Patagonia


People Engagement Series

Case Study # 1

“Every time I have made a decision that is best for the planet, I have made money.”  – Yvon Chouinard

Background

Patagonia, Inc. is a family-owned American corporation that responsibly produces and promotes sustainable outdoor apparel of the highest quality. As a designated Benefit Corporation, it formally commits itself to the alleviation of public concerns alongside the creation of shareholder value. Patagonia’s revenues shall cross the billion-dollar mark in the year 2019.

Founded by the legendary climber and environmentalist Yvon Chouinard at Ventura, California in 1973, Patagonia is one of the most environmentally responsible enterprises on the planet. The company’s stated missionis to: a) build the best product, b) cause no unnecessary harm, and c) use business to inspire and implement solutions to the environmental crisis. 1

As an integral part of its environmental consciousness philosophy, the organization donates one percent of its sales to around 650 grassroots environmental organizations through the “1% for the Planet” program. Since 1985, Patagonia has donated over $89 million in this manner. It has also persuaded 1,800 other organizations to join the initiative. In the company’s judgment and experience, an investment into the well being of the planet makes remarkable business sense. 2

Patagonia champions eco-friendliness in the production as well as the use of its clothing. Its garments are made from responsibly sourced materials, and are guaranteed for life. Further, the company nudges its customers to think twice before they purchase any of its products.

Extending the product life through due care and repair reduces the need to acquire more over time, thereby minimizing the CO2emissions, waste output as well as water usage. Patagonia therefore operates North America’s largest apparel repair facility, which carries out more than 40,000 individual repairs annually. The company has also published over 40 repair guides for Patagonia products on its website, in order to help the customers fix their gear themselves. 

Patagoniaalso facilitates the recycling of garments upon the completion of their active life. It seeks to create a closed-loop system, so that its products may never end up in a landfill. 

Patagonia’s mission, vision and values and have all been directed towards a single end – the creative and synergistic amalgamation of profittogether with a sense of purposein order to drive a healthier bottom line for the planet.On its ascent towards success and fulfillment, the company has made many bold and counter-intuitive moves. 

In November 2012 for instance, Patagonia introduced a full-page advertisement in the New York Times with the headline “Don’t Buy This Jacket”. Below a picture of the best-selling fleece jacket in question, the ad copy listed in detail how much water was wasted and carbon emitted in the course of its construction. Contrary to conventional wisdom and expectations, the advertisement actually helped to boost the product’s sales by 40% over the next two years

Patagonia’sappeal stems largely from its deep commitment to the natural environment. The company enjoys an almost psychic bond with its customers, who in turn love to talk about its products. 

A deeply reluctant businessperson, the company’s 80-year old iconoclastic founder Yvon Chouinard adopts a strictly hands-off approach to leading Patagonia. He describes his management style as MBA (Management by Absence). 2Like a true entrepreneur, he often comes up with innovative ideas and new concepts. However, the translation of this ingenuity into action is left into the safe hands of the company’s CEO Rose Marcario and her colleagues.

Thequintessential environmentalist, Chouinard does not maintain a computer or a cellphone. He prefers to hand-write his letters, and spends much time working on odd side projects and tinkering in his original blacksmith shop at the Patagonia campus. He also loves to test out the prototypes of new products in the outdoors. Thus, when Yvon Chouinard goes climbing in Europe, or kayaking with friends in South America, or fishing in Canada as he often does, he justifiably claims to be on a business trip!

The Cultural Pillars

Patagonia grew out of a small company that made climbing tools. Its founding values were reflective of a business that was initiated by a band of climbers and surfers, and the minimalist style they promoted.

Over the years, Patagoniahas developed a constructive organizationculture that supports the people within and without towards living a clean and examined life. The maintenance of lofty ethical and governance standards,while making functional and durable products of the highest quality with the least possible ecological impact, represents the core of the company’sDNA.

The company continues to cherish: a) quality, b) relational integrity, c) environmental action, and d) an innovative outlook. These progressive values have spawned transformational business processes and practices that have been instrumental in the fulfillment of the company’s charter. 

Patagonia recruits capable, inspired and independent-thinking individuals in a very careful as well as methodical manner. Positions sometimes remain open for over a year, even at the senior levels, before the right person is found. Enormous effort is devoted towards the orientation of the new employees. This includes a significant amount of time spent with the senior management team. The concept of an annual performance rating has been dispensed with, because it was found to change the role of the manager from being a coach to becoming a judge.

