importantly, it has created an execution strategy that is highly complementary to the business model. Both models are aimed at building high quality materials, minimizing the company’s environmental impact, and developing long-lasting relationships with consumers. Patagonia, an obvious TOM Challenge winner, uses strategic and operational alignment to transform assets into valuable products and to capture value for Chouinard, Patagonia employees, and the world.

[i] https://en.wikipedia.org/wiki/Yvon_Chouinard

[ii] http://www.businessinsider.com/patagonia-business-strategy-2014-9

[iii] http://www.patagonia.com/us/patagonia.go?assetid=2047

[iv] http://www.newyorker.com/business/currency/patagonias-anti-growth-strategy

[v] http://www.bloomberg.com/bw/articles/2013-08-28/patagonias-buy-less-plea-spurs-more-buying

[vi] http://groundswell.org/the-bottom-line-patagonia-north-face-and-the-myth-of-green-consumerism/

[vii] http://www.businessinsider.com/patagonia-business-strategy-2014-9

[viii] http://blog.zoomint.com/blog/friday-five-let-customers-design-their-own-experiences

[ix] http://www.patagonia.com/us/patagonia.go?assetid=68444

[x] http://www.patagonia.com/us/patagonia.go?assetid=68444

[xi] https://www.gsb.stanford.edu/insights/yvon-chouinard-patagonias-secret-its-supply-chain

[xii] https://hbr.org/2011/10/patagonias-buy-less-campai

[xiii] http://www.patagonia.com/us/footprint

[xiv] https://www.washingtonpost.com/business/a-company-that-profits-as-it-pampers-workers/2014/10/22/d3321b34-4818-11e4-b72e-d60a9229cc10_story.html

Featured image: http://jaykinghorn.com/2009/06/02/patagonias-the-footprint-chronicles-visualizing-a-corporate-philosophy/

Student comments on Patagonia: Don’t Buy this Jacket

A really thorough post! I find fascinating how the founder imprinted his vision and care in every aspects of the operating model. Despite what seems to be a flawless account of the company, do you think it is sustainable on the long run and still able to grow?

Great post! I find B Corporations to be incredibly interesting business models – the B Corp allows Patagonia to focus on long-term impact vs short-term profitability, and in a sense, redefines the meaning of “shareholder value”. The fact that these B Corporation tenets align so well with its operating model is all the more impressive: one of the biggest criticisms against B Corps is that there is little governance or regulatory structures in place (both internal and external to the company) that ensure that the social/environmental benefits are really there, but Patagonia has proven with every aspect of its operating model that it is truly dedicated to its environmental bottom line. Furthermore, these principles have thus far come at no cost to Patagonia’s top-line growth potential, proving out that balancing business growth and a double/triple bottom-line is not a zero-sum game. Here’s to hoping that more companies will begin following this model!

Very thorough post, @KylaWilkes! I particularly liked seeing a business that goes well beyond what is seemingly required to ensure a strong (and growing) bottom line. For example, Patagonia shows us lots of info on their suppliers, including the “address of each factory, the gender breakdown of the factory workers, the languages spoken in the factory, and the Patagonia items produced at each plant” and sometimes even turnover at the factory level (source: I had to go to Patagonia’s website because I was pretty intrigued to find out more). This shows a clear commitment to not only being transparent to make customers happy, but to truly make a difference in the world.

Kyla, what a great analysis. You convinced me that Patagonia is a clear TOM Winner. I remember running into an article a few months ago about Chouinard and his employee-friendly management approach (The Way I Work: Yvon Chouinard, Patagonia – http://www.inc.com/magazine/201303/liz-welch/the-way-i-work-yvon-chouinard-patagonia.html ) where he talks about ‘let my people surf.” What is particularly fascinating is that not only Patagonia’s business and operating models align, but also its marketing strategy. Consumers reward authenticity, and authenticity means communicating the true self of the company. Clearly, Patagonia has found the sweet spot: for any other company, the anti-consumption message could have been perceived by the environmentally conscious consumers as a mere cynical attempt for positive PR. But in Patagonia’s case, it was perceived as a true expression of core values and demonstration of superior value over competition. And this is only possible when the marketing strategy, the business model and the operating model all perfectly align. Thanks again for a great post!

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