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Patagonia Case Study
Transcript of Patagonia Case Study
Involves many employees at all levels;
Too many steps involved;
Objectives and financial statements are updated monthly Scrap the Workbook Process!
Budgeting Process in place driven by finance department. Patagonia Case Study James Chow
Satyendra Kulkarni Alternatives The Workbook Process Issues Recommendation ...In management, we Value
Maximum Simplicity Established Brand
High Sales Growth
Informal culture: open, employee focused
Employee alignment with corporate values
Tithing program/Environmental Assessment report
High quality of products Anti-corporate attitude limits Patagonia’s growth
Slowing annual sales growth
Strong employee alignment in regards to “contempt for conventional business”
Heavy internal Workbook Process SWOT Competitive pressures from large, well established fitness, outdoors brands, i.e. Nike
Low barrier to entry for industry
Higher public scrutiny on value-chain due to stance and culture of environmentalism
Demographic/target market changes Weaknesses Strengths Threats Changing from “low-growth” to “high-growth” or unrestrained growth mindset
Expansion of online marketing, sales
Increase breadth target markets, lifestyles Opportunities Threats of New Entry Competitive Rivalry Threat of Substitution Supplier
Power Threat of New Entrants
Low barrier to entry.
Low switching costs on the part of buyers.
Brand loyalty varies upon firm or consumer set.
Online distribution and breadth of retailers offer opportunity for new entrants.
High profitability entices entrants. Competitive Rivalry
REI, Columbia, North Face, Timberland, Marmot, Nike.
Risk of products becoming commodities
Higher end clothing and accessory lines requires innovation in fabrics and materials
High marketing costs
Low switching costs Competitive
Rivalry Bargaining Power of Buyers
Many alternatives available.
Dependent upon brand loyalty and mindshare.
Growth of demographic and target market (outdoor, active)
Price sensitivity tied to economy, income Threat of Substitution
Not many substitutes exist for outdoors clothing. This increases competitive rivalry. Bargaining Power of Suppliers
Specialized fabric and materials requirements reduce ability of firms to switch suppliers.
More commoditized, essentials clothing lines utilize commodity fabrics and materials and thus bargaining power in such cases is less. Porter's Five Forces Company Overview Grew out of a small company that made tools for climbers
Produces sport clothing and gear for men, women, kids, and babies
Founded by Yvon Chouinard in 1972
Based in Ventura, CA
Operates as a subsidiary of Lost Arrow Corporation Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis. Trailblazing Rapid growth and maximization of corporate profits are not among Patagonia’s goals;
Self-sustaining; low-growth constraint;
Passion for the environment Company Overview Let My People Go Surfing: The Education of a Reluctant Businessman Let My People Go Surfing:
The Education of a Reluctant Businessman
Flexible work arrangements
Ultra casual dress code
No private offices
Onsite day care
Minimum bureaucracy, maximum informality
Anti-growth mentality Culture “It’s all linked: Quality product, quality customer service, quality workplace, quality of life for your employees, even quality of life for all living things on this planet. If you miss any one piece, there is a good chance you’ll miss it all.”
- Yvon Chouinard The heart of Patagonia’s success lies in relentless technical innovation that produces a continuous stream of products good enough to meet the tough and continually rising expectations of the most avid experts in a multitude of high intensity sports.
The soul of Patagonia’s success lies in a deep, abiding commitment, at both an organizational and personal level, to preserving the diversity, ecological integrity and beauty of the natural environment that is Patagonia’s ultimate source of wealth and raison d’être Key Success Factors Value of Workbook Process
Varies across work groups;
Lack of commitment from non financially oriented employees;
Inconsistency in numbers No formal bonus structure
Compensation not linked to the accomplishment of goals set by employees in Workbook Process;
Focuses on internally negotiated targets which are incremental changes from previous periods. Objectives
Scope of objectives is not defined, prioritization criteria not set resulting in too many objectives or too few;
Long term planning concept is missing in the process;
Some objectives are vague, activity oriented vs results oriented and not stated in measurable terms;
Gaming Too Complex
Not efficient in a growing company such as Patagonia;
Not in congruence with company's values and mission;
Competition and disputes for resource allocation. Status Quo
Remove Workbook Process
Improve Workbook Process Patagonia had a long history of running their business in the absence of formal planning/budgeting process and performance measurement structure A little bit of the history… Financial problems resulting from their lack of planning have forced the managers to take actions on developing a formal budgeting and planning process in order to allocate scarce resource more effectively. The Workbook Process containing 11 steps involved every employee from all levels of the company including regular employees and managers of the middle management or higher.
They were actively involved in identifying objectives, estimating costs, as well as working with other departments on cross-functional objectives.
Once budgets and objectives were set, updates on financial performance and objectives took place monthly. Even Workbook process provided employees with more transparency and better understanding of the company’s operation and goals, there were several major concerns, resulted from the issues related to the actual implementation of the process.