The organization allows its people ample flexibility and autonomy, in order that they may contribute to their highest potential. Patagonia’s 2,200 employees are free to dress as they please. Their work hours are flexible. It is not uncommon to see employees walking barefoot across the grounds. People are encouraged to live the lives that they want to, regardless of whether that involves horseback riding, surfing, or watching their kids play. The day’s surf report is posted above the Reception Desk. Employees are free to take off during the day in order to go surfing or to play volleyball, so long as they fulfill their responsibilities and timelines. 

The leadership team of Patagonia at the Board level frames the vision after wide-ranging internal consultation and debate, and then gets out of the way (so to say). The management team of the company keeps the attention of the organization directed at the vision. It also provides the employees with the necessary coaching, resources, and autonomy in carrying out the actual work. 

Patagonia is structured more like a network than a pyramid. There is a recognition that the best business ideas come from the people who dirty their hands with real work in the field or at the frontline. Thus, the communication within the company flows freely across organizational levels. There is an active disdain for the pecking order or the chain of command.

Interestingly, Patagonia’s decentralized culture poses a challenge too. The decision-making process in such a democratic and transparent milieu suffers on account of the relative absence of hierarchy and the independent nature of the people that Patagonia hires. 

Without a clear structure of accountability for decision-making, it often becomes difficult to determine which individual has the authority to make a particular decision or give a go-ahead for a certain course of action. And because the culture is consensus-driven, people sometimes hesitate to make decisions for the fear of antagonizing one stakeholder or another.

Patagonia is very forthright in its approach. For instance, animal-rights activists in Germany accused the firm of procuring goose feathers that were live-plucked. Promptly, the company sent two people to Hungary to check out the actual situation. They reported that the feathers were not being plucked while the bird was alive. However, the geese were being force-fed for foie gras. Patagonia did not invent a specious explanation, or cover up the issue. It simply reported the facts as they were, and then moved on to source its down-feathers from a different supplier.

In 1996, Patagonia switched to the exclusive use of organic cotton for producing its garments. This entailed a significant business risk on account of procurement constraints as well as sharply increased material costs. On the other hand, it was a concrete and bold demonstration of the company’s stated resolve to protect the environment.By thus putting its money where its mouth was, Patagonia managed to evoke intense customer loyalty. 3

The Patagonia headquarters look remarkably different from a traditional corporate office. Instead of a parking lot full of cars, bicycles and surfboards are seen lined up outside the building. The architectural arrangement does not allow for private offices. This helps to keep the communication lines open. The laughter of children playing in the yard, or having lunch with their parents in the cafeteria, lends a feeling of joie de vivreto the atmosphere. The presence of solar panels, Tibetan prayer flags, and sheds full of rescued owls and hawks make this a unique corporate campus.

The Origins of the Venture

Yvon Chouinard and his wife Malinda established Patagonia over forty-five years ago, in order to share their love for nature and to create products that enabled people to enjoy outdoor life. During high school, he discovered rock climbing.

Unfortunately, his passion was limited by a lack of appropriate climbing gear. Chouinard decided to make his own reusable hardware. He turned his parents’ garage into a coal forge, and began to manufacture robust chrome-molybdenum steel pitons. As the word of his invention spread, Yvon sold these from the back of his car for $1.50 each while he drifted across Yosemite and the California coast. The profits were slim, and Chouinard often lived on a dollar a day. 

However, the demand soon caught up. In 1965, Yvon partnered with fellow climber Tom Frost to create Chouinard Equipment. By 1970, Chouinard Equipment had become the largest supplier of climbing hardware in the United States. 

However, the company had also become an environmental villain by this time. The use of its gear by the climbers was damaging the rocks. In 1972, the firm took its first eco-friendly step of replacing iron pitons with aluminum chocks. 

Yvon once went on a climb wearing a colourful rugby shirt that he had purchased on an overseas trip. It was an interesting contrast to the dull shirts worn by the climbers back then. This shirt provided good protection from the natural elements, and became an instant hit. More were imported in response to demand. The company slowly expanded into apparel, in order to supplement the hardware trade. 

