Case attached - Lost in Patagonia. Questions to be answered at end of the case in the attached file. Each answer should be 5-6 lines.
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1. Are Chouinard's absences from the company good or bad for the company?
Chouinard's absences from the company sent mixed signals to the company's employees, he was absent for half of each year. Even though he was available on phone, his employees who trusted his judgement more than that of professional managers valued his presence. Patagonia is a company where the personality of the founder shaped its creation, existence and growth and his absence would mean disaster for the company. This absence led to flattening sales. He was obviously not testing gear eight months in exotic locations and even though loyalists like McDivitt never mentioned it, this certainly had a poor effect on the morale of the employees of the company.
2. Do Chouinard's proposals to increase profit in the future make sense?
No, Chouinard's proposal to increase profit in the future does not make sense. He asserts that even if his sales remain flat his profits will increase. His thought was that his company would limit supply and sell to those dealers, who get their preseason orders in first. His second thought was that it will use local suppliers to reduce costs and it will tighten up on accounts receivable. His third thought was to avoid direct mail in favor of advertising. Each of these ideas was faulty. If he limited the supply of his products, the dealers could get it elsewhere and in the long run there could be new suppliers who would fill up the niche. In addition there was the need to sell off the huge inventory his company was piling up. If he used local suppliers, his quality would suffer. Finally, he had built his business on the basis of direct mail, this advantage would be lost if he turned to advertising and advertising was likely to be costlier.
3. Why have ...
Here is just a sample of what you will find in the solution:
"Each of these ideas was faulty. If he limited the supply of his products, the dealers could get it elsewhere and in the long run there could be new suppliers who would fill up the niche. In addition there was the need to sell off the huge inventory his company was piling up. If he used local suppliers, his quality would suffer. Finally, he had built his business on the basis of direct mail, this advantage would be lost if he turned to advertising and advertising was likely to be costlier."
Patagonia: A Case Study
Patagonia: Turning a Profit without Losing Your Soul
Yvon Chouinard wanted to be a fur trapper when he grew up. Instead he founded Patagonia, a clothing and outdoor gear company that revolutionized the climbing industry while pioneering corporate consciousness and sustainability. Putting the Earth first, questioning growth, ignoring fashion, and telling customers to buy less isn't the usual recipe for success. So how did this antibusinessman's little company become a $270 million corporation and the gold standard for green business? Chouinard believes he may have climbed before he learned how to walk. Cultural and linguistic differences, along with defending his name, meant Yvon spent much of his time alone and outdoors. Rappelling down from cliff-top falcon nests fueled his love of mountain climbing. When Yvon began climbing, the pitons used to secure climbing ropes were made from soft iron and were meant to be used only once. The son of a blacksmith, Yvon saw his first opportunity for recycling. In 1957, Yvon began to make hard steel pitons that could be used again. His pitons were stronger and more elegant than their predecessors, a triumph of minimalistic engineering. He sold them out of the back of his car for $1.50 and tried to live on the meager proceeds.1,2 Soon Yvon discovered that if you tried to remove the steel pitons, the very rock you were climbing was being destroyed. Although his pitons were in high demand, Yvon felt that his business was causing problems to the planet and that he had a responsibility to do something about it. Instead he offered aluminum "chalks" that could easily be put in and taken out with a climber's fingers and that were just as safe as pitons but caused no damage to the rock. "People protect what they love," said Chouinard. "If you love nature, then you want to protect nature. If you love unspoiled rivers and mountains, then you want to protect them."3 Over the years, Chouinard Equipment grew and morphed, existing mainly to fund its owner's wilderness adventures.4 In 1968, the recently married Chouinard and a group of friends began their "Fun Hog Expedition." They surfed, skied, and drove their way to the tip of South America, where they would climb Fitz Roy, a daunting mountain that had been climbed only twice before. According to Chouinard, "The experience led to an unlikely fate for a couple of dirtbags. We became philanthropists." But before you can become a philanthropist, you must first become rich.5
In 1972, Chouinard and his wife Malinda branched out into clothing, selling, then making, clothing rugged enough for the harsh conditions Yvon endured in South America. They launched a new company called Patagonia whose name and logo paid homage to Chouinard's historic expedition.6
Yvon and Malinda agreed that the growth of this company would be on their terms. Their products wouldn't release toxins into rivers, the business wouldn't cause nervous breakdowns, nor would it chase endless growth. It wouldn't make disposable garments that people didn't really need. Anything it produced would be of the highest quality and manufactured in the most responsible way. When the surf was up or the snow drifted down, employees would be where they ought to be: outside. The biggest lesson Chouinard learned scaling mountains was that reaching the summit had nothing to do with where you arrived and everything to do with how you got there. The same values held true in his business. The point wasn't to focus on making money. He thought the focus should be on doing things right, and then the profits would come. Eventually, they did.7
In 1977, Patagonia created its breakthrough product, a jacket made of polyester pile that repelled moisture while retaining body heat. It was stiff and awkward but worked like a charm in harsh conditions in which looking odd was preferable to succumbing to hypothermia. Modifications continued until Patagonia created a finer, softer version called Synchilla in sought-after colors such as sea foam green and garnet red. Sales exploded, and the company became known for the "fleece jacket."8
