Yvon Chouinard is not your typical corporate businessman. The 77-year-old rock climber and environmentalist turned CEO is the founder of Patagonia, an American clothing company that sells high-end outdoor clothing.[i] Chouinard, now retired, has developed Patagonia into one of the world’s most environmentally-conscious and socially-responsible brands. Not only does Patagonia urge their customers to consume sensibly, they have also developed an operating model that minimizes Patagonia’s ecological footprint. And the company’s anti-consumerist message has resonated with consumers – according to Business Insider, the company tripled its profits between 2008 and 2014.[ii]
For these reasons, I believe Patagonia is a clear TOM Challenge “Winner” – the company’s tight alignment between its business model and its operating model has allowed Patagonia to grow revenues while staying true to its mission statement. Below I outline the core elements of Patagonia’s two models in order to concretely illustrate the ways in which they work together to create and capture value for Patagonia, and for society more broadly.
Patagonia’s mission statement is “to build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”[iii] This mission statement is reflected in the following core tenets of Patagonia’s business model:
- High-Quality Products that Last: Chouinard has long been guided by principles of functionality and simplicity.[iv] As such Patagonia’s focus is on using high-quality material and cutting edge technology to build durable, highly functional products that last a long time.
- Premium Pricing: The quality of its products is rationalization for the company’s premium pricing policy. The extended useful life of its products allows Patagonia to charge a higher price as customers are able to buy fewer items over time.
Anti-Growth Messaging: In 2011 Patagonia launched a much talked about advertisement campaign called “Don’t Buy this Jacket.” The company took out a full-page, Black Friday ad in the New York Times urging consumers to think twice before purchasing another Patagonia fleece (as a way to reduce worldwide waste). It seemed like a counterintuitive strategy for a company that relies on profits to exist, but the campaign struck a chord with customers – profits jumped 30% in 2012 (and Chouinard argues that the jump was due to a capture of new customers rather than increased purchases from existing customers.)[v][vi]
- Consumer Trust: Finally, Patagonia has very purposefully built strong and trusting relationships with its consumers. Patagonia recognized early on that individuals want to purchase from brands they trust, admire, and identify with. As a result of its focus on trust, Patagonia has built a very loyal (some call it fanatic) customer base.[vii][viii]
I’ll turn now to Patagonia’s operating model (which features investments in primarily scope, processes, and human capital) in order to demonstrate how Patagonia’s operating decisions are closely linked to and reinforce the business strategy discussed above.
Raw Materials Selection: In accordance with the company’s focus on high-quality products, Patagonia puts careful consideration into the selection of raw materials. According to their website, their materials “resist degradation from wearing and washing, [are] easy to care for, and are grown or manufactured with care for people and the planet.” The company has developed a “quality testing lab” that analyzes all potential materials against a set of minimum requirements that the company has spent “years” refining. The laboratory “may test as many as 70 different materials options” in order to identify the highest-performance fabric.[ix]
- Supply Chain Management: In order to adhere to their mission statement and to maintain the trust with consumers (as outlined above), Patagonia chooses its supply chain collaborators carefully, placing great emphasis on ethical labor practices and environmental impact. According to to their website Patagonia “builds relationships with the right suppliers [and] … requires that all fabric and trims suppliers audit their factories for key social responsibility indicators, such as hiring practices, employee grievance mechanisms, recycling policies and other social and environmental efforts.”[x] According to Chouinard, the company follows every one of their products all the way from the farmer to the end of the production process to ensure there are no “unintended consequences” of Patagonia’s supply chain decisions.[xi]
- Recycling: In alignment with Patagonia’s anti-growth messaging, the company has introduced a recycling element into their production process. Patagonia works with consumers to collect old clothing that can’t be resold and then sells the used materials back to its upstream suppliers “at a lower price than comparable virgin materials.”[xii] The creative recycling campaign has allowed Patagonia to adhere to its mission to reduce waste, while generating a new (albeit small) revenue stream.
Transparency: As part of Patagonia’s commitment to consumers as outlined above, the company goes to great lengths to provide transparency into any and all supply chain management decisions. Patagonia has created the Footprint Chronicles –
a map that showcases all of the factories around the world that Patagonia partners with. The websites outlines the address of each factory, the gender breakdown of the factory workers, the languages spoken in the factory, and the Patagonia items produced at each plant.[xiii] This form of radical transparency demonstrates the company’s commitments to its values and thus increases customer trust.
- Human Resources: Finally, Patagonia considers labor a critical part of their operating model. Patagonia subscribes to the belief that happy and productive employees leads to high-quality final products. The title of Chouinard’s memoir, “Let My People Go Surfing” is reflective of the company’s approach to human capital development – many Patagonia employees hit the waves during lunch time, employees are actively encouraged to balance their work and personal lives, and all employees can take a two-month sabbatical to work on an environmental project of their choice. These, along with other benefits, ensure Patagonia continues to attract and retain high quality talent – according to the Patagonia website the company receives around 200 resumes every month and turnover is in the “single digits”.[xiv]
Alignment Overview & Summary
Not only has Patagonia developed a winning business proposition, but just as importantly, it has created an execution strategy that is highly complementary to the business model. Both models are aimed at building high quality materials, minimizing the company’s environmental impact, and developing long-lasting relationships with consumers. Patagonia, an obvious TOM Challenge winner, uses strategic and operational alignment to transform assets into valuable products and to capture value for Chouinard, Patagonia employees, and the world.
Featured image: http://jaykinghorn.com/2009/06/02/patagonias-the-footprint-chronicles-visualizing-a-corporate-philosophy/