Patagonia produces high-quality environmentally friendly garments that command significant price premiums. Its environmental mission motivates it not only to donate to environmental causes and reduce the impact of its own production, but also to share its practices with other companies. While pursuing its strong environmental stance, Patagonia maintains a larger gross profit margin than its competitors and is targeting a 10% rate of annual growth in sales. In spring 2010, Patagonia was in the process of implementing a new, radical environmental initiative called "Product Lifecycle Initiative" (PLI). This initiative represented a holistic commitment to lengthen the lifecycle of each product and reduce landfill waste. It constituted Patagonia's efforts to take responsibility for the products it made, "from birth to death and then beyond death, back to rebirth." The initiative consisted of a mutual contract between the company and its customers to "reduce, repair, reuse, and recycle" the apparel that they consumed.
Authors :: Forest Reinhardt, Ramon Casadesus-Masanell, Hyun Jin Kim
Swot Analysis of "Patagonia" written by Forest Reinhardt, Ramon Casadesus-Masanell, Hyun Jin Kim includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Patagonia Initiative facing as an external strategic factors. Some of the topics covered in Patagonia case study are - Strategic Management Strategies, Sustainability and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Patagonia casestudy better are - – digital marketing is dominated by two big players Facebook and Google, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, there is increasing trade war between United States & China, talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models, wage bills are increasing,
customer relationship management is fast transforming because of increasing concerns over data privacy, increasing energy prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Patagonia case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Patagonia Initiative, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Patagonia Initiative operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Patagonia can be done for the following purposes –
1. Strategic planning using facts provided in Patagonia case study
2. Improving business portfolio management of Patagonia Initiative
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Patagonia Initiative
Strengths Patagonia | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Patagonia Initiative in Patagonia Harvard Business Review case study are -
Operational resilience
– The operational resilience strategy in the Patagonia Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Low bargaining power of suppliers
– Suppliers of Patagonia Initiative in the sector have low bargaining power. Patagonia has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Patagonia Initiative to manage not only supply disruptions but also source products at highly competitive prices.
Successful track record of launching new products
– Patagonia Initiative has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Patagonia Initiative has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Strong track record of project management
– Patagonia Initiative is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Diverse revenue streams
– Patagonia Initiative is present in almost all the verticals within the industry. This has provided firm in Patagonia case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Ability to recruit top talent
– Patagonia Initiative is one of the leading recruiters in the industry. Managers in the Patagonia are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Organizational Resilience of Patagonia Initiative
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Patagonia Initiative does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Learning organization
- Patagonia Initiative is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Patagonia Initiative is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Patagonia Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Sustainable margins compare to other players in Strategy & Execution industry
– Patagonia firm has clearly differentiated products in the market place. This has enabled Patagonia Initiative to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Patagonia Initiative to invest into research and development (R&D) and innovation.
Ability to lead change in Strategy & Execution field
– Patagonia Initiative is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Patagonia Initiative in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Innovation driven organization
– Patagonia Initiative is one of the most innovative firm in sector. Manager in Patagonia Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Training and development
– Patagonia Initiative has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Patagonia Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Weaknesses Patagonia | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Patagonia are -
Products dominated business model
– Even though Patagonia Initiative has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Patagonia should strive to include more intangible value offerings along with its core products and services.
Low market penetration in new markets
– Outside its home market of Patagonia Initiative, firm in the HBR case study Patagonia needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Patagonia Initiative is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Patagonia can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
No frontier risks strategy
– After analyzing the HBR case study Patagonia, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Skills based hiring
– The stress on hiring functional specialists at Patagonia Initiative has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Workers concerns about automation
– As automation is fast increasing in the segment, Patagonia Initiative needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Patagonia, in the dynamic environment Patagonia Initiative has struggled to respond to the nimble upstart competition. Patagonia Initiative has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Capital Spending Reduction
– Even during the low interest decade, Patagonia Initiative has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
High cash cycle compare to competitors
Patagonia Initiative has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Lack of clear differentiation of Patagonia Initiative products
– To increase the profitability and margins on the products, Patagonia Initiative needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow to strategic competitive environment developments
– As Patagonia HBR case study mentions - Patagonia Initiative takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Opportunities Patagonia | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Patagonia are -
Loyalty marketing
– Patagonia Initiative has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Patagonia Initiative can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Creating value in data economy
– The success of analytics program of Patagonia Initiative has opened avenues for new revenue streams for the organization in the industry. This can help Patagonia Initiative to build a more holistic ecosystem as suggested in the Patagonia case study. Patagonia Initiative can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Patagonia Initiative can use these opportunities to build new business models that can help the communities that Patagonia Initiative operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Patagonia Initiative in the consumer business. Now Patagonia Initiative can target international markets with far fewer capital restrictions requirements than the existing system.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Patagonia Initiative can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Leveraging digital technologies
– Patagonia Initiative can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Better consumer reach
– The expansion of the 5G network will help Patagonia Initiative to increase its market reach. Patagonia Initiative will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Patagonia Initiative in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Using analytics as competitive advantage
– Patagonia Initiative has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Patagonia - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Patagonia Initiative to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Low interest rates
– Even though inflation is raising its head in most developed economies, Patagonia Initiative can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Developing new processes and practices
– Patagonia Initiative can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Patagonia Initiative can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Patagonia Initiative can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Threats Patagonia External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Patagonia are -
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Patagonia Initiative with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Patagonia Initiative will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Patagonia Initiative in the Strategy & Execution sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Patagonia Initiative can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Patagonia .
Environmental challenges
– Patagonia Initiative needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Patagonia Initiative can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Patagonia Initiative needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Patagonia Initiative in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
High dependence on third party suppliers
– Patagonia Initiative high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Patagonia, Patagonia Initiative may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Consumer confidence and its impact on Patagonia Initiative demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Technology acceleration in Forth Industrial Revolution
– Patagonia Initiative has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Patagonia Initiative needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Patagonia Initiative can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing wage structure of Patagonia Initiative
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Patagonia Initiative.
Weighted SWOT Analysis of Patagonia Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Patagonia needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Patagonia is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Patagonia is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Patagonia is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Patagonia Initiative needs to make to build a sustainable competitive advantage.