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PATAGONIA Patagonia’s mission Patagonia is a privately owned firm, which sells outdoor apparel and does premium, high quality & environmentally friendly products. It started in 1972 as an apparel line in Yvon Chouinard equipment and now is an international brand with a strong focus in North America.

“If you focus on the process of climbing, you’ll end up on the summit.” “It's okay to be eccentric if you're rich; otherwise you're just crazy.” “I don't really believe that humans are evil; it is just that we are not very intelligent animals. No animal is so stupid as to foul its only nest, except humans.” “Uncurious people do not lead examined lives; they cannot see causes that lie deeper than the surface.” “Real adventure is defined best as a journey from which you may not come back alive, and certainly not as the same person.” Patagonia’s mission: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis. Through quality, environmental impact and innovation he wanted to have an impact on the environment and to reach a 10% annual growth within the next 5 years. Patagonia has 4 key functions: Governance & Leadership, Research & Development, Sales & Marketing, Human Resouce. Her key stakeholders are: Employees, Consumers, Suppliers, the Community and Competitors.

How does Patagonia’s Governance function facilitate the company’s mission? Key characteristics / activities • Private company • Family members are on the firm’s board of directors • Yvon Chouinard’s belief in absentee leadership Implications • Being a private company and having the founders’ family members on its board of directors enables the firm to pursue long term strategies that benefit both its financial and environmental goals. • Since the company is not publicly listed, it is less constrained by shareholder demands which may be more aligned with its short term financial performance. • In addition, having the founder’s family on its board of directors ensures that the firm can function in ways that are aligned to its environmental goals. How does Patagonia’s Human Resource function facilitate the company’s mission? Key characteristics / activities • Responsible for hiring, training, retaining, promotion and administration of employees • Selection – hired employees based on their fit with the company (whether they seemed like a dirt bag) • Created programs for employees to engage in activities that were aligned with the company’s culture • Surf conditions were in the corporate head office and employees were allowed to take time off to go surfing • 2 months of paid sabbaticals to work for an environmental NGO • Offsites in the mountains or by the ocean • Climbing expeditions • Provided healthy work conditions for employees - buildings were environmentally efficient – solar panels and natural heating and cooling systems • Ensured employee welfare and created a sense of community • Child care services that was cheap and had a low child to caretaker ratio Implications • Strong company culture and a workforce that is aligned and motivated by the company’s mission • Less than 5% turnover • 53.5% of staff worked there for > 6 years • Received 10,000 resumes annually for less than 100 jobs • One of the best companies to work for according to Fortune Magazine & Working Mother’s Magazine

How does Patagonia’s R&D function facilitate the company’s mission? Key characteristics / activities • $3 million a year on R&D to develop and test raw materials • Developed more durable fabrics that was eventually adopted by many players in the industry • 100% recyclable zippers • Used less environmentally damaging dyes - In 2007, Patagonia signed on to Bluesign Technologies – a textile standard that evaluates the environmental impact of dye and finish chemicals • Patented new technologies and designs like Synchilla (recycled polyester fleece), Capilene (moisture wicking polyester fabric and a wet-suit lined with chlorine free wool • Reduced packaging • 1996, Patagonia decided to manufacture all their cotton products (20%) using organic cotton • Sharing expertise on environmentally friendly practices • Environmentally friendly anti-odor technology - removed anti-odor chemicals from products in 1998 and developed anti-odor chemical from crushed crab shells in 2004 • Encouraged consumers to consume less by designing multifunctional products • Developed products to last longer and encouraged consumers to repair products as much as possible • Offered an Ironclad Guarantee to repair, refund and replace any products that did not meet customer satisfaction • Repairing products cost Patagonia $350,000 per year for 12,000 products • Worked with business partners that shared the same values • Held suppliers to its own standards of quality and social and environmental responsibility Participate in 1% for the planet Cooperate on an environmental project Formal contracts and audits of supplier practices Implications: • Repairing products cost Patagonia $350,000 per year for 12,000 products • Patagonia had to reduce its product line from 91 styles in 1995 to 66 in 1996 as a result of its decision to use organic cotton • Influenced competitors by sharing technologies • Return rates are lower for Patagonia than its competitors !

(2.6% for wholesale business & 12.9% for direct business)

How does Patagonia’s Sales and Marketing function facilitate the company’s mission? Key characteristics / activities • 4 sales channels: • Wholesale – 44% • Retail – 33% • Catalog and internet – 23% • Worked with 900 – 1000 dealers (compared to ~4000 dealers) • 26 retail stores in US and 52 stores worldwide • Stores were used as locations to grant awards for local environmental organizations and to screen movies • Spent less than 1% of its sales on marketing • Uses only 60% of the space on its catalog showcasing its products – uses a lot of magazine space to raise awareness about the environment • Created the footprint chronicles which facilitated transparency with its consumers • Get press when they have something important to say and often get press from other companies • E.g. the campaign against the removal of the Matilija Dam in Ventura and its support for Planned Parenthood • Consumers had a median age of 38 and average household income of $160,000 Implications: • Used stores to raise awareness about the environment and to create a sense of community • Stores generated $100 million in sales and a gross margin of over 65% • Connects with consumers who are concerned about the environment • By targeting consumers who had disposable income (household income of $160,000), Patagonia could maintain being a premium brand What is the Product Life Cycle Initiative? Product Life Cycle Initiative Reduce