By 1973, when Chouinard and Frost dissolved their partnership, the clothing line had become a profitable business in its own right. It was named as “Patagonia”, in order to reflect the romance and mystique associated with distant lands. 4

Establishing the Enterprise

Patagonia was buoyed by the enthusiastic reception to coloured clothing. Thus, the company soon developed a line of climbing apparel that was colourful, rugged and attractive.

In 1980, Patagonia came out with insulating long underwear made of polypropylene. This was a synthetic fiber of very low specific gravity that did not absorb water. Using the capabilities of this new underwear as the basis, Patagonia became the first company to teach the concept of systematic layering to the outdoor community. This three-tier sartorial approach involved wearing an inner layer of clothing against the skin for moisture transport, a middle layer of the pile for heat insulation, and an outer shell layer of apparel for wind and moisture protection. 5

In 1985, the company made a risky shift of its entire line of polypropylene underwear to the newly developed Capilene®polyester and the Synchilla®fleece fabrics. The growing appeal of these technical fabrics, coupled with the dramatic colours, helped the label to become a fad. 5

Sales soared, and the company rapidly expanded into Europe and Japan. At one point, Patagonia was featured on Inc. Magazine’s list of fast-growing privately held companies. 4

Patagonia’s rapid growth and expansion during the eighties came to an abrupt halt in the summer of 1991. Patagonia was facing significant competition. Sales declined, and profits plunged. 

The bankers reduced Patagonia’s line of credit twice in the space of a few months. They also called in their revolving loan. This forced the company to look for alternate sources of credit. The company also let go of 20% of its workforce, and dumped its inventory below costin order to pay off the debt.5

Patagoniahad perhaps tried to expand too quickly, and nearly lost its independence as a result. At one stage, Yvon seriously considered selling out of the venture. Eventually, he chose to stay and lead the organization in a more sustainable direction. 

Instead of abandoning his ideals, Chouinard decided to become truer to them. He invested in organic cotton and other sustainable materials. Yvon also decided to make Patagonia products more durable. 

These were risky moves, considering that the growth of corporations is generally fuelled by consumers coming back to get replacement products. Greater durability would normally be expected to translate into lower product off-take. However, the exact opposite occurred. Consumers were found to develop greater loyalty to Patagonia on account of its environmental consciousness, and the fact that they could trust the company’s products to last for a long time.

Looking back, the crisis was a blessing in disguise. It led to a systemic transformation of the organization. Patagonia’s performance rebounded in 1993. It has steadily improved since then.

In 2005, Patagonia launched its unique Common Threads Initiative as a partnership with its customers. The intent was to promote the sustainable purchase and use of apparel. The ultimate aim was to close the loop on the lifecycle of its products, and minimize the environmental cost through specific programs that were directed towards reducing, repairing, reusing and the recycling of clothing. 6

To minimize the incidence of repeat purchase, the company manufactured products of very high quality that lasted for a long time. Through the “Buy Less” campaign, the customers were encouraged to refrain from buying Patagonia products that they did not really need. 7

Patagonia thus built its success by encouraging its customers to think critically, and not so much by persuading them to buy its products. Its enlightened initiatives helped to create numerous brand evangelists for the company. They facilitated its unabated growth. 

The Rose Marcario Era (2014 onwards)

The life and career of Patagonia’s current CEO Rose Marcario is indicative of the kind of inspiration and values that lie at the core of the organization. After pursuing a very successful career in finance for 15 years, Marcario faced a turning point. The trigger was the sense of frustration she felt when a homeless man crossing the street made her limousine wait at a street corner in New York. 

Rose reflected deeply upon the source of her impatient behavior. She began to search for a new definition of success in life. After taking two years off to visit India and Nepal in search of an answer, Rose returned home. She soon received a call from Yvon Chouinard, and was impressed by his sincerity. Taking cognizance of the alignment between her personal values and those espoused by Patagonia, Rose joined the company in 2008 as its Chief Financial Officer.

Upon joining the company, Marcario set out to streamline production and identify waste in order to save costs. She redesigned the process by which the company shipped its goods, and cut back on leisure wear lines in order to re-focus the company on its core products. Rose also facilitated a significant improvement in Patagonia’s e-commerce capabilities. 

Marcario was initially quite skeptical about the actual feasibility of living by Patagonia’s values in a competitive business. However, she soon gained conviction about the Patagonia model – wherein a private enterprise cares deeply about each one of its varied stakeholders.

