Case Study Description of Patagonia: Driving Sustainable Innovation by Embracing Tensions
This case study examines the tensions that arise when Patagonia simultaneously pursues sustainability and quality objectives embedded within its mission statement to "Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis." Specifically, this case study focuses on Patagonia's Durable Water Repellent (DWR) problem-DWR is a highly effective chemical treatment used to waterproof jackets (supporting the quality objective) but has by-products that are toxic and persist in the environment (undermining the sustainability objective). This case presents Patagonia's (and the industry's) challenges, its history trying to resolve the problem, including research, its temporary solution to use a less harmful but less effective option in C6, and its investment in Beyond Surface Technologies through $20 Million & Change, amongst others. The case also discusses external issues such as competitors and their efforts, pressure from Greenpeace, governmental involvement, and chemical industry actions. At the higher level, the case focuses on the question of how companies like Patagonia drive innovation down the supply chain to chemical and material suppliers, as well as how they think about innovation/disruption across the entire system, all the while grappling with internal tensions between performance, durability, and their commitment to cause no unnecessary environmental harm.
Authors :: Dara O'Rourke, Robert Strand
Topics :: Leadership & Managing People
Tags :: Manufacturing, Social enterprise, Social responsibility, Supply chain, Sustainability, SWOT Analysis, SWOT Matrix, TOWS, Weighted SWOT Analysis
Swot Analysis of "Patagonia: Driving Sustainable Innovation by Embracing Tensions" written by Dara O'Rourke, Robert Strand includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Patagonia Dwr facing as an external strategic factors. Some of the topics covered in Patagonia: Driving Sustainable Innovation by Embracing Tensions case study are - Strategic Management Strategies, Manufacturing, Social enterprise, Social responsibility, Supply chain, Sustainability and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Patagonia: Driving Sustainable Innovation by Embracing Tensions casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, supply chains are disrupted by pandemic , cloud computing is disrupting traditional business models, talent flight as more people leaving formal jobs, there is backlash against globalization, increasing transportation and logistics costs, challanges to central banks by blockchain based private currencies,
increasing inequality as vast percentage of new income is going to the top 1%, wage bills are increasing, etc
Introduction to SWOT Analysis of Patagonia: Driving Sustainable Innovation by Embracing Tensions
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Patagonia: Driving Sustainable Innovation by Embracing Tensions case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Patagonia Dwr, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Patagonia Dwr 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: Driving Sustainable Innovation by Embracing Tensions can be done for the following purposes –
1. Strategic planning using facts provided in Patagonia: Driving Sustainable Innovation by Embracing Tensions case study
2. Improving business portfolio management of Patagonia Dwr
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Patagonia Dwr
Strengths Patagonia: Driving Sustainable Innovation by Embracing Tensions | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Patagonia Dwr in Patagonia: Driving Sustainable Innovation by Embracing Tensions Harvard Business Review case study are -
Ability to recruit top talent
– Patagonia Dwr is one of the leading recruiters in the industry. Managers in the Patagonia: Driving Sustainable Innovation by Embracing Tensions are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Cross disciplinary teams
– Horizontal connected teams at the Patagonia Dwr are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Learning organization
- Patagonia Dwr 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 Dwr is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Patagonia: Driving Sustainable Innovation by Embracing Tensions Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Successful track record of launching new products
– Patagonia Dwr has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Patagonia Dwr 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.
Ability to lead change in Leadership & Managing People field
– Patagonia Dwr 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 Dwr in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Operational resilience
– The operational resilience strategy in the Patagonia: Driving Sustainable Innovation by Embracing Tensions 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.
Analytics focus
– Patagonia Dwr is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Dara O'Rourke, Robert Strand can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Strong track record of project management
– Patagonia Dwr is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
High switching costs
– The high switching costs that Patagonia Dwr has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
High brand equity
– Patagonia Dwr has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Patagonia Dwr to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Low bargaining power of suppliers
– Suppliers of Patagonia Dwr in the sector have low bargaining power. Patagonia: Driving Sustainable Innovation by Embracing Tensions has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Patagonia Dwr to manage not only supply disruptions but also source products at highly competitive prices.
Diverse revenue streams
– Patagonia Dwr is present in almost all the verticals within the industry. This has provided firm in Patagonia: Driving Sustainable Innovation by Embracing Tensions 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.
