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 - – challanges to central banks by blockchain based private currencies, increasing government debt because of Covid-19 spendings, there is increasing trade war between United States & China, wage bills are increasing, technology disruption, there is backlash against globalization, customer relationship management is fast transforming because of increasing concerns over data privacy,
geopolitical disruptions, increasing energy prices, 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 -
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.
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.
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.
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.
Highly skilled collaborators
– Patagonia Dwr has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Patagonia: Driving Sustainable Innovation by Embracing Tensions HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Patagonia Dwr in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
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.
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.
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.
Sustainable margins compare to other players in Leadership & Managing People industry
– Patagonia: Driving Sustainable Innovation by Embracing Tensions firm has clearly differentiated products in the market place. This has enabled Patagonia Dwr to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Patagonia Dwr to invest into research and development (R&D) and innovation.
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.
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 -
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.
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.
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.
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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Patagonia: Driving Sustainable Innovation by Embracing Tensions HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Patagonia Dwr has relatively successful track record of launching new products.
Interest costs
– Compare to the competition, Patagonia Dwr has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Patagonia: Driving Sustainable Innovation by Embracing Tensions, in the dynamic environment Patagonia Dwr has struggled to respond to the nimble upstart competition. Patagonia Dwr has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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.
Need for greater diversity
– Patagonia Dwr has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Capital Spending Reduction
– Even during the low interest decade, Patagonia Dwr 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 bargaining power of channel partners
– Because of the regulatory requirements, Dara O'Rourke, Robert Strand suggests that, Patagonia Dwr is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
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 -
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.
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.
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.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Patagonia Dwr can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Patagonia: Driving Sustainable Innovation by Embracing Tensions, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
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.
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.
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.
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.
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.
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.
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 -
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.
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.
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.
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.
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.
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.
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 Dwr 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.
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.
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.
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.
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.
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.
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.
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.