Rosewas promoted as the President and CEO of Patagonia in February 2014. She was seen to have brought a full perspective to her role as a businessperson. 

Marcario played a central part in helping the company strike the tenuous balance between sustained growth as a retailer and the promotion of environmentally conscious practices as a business with a significant footprint. She exemplified the conduct of an examined life that is so central to Patagonia’s mission.

The Strategic Principles

By its own example, Patagonia demonstrates how strong values and ethical leadership can create a successful organization that can act as a role model for those who genuinely desire to make a positive difference. Yvon Chouinard once stated that he never wanted to be in business. But, he hung on to Patagonia – because it was his vehicle for demonstrating that corporations too are capable of leading examined lives and promoting social well-being. The company has been a pioneer in using the good offices of business towards the inspiration and implementation of solutions to the environmental crisis.

Three key strategic principles come together to support the accomplishment of Patagonia’s mission:

 a) Family orientation, 

b) Environmental stewardship, and 

c) Collaborative innovation.

Family Orientation

Patagonia regards its employees as the most important stakeholders of the organization. It believes that a happier and more fulfilling workplace attracts and retains better workers, who in turn design superior products and develop smarter strategies. The company has thereby instituted many employee-centric policies, in order to look after the well being of its people as well as their families. 2

Patagonia offers flexible working hours to all. Mothers and fathers get equal two-month-long paid parental leaves at the company. Job sharing is also offered, mostly for the benefit of working parents. Under the “Travelling Baby” program, parents get to travel with their babies while the company pays for a child development teacher to come along.

Patagonia serves healthy and subsidized organic lunch daily in its café. There’s a yoga room available for employees at all times of the day. Health care is fully covered, and everyone takes vacations. The employees are also permitted to take fully paid sabbaticals of up to two months in order to work on environmental projects about which they are individually passionate.

As far back as 1981, Patagonia recognized that the proper raising of a child actually required the contribution of a whole village full of people. Under the leadership of Malinda Chouinard, the company introduced an innovative,in-house childcare facility at its Ventura campus.

On-site childcare has some obvious benefits. Employees can see their kids during the day. They can thus have an engaging professional life, without compromising upon their parental responsibilities. 

Further, when children co-habit with adults who love and care for them, they have the energy to participate in numerous developmental activities. The kids remain lively, curious and happy. They become more articulate, and also develop greater self-esteem. Besides, the presence of children transforms the workplace into a community for all the people. 

While around half the women in the industry either drop their careers or at least take an extended leave after having kids, nearly all the employees at Patagonia return to work after a standard parental leave. The company proudly claims that the children who come out its on-site childcare program are its best products. In fact, the organization actively hires many of the children who grew up with it. 

Considered to be a radical initiative at that time, Patagonia’s subsidizedon-site childcare program has now become a benchmark and role model for companies that genuinely endeavour to put their people first. In 2014, the then US President Barack Obama recognized and acknowledged Patagonia as a “Champion of Change” in appreciation of its family-friendly policies.

Environmental Stewardship

Patagonia was still a small organization when it began to devote time and money to the increasingly apparent environmental crisis. 

Every 18 months, Patagonia sponsored a “Tools for Activists” conference that was designed to educate and encourage activists towards becoming more effective advocates for the natural environment. The company also sponsored many other events over the years, ranging from promoting wildlife corridors to combating genetic engineering. Conservacio n Patagoniais one such direct effort by the company’s employees towards the creation of a 650,000 acres national park in South America.

In 2010, Patagonia assisted in the creation of the Sustainable Apparel Coalition. This is a federation of companies that collectively produce more than a third of the clothing and footwear on the planet. It promotes the development of a more sustainable apparel industry. The forum has launched an index of social and environmental performance that designers (and eventually consumers) can use to make better decisions when developing products or choosing materials. 8

In February 2014, Patagonia established an internal Venture Capital Fund by the name of “$20 Million & Change”.This Fund assists responsible start-up companies in bringing about positive benefits, and make the world a better place via the clothing, food, water, energy, waste and other industries.

Patagonia advocates a simple lifestyle through its minimalist design and cutting-edge clothing technology. In its quest for ecological leadership, the company has engaged with specialized external agencies to help deliver continuous improvement in the areas of environmental impact, resource productivity, consumer safety, water emissions, air emissions, and occupational health.Through its Worn Wear campaign in 2013, Patagonia encouraged its customers to celebrate the clothes that they already owned before they embarking upon the purchase of new ones.