Weaknesses Patagonia: Driving Sustainable Innovation by Embracing Tensions | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Patagonia: Driving Sustainable Innovation by Embracing Tensions are -
Lack of clear differentiation of Patagonia Dwr products
– To increase the profitability and margins on the products, Patagonia Dwr needs to provide more differentiated products than what it is currently offering in the marketplace.
High cash cycle compare to competitors
Patagonia Dwr 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.
Low market penetration in new markets
– Outside its home market of Patagonia Dwr, firm in the HBR case study Patagonia: Driving Sustainable Innovation by Embracing Tensions needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Workers concerns about automation
– As automation is fast increasing in the segment, Patagonia Dwr 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Patagonia: Driving Sustainable Innovation by Embracing Tensions, is just above the industry average. Patagonia Dwr needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Aligning sales with marketing
– It come across in the case study Patagonia: Driving Sustainable Innovation by Embracing Tensions that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Patagonia: Driving Sustainable Innovation by Embracing Tensions can leverage the sales team experience to cultivate customer relationships as Patagonia Dwr is planning to shift buying processes online.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Patagonia Dwr is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Patagonia: Driving Sustainable Innovation by Embracing Tensions can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
High operating costs
– Compare to the competitors, firm in the HBR case study Patagonia: Driving Sustainable Innovation by Embracing Tensions has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Patagonia Dwr 's lucrative customers.
Increasing silos among functional specialists
– The organizational structure of Patagonia Dwr is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Patagonia Dwr needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Patagonia Dwr to focus more on services rather than just following the product oriented approach.
Skills based hiring
– The stress on hiring functional specialists at Patagonia Dwr 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.
Products dominated business model
– Even though Patagonia Dwr 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: Driving Sustainable Innovation by Embracing Tensions should strive to include more intangible value offerings along with its core products and services.
Opportunities Patagonia: Driving Sustainable Innovation by Embracing Tensions | 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: Driving Sustainable Innovation by Embracing Tensions are -
Buying journey improvements
– Patagonia Dwr can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Patagonia: Driving Sustainable Innovation by Embracing Tensions suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Leveraging digital technologies
– Patagonia Dwr 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.
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 Dwr in the consumer business. Now Patagonia Dwr can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– Patagonia Dwr can develop new processes and procedures in Leadership & Managing People 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.
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 Dwr can use these opportunities to build new business models that can help the communities that Patagonia Dwr operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Leadership & Managing People industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Patagonia Dwr 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 Dwr 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.
Creating value in data economy
– The success of analytics program of Patagonia Dwr has opened avenues for new revenue streams for the organization in the industry. This can help Patagonia Dwr to build a more holistic ecosystem as suggested in the Patagonia: Driving Sustainable Innovation by Embracing Tensions case study. Patagonia Dwr can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Patagonia Dwr 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.
Manufacturing automation
– Patagonia Dwr can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Patagonia Dwr can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Patagonia Dwr to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Patagonia Dwr in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
Low interest rates
– Even though inflation is raising its head in most developed economies, Patagonia Dwr 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.
Threats Patagonia: Driving Sustainable Innovation by Embracing Tensions External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Patagonia: Driving Sustainable Innovation by Embracing Tensions are -
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: Driving Sustainable Innovation by Embracing Tensions, Patagonia Dwr may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
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 Dwr needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Shortening product life cycle
– it is one of the major threat that Patagonia Dwr is facing in Leadership & Managing People sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Easy access to finance
– Easy access to finance in Leadership & Managing People field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Patagonia Dwr can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Dwr in the Leadership & Managing People sector and impact the bottomline of the organization.
Regulatory challenges
– Patagonia Dwr needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Leadership & Managing People industry regulations.
Stagnating economy with rate increase
– Patagonia Dwr can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Patagonia Dwr in the Leadership & Managing People industry. The Leadership & Managing People 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.
Environmental challenges
– Patagonia Dwr 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 Dwr can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Patagonia Dwr 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: Driving Sustainable Innovation by Embracing Tensions .
High dependence on third party suppliers
– Patagonia Dwr 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.
Consumer confidence and its impact on Patagonia Dwr 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 Dwr has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Patagonia Dwr needs to keep up with the evolution of technology in the Leadership & Managing People 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.
Weighted SWOT Analysis of Patagonia: Driving Sustainable Innovation by Embracing Tensions 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: Driving Sustainable Innovation by Embracing Tensions 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: Driving Sustainable Innovation by Embracing Tensions 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: Driving Sustainable Innovation by Embracing Tensions 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: Driving Sustainable Innovation by Embracing Tensions 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 Dwr needs to make to build a sustainable competitive advantage.