Reuse

Recycle Repair

Reduce • Multifunctional products • The product line becomes smaller every year Reuse • 41,377 used Patagonia items sold via eBay’s The Common Theads Storefront • «Worn wear» program to allow customers to trade-in gently used clothes for credit • The used clothes are sold in stores’ worn wear section • Patagonia now has a partnership with Yerdle • Clothing swaps (online and in retail stores) and donation opportunities Recycle • 82 tons of worn out Patagonia clothing and gear recycled since 2005 • Patagonia pays for the shipment or collects at stores Repair • 26,078 pieces repaired in 2012-2013 • However, because of the cost it represents, Patagonia tries to minimize its provision of repairs by – Designing more easily repaired clothes – Offering free manuals and repair kits in stores – Partnering with local tailors What are the benefits of PLC? • Environmental impact • Aligned with company values • Marketing especially due to customer involvement on social media What are the costs of PLC? • May appear gimmicky • Increased costs and logistics – Increase costs by $60,000 in the first year of implementation due to shipping – Need to invest in R&D (for recycling), storage and staff Key takeaways from the case • A unique and very successful business model combining objectives of profit and environmental improvement • Integration of environmental sustainability in the core business fostered innovation, quality and differentiation that allowed Patagonia to charge a higher price • The role of the founder/owner was key, the model is not easily transferable

Group works LEADERSHIP & GOVERNANCE Governance is the strategic task of setting the organization's goals, direction, limitations and accountability frameworks. Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. Leadership in the public sector is especially important; it not only influences the job performance and satisfaction of employees, but also how government and public agencies perform. Leadership is critical to good public governance, including good planning, efficiency, transparency, and accountability. Contribution to Patagonia’s mission • governance translate and make tangible what the mission is about. The fact that the firm is private makes it possible to pursue environmental sustainability. HUMAN RESOURCES Human resources: the department of a business or organization that deals with the hiring, administration, retention and training of staff.

- selecting employees which share the same values as patagonia - “dirt bags” over regular businessmen - privileges - paternity leaves - benefits in environmental organizations - creating a comfortable working environment - family rather than co-workers - outdoor social activities - promotes environmental friendly options How these functions contribute... They create an environment of the company which in effect could increase the efficiency that they work in. Give the employees freedom. They allow the employees to participate in peaceful protests, and support issues, due to the bail. Allow the employees to take on volunteer work that will help the environment and people around the world without fear of losing their job, or not having financial resources to sustain themselves. Main stakeholders Employees • Patagonia only hires employees that share the values of the company

• Grants benefits to employees (e.g. Paid sabbaticals) • Creates a “family” environment within the organization SALES AND MARKETING Functions of sales and marketing ● Advertising /Promotion ● Identifying customer needs ● Innovating Marketing Tools and Products ● Pricing and Distribution of Products Examples of Functions Contributing to Patagonia’s Mission ● Percentage of sales go towards environmental sustainability ● Against using environmental efforts as a marketing tool Main stakeholders related to Patagonia’s Mission ! Customers/Retailers ! Activists ! Media Demographics of customers ! sale channels# ○ wholesale is 44%# ○ retail 33%# ○ catalog internet 23%# ○ 10% of people like the idea of Patagonia ○ consumer characteristics: ○ !median age of 38 and average household income of $160,000 ○ !able to purchase premium brand products # RESEARCH AND DEVELOPMENT

- Research and development department focuses on innovative activities and on how to improve the production in terms of quality, efficiency and sustainability in creating new products.

- Patagonia’s focus on research and development is a direct consequence of the zen’s philosophy adopted by its visionary owner Yvon Chouinard

- Patagonia is an industry leader in technological innovation# Each year Patagonia spends a considerable amount of money in testing their ideas directly on the field (for example by hiring professional athletes)

- Their constant strive for perfection is represented by Saint Exupery’s statement

The mission’s impact ✦

Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.»

✦

3$ million annually invested in research# Continuous innovation —> higher quality products —> lower environmental impact# More durable/multifunctional items —> more responsible consumption

Examples: I. 100.000 $ spent annually on field-testing ✦

II. Product lifecycle initiative Contributes to Patagonia’s mission Testing raw materials: developing durable and eco-friendly fabrics (organic# cotton, zippers 100% recyclable) Patenting new technologies. Expanding products range to new sports and fields. Investing great amounts of money in R&D allows to keep prices 20% higher than their competitors, resulting in acquiring their goal of continuous annual growth. Stakeholders Identify the main stakeholders that this function deals with and explain how this function connects with these stakeholders to advance patagonia’s mission Stakeholders - !customers - !suppliers - !community # Producers/suppliers: sustainable products and production Consumers: reduced but improved consumption habits #...