The company has built deep bonds with a set of sophisticated consumers who identify deeply with the company’s values. Somewhat paradoxically, these people support anti-consumerism by consuming Patagonia products! 9

Collaborative Innovation

Over the years, Patagonia teamed up with other corporations to develop initiatives that were aimed at reducing the environmental footprint of businesses. This helped to meet the company’s environmental, social, and animal welfare goals. Such collaborations also facilitated economies of scale that helped bring down the cost of new innovation to reasonable levels. 

As an example, Patagonia researched plant-based options for wetsuits for four years. In 2013, it finally partnered with the biomaterial company Yulex in order to produce eco-friendly wetsuits. The Yulex wetsuit was made from rubber derived from Guayule, a native Arizona plant. 

Traditional rubber plants, as well as synthetic rubber production, required the use of environmentally harmful solvents that created non-biodegradable residual products. On the other hand, the Yulex rubber used water-based solvents that left only organic by-products.

Patagonia’s sustainable Yulex wetsuit was made up of 60 % Guayule and 40 % synthetic rubber. It performed as effectively as its petroleum and limestone-based counterparts in terms of warmth, flexibility, and durability. And Yulex actually smelt better too!

Patagonia then engaged with the entire surf industry, in order to help scale up the Yulex product at a reasonable price point. As soon as the product was ready for commercialization, it invited its peer companies to come and test the material. Many manufacturers initially balked at the high price of Yulex.

But when Patagonia’s Yulex wetsuit was recognized at the 2015 Surf Industry Manufacturing Association Awards as the Wetsuit of The Year as well as the Environmental Product of the Year, the phone began to ring off the hook. Patagonia’s entire wetsuit line is now based on Yulex rubber. 10

In an earlier instance relating to cotton, Patagonia was successful in transiting its own product line to the use of organic cotton. However, the other industry players initially did not embrace this shift for reasons of high cost and decentralized farming. Eventually, no less a company than Wal-Mart knocked upon Patagonia’s doors for advice on the sourcing of organic cotton.

The company’s sustained commitment to environmentally conscious practices is proof enough that its motives are at least partly altruistic. Using that stance as a means to continue to grow a sustainable retail brand through unorthodox means, Patagonia has reinvented the concept of retailing. Its relentless focus on making the best possible products has brought the company success in the marketplace too.

Most importantly, staying true to its principles over its four decades in business has helped Patagonia to create an organization that people are proud to engage with and work for!

References

  1. Patagonia’s Mission Statement. Patagonia.com. 16 May 2016. www.patagonia.com/company-info.html
  2.  Chouinard Y. Let my people go surfing. New York: The Penguin Press; 2005.
  3. 20 years of Organic Cotton. Patagonia.com. 26 May 2016. www.patagonia.com/20-years-of-organic-cotton.html
  4. Patagonia, “Company Info: Our History,” August 20, 2016. www.patagonia.com/us/patagonia.go?assetid=3351.
  5. Company History. Patagonia.com. 26 May 2016. www.patagonia.com/company-history.html
  6. Introducing the Common Threads Initiative – Reduce, Repair, Reuse, Recycle, Reimagine. Patagonia.com. 2011 16 May 2016. www.patagonia.com/blog/2011/09/introducing-the-common-threads-initiative/
  7. 21Eric Lowitt, Patagonia’s “Buy Less” Campaign May Lead to More Revenue,” Harvard Business Review, October 3, 2011, http://blogs.hbr.org/cs/2011/10/patagonias_buy_less_campai.html (accessed August 10, 2016). 
  8. Sustainable Apparel Coalition . Patagonia.com. 26 May 2018. www.patagonia.com/sustainable-apparel-coalition.html
  9. Worn Wear . Patagonia.com. 26 May 2016. www.patagonia.com/worn-wear.html
  10. O’ Rourkea, D. & Strand, R. (2016). Patagonia: Driving Sustainable Innovation by Embracing Tensions [Case Study] Berkeley, California: Haas School of Business 

Additional Video Reference

Samatvam, (2016, August 31) Patagonia Sustainability champions retrieved from https://www.youtube.com/watch?v=bB8ZWOKoygY&feature=youtu.be

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