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 - – geopolitical disruptions, cloud computing is disrupting traditional business models, increasing transportation and logistics costs, wage bills are increasing, increasing inequality as vast percentage of new income is going to the top 1%, supply chains are disrupted by pandemic , increasing government debt because of Covid-19 spendings,
digital marketing is dominated by two big players Facebook and Google, challanges to central banks by blockchain based private currencies, 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 -
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.
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.
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.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Patagonia Dwr digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Patagonia Dwr has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
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.
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.
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.
Innovation driven organization
– Patagonia Dwr is one of the most innovative firm in sector. Manager in Patagonia: Driving Sustainable Innovation by Embracing Tensions Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
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.
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.
Training and development
– Patagonia Dwr has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Patagonia: Driving Sustainable Innovation by Embracing Tensions 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.
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.
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 -
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.
No frontier risks strategy
– After analyzing the HBR case study Patagonia: Driving Sustainable Innovation by Embracing Tensions, it seems that company is thinking about the frontier risks that can impact Leadership & Managing People 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.
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.
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.
Slow decision making process
– As mentioned earlier in the report, Patagonia Dwr has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Patagonia Dwr even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Patagonia: Driving Sustainable Innovation by Embracing Tensions, it seems that the employees of Patagonia Dwr don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
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.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Patagonia Dwr supply chain. Even after few cautionary changes mentioned in the HBR case study - Patagonia: Driving Sustainable Innovation by Embracing Tensions, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Patagonia Dwr vulnerable to further global disruptions in South East Asia.
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.
Slow to strategic competitive environment developments
– As Patagonia: Driving Sustainable Innovation by Embracing Tensions HBR case study mentions - Patagonia Dwr 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.
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.
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 -
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.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Patagonia Dwr to increase its market reach. Patagonia Dwr 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 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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Leadership & Managing People industry, but it has also influenced the consumer preferences. Patagonia Dwr can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Patagonia Dwr is facing challenges because of the dominance of functional experts in the organization. Patagonia: Driving Sustainable Innovation by Embracing Tensions case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, 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.
Learning at scale
– Online learning technologies has now opened space for Patagonia Dwr to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Patagonia Dwr to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Patagonia Dwr to hire the very best people irrespective of their geographical location.
Building a culture of innovation
– managers at Patagonia Dwr can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Leadership & Managing People segment.
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.
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.
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 -
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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Patagonia Dwr business can come under increasing regulations regarding data privacy, data security, etc.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Patagonia Dwr with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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.
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 .
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Patagonia Dwr.
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 .
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.
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 wage structure of Patagonia Dwr
– 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 Dwr.
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.
