Patagonia
Defining the Organization's
Strategic Direction
by:
Johannes Mahlich
Mara Schneider
Agenda
1.
2.
3.
4.
5.
6.
7.
2
Introduction
Strategy
Business Model
Tactics
Requirements for Success
Key Takeaways
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Profitability vs. Environmentalism
Basis economic theory:
Environmentalism in companies is likely
to divert management attention and
capital
Not competitive if focus is only on
environmental objectives
Lose customers if environmental
quality providence goes beyond
required law
High dependency on consumer who
bear the burden of extra cost through
environmental investments
3
Source: Reinhardt (1998)
PROFIT
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Patagonia
• Privately held company
• Initial purpose: Financing of
founder’s outdoor hobbies
• Produces sportswear, technical
outerwear / knits, hard goods
4
Key Takeaways
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Patagonia Doomed to Fail?
Basic economic theory applied to Patagonia:
Managements attention and capital is
diverted by environmentalism
Focus is on environmental objectives
Environmental quality providence
goes beyond required law
They have extra costs through
environmental activities
5
?
PROFIT
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Strategy
“[…] choice of business model
through which the firm will compete
in the market place.”
6
Source: Casadesus-Masanell & Ricart (2010)
Key Takeaways
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Strategy
Vision
“Environment conservation
and restoration”
Mission
“Strive to build the best
product, cause no
unnecessary harm, and use
business to inspire and
implement solutions to the
environmental crisis.”
Believes
-
-
Quality
Integrity
Environmentalism
Not bound by
convention
Zen Philosophy
Environmental differentiation strategy
7
Source: Reinhardt (1998)
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Business Model
„[...] logic of the firm, the way it
operates and how it creates value
for its stakeholders.“
8
Source: Casadesus-Masanell & Ricart (2010)
Key Takeaways
Discussion
Introduction
Strategy
Business Model
Requirements
for Success
Tactics
Key Takeaways
Discussion
Business Model
Process
Innovation
Product & Service
Innovation
Business Model
Innovation
Create Value
Operational
Excellence
Customer
Intimacy
Product
Leadership
Environmental
Stewardship
Perceive Value
Customers
Excellent Quality
& Services
Good Feeling
Environment
Capture Value
Profits
9
Growth
Market Share
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Tactics
„ [...] residual choices open to a firm
by virtue of the business model it
chooses to employ.“
10
Source: Casadesus-Masanell & Ricart (2010)
Key Takeaways
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Product Lifecyle Initiative
Virtues of Business Model
Operational
Excellence
Customer
Intimacy
Product
Leadership
Environmental
Stewardship
Key Tactics
Product Lifecycle Initiative
Reduce
Repair
Reuse
Recycle
“The Product Lifecycle Initiative represents a holistic commitment to lengthen the lifecycle of
each product and reduce landfill waste.”
11
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Reduce
Key Tactics
Product Lifecycle Initiative
Repair
Reduce
Reuse
Recycle
Description
High Quality
Low Footprint
Organic & Recycled Materials
Assessment
Big increase in production costs
Limited product variety
12
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Only small price increase
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Repair
Key Tactics
Product Lifecycle Initiative
Reduce
Repair
Reuse
Recycle
Description
Free repairing service
Considers repair for other brands
Assessment
13
Increases trust in quality
Miss out on potential new sales
High costs
Not enough capacity
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Reuse
Key Tactics
Product Lifecycle Initiative
Reduce
Repair
Reuse
Recycle
Description
Second market for used products
Considers opening for other brands
Assessment
Additional revenue stream
New less affluent customer segments
14
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Cannibalization of sales
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Recycle
Key Tactics
Product Lifecycle Initiative
Reduce
Repair
Reuse
Recycle
Description
Take broken products back for free
Considers providing service for other brands
Assessment
Cheap resources for production
High operating costs
15
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Capacity constraints
Introduction
Strategy
Business Model
Requirements
for Success
Tactics
Key Takeaways
Discussion
Business Model
Process
Innovation
Product & Service
Innovation
Business Model
Innovation
Create Value
Operational
Excellence
Customer
Intimacy
p
p
Product
Leadership
p
Environmental
Stewardship
p
Perceive Value
Customers
Excellent Quality
& Services
Good Feeling
p
Environment
p
Capture Value
Profits
16
?
Growth
?
Market Share
?
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Requirements for Success
3
2
1
17
Innovation must be defensible against
imitation by competitors
Establish credible information about
environmental attributes of its products
Find or create a willingness among
customers to pay for environmental quality
Source: Reinhardt (1998)
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
1. Willingness to pay
Perceive Value
Customers
Excellent Quality & Services
Good Feeling
?
Environment
Capture Value
Profitability
Growth
Market Share
Patagonia
18
Bundling of public and private
goods (Environment & Quality)
Altruistic reasons (Donation)
Environmental prestige
Differentiation strategy resonates
with customer value
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
2. Credibility
Reporting
Labeling
Patagonia
Footprint chronicles
Retail store lounge - to inform
about patagonia and projects
19
Environmental impact of 150
different products documented
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
3. Protection Against Imitation
Process Innovation
Product & Service
Innovation
Business Model
Innovation
Low transparency
Patents, infrastructure
Highly integrated; strong
customer relationship
Medium protection
20
Medium / high
protection
High protection
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Requirements for Success
3
2
1
21
Innovation must be defensible against
imitation by competitors
p
p
Establish credible information about
environmental attributes of its products
Find or create a willingness among
customers to pay for environmental quality
Source: Reinhardt (1998)
p
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Key Takeaways
Don’t just rely on basic economic logic! Environmental differentiation strategy
can work!
Environmental differentiation strategy must provide value to the customer and
the firm must be able to capture the value!
Company must be credible for their environmental efforts!
Environmentalism must be deeply integrated in the business model to be
difficult to imitate!
Innovation must be managed with respect to capacity and resources!
22
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Should Patagonia go public?
Investors
Expectation
Growth
Profitability
Patagonia
Shareholder
-
23
Profits = main
objective
ROI decision making
Short term focus
-
profits = only means to an end
Many environmental activities only
capture value as an integral part of
business model
Long term focus
Discussion
Introduction
Strategy
Business Model
Tactics
Requirements
for Success
Key Takeaways
Discussion
Discussion
Should Patagonia go public?
Investors
Expectation
Profitability
Growth
Patagonia
Shareholder
-
24
Focus on growth
-
Capacity and resource constraints can’t
handle fast growth without compromising
believes
Thank you for your attention!