But, as Patagonia discovered, no manufacturing process is environmentally friendly. If you make things, you end up leaving the Earth worse off. While other businesses tried to dodge and deny their impacts, Patagonia chose to openly disclose this information and solicited outsiders' advice in finding better solutions. Patagonia began assigning each of its products a grade, disclosing its environmental impact.9 So began the Footprint Chronicles that examine Patagonia's life and habits as a company. Through its website anyone can trace the production path from source materials to store shelves, measure Patagonia's manufacturing impacts, water consumption, energy use, waste, carbon emissions, and distance traveled for its chronicled projects.10
When Patagonia discovered it could make Synchilla using discarded soda bottles, Chouinard saw a way to reconcile his expanding business with his angst over manufacturing's destructive effects. Materials underwent an "environmental assessment" to determine whether recycled material could be used in a product. They asked questions like: Could the product itself be recycled? Which materials caused the most harm to the environment, and which the least? "We didn't have any of the answers," Chouinard said. "There was no book you could pick up and say, here's what we need to do. We didn't know that making clothes out of a synthetic was better than making them out of a natural material." For instance, wool can be good or bad: "If you get it from sheep grazing in alpine meadows, that's damaging as hell." Conventionally grown cotton was especially monstrous due to noxious pesticides, insecticides, and defoliants. "To know this and not switch to organic cotton would be unconscionable," said Chouinard. In 1994, he gave his managers 18 months to make the change. Given that organic cotton was rare at the time, that it cost at least 50% more, and that a fifth of Patagonia's business came from cotton products, this was quite a risk. Chouinard's ultimatum: Make it happen or we'll never use cotton again.11
The gamble paid off. Patagonia's cotton sales rose by 25% and established an organic-cotton industry. As demand grew and prices decreased, other companies followed suit. By 2006, Wal-Mart had become the world's largest purchaser of organic cotton.12
In the early 2000s, the fabric company Teijin-a Patagonia partner in Japan-invented a process by which used polyester can be almost endlessly recycled. Patagonia, which makes a line of polyester base layers known as Capilene, encouraged customers to send back their worn-out underwear. Today Patagonia also accepts products made from fleece, nylon, and organic cotton. For Chouinard, recycling polyester is a no brainer. "We use 76 percent less energy than if we'd made it out of virgin petroleum."13
Patagonia became the first California company to use renewable resources such as wind and solar energy to power all of its buildings and was one of the first to print catalogs on recycled paper. When it discovered that airfreight requires at least eight times more energy than shipping by ground or sea, the company encouraged customers to "ask yourself if you really need that pair of pants sent overnight." Still, Patagonia does offer that option, which brings up an inconvenient truth: No matter how careful the choice of materials or methods, all companies leave a footprint. This is Chouinard's challenge. "Patagonia will never be completely socially responsible," he writes gloomily at the end of his book. "It will never make a totally sustainable, non-damaging product. But it is committed to trying."14,15
As it states on the front door of Patagonia's headquarters, "There is no business to be done on a dead planet." To that end, in 2001 Yvon Chouinard created One Percent for the Planet, an international organization whose members contribute at least 1% of their annual sales to environmental causes-to keep the Earth in business. Their mission is to "use market forces to drive positive environmental change by inspiring companies to give." This growing global movement of 1,252 companies has given them an opportunity not only to see their self-worth rise but also to see their net worth climb.16,17
In response to the Crisis in the Gulf, the worst environmental disaster in the U.S., Patagonia provided emergency funding to environmental organizations such as the Louisiana Bucket Brigade and the Gulf Restoration Fund.18
In 2004, Patagonia launched its Vote the Environment campaign. Without advocating any individual, Patagonia encouraged voters to investigate candidates' environmental records and helped voters register online and in its retail stores, while asking customers to make the environment their number one priority.19
Every one to two years Patagonia chooses an environmental crisis to which it devotes itself. Freedom to Roam is Patagonia's current environmental campaign. Its goal is to create, restore, and protect "corridors" between habitats so that animals can migrate between shifting habitats and survive.20 Chouinard's philosophy is simple: "It has to start with each and every one of us to make change in our lives. It's up to each individual to lead an examined life."21
Will economic challenges make it hard for Chouinard and Patagonia to hold fast to their principles in the future? As more businesses jump on the green bandwagon, will Patagonia's reputation for commitment to the environment and ethical business practices be enough to sustain them?
1. DISCUSSION-Does the Patagonia experience prove that anyone can do business with principles, or are there business realities that make it hard for others to copy this principled management model?
2. DISCUSSION-What examples and incidents from this brief history of Patagonia illustrate how the personal ethics and values of founders can positively influence an organization as it deals with the challenges of start-up and growth?
3. PROBLEM-SOLVING-Where are conflicts and controversies most likely to occur among the interests of Patagonia's many stakeholders? How might Chouinard prepare to best deal with them?
4. FURTHER RESEARCH-Find news items reporting on what has happened at Patagonia recently. After decades of growth, how has the economic downturn influenced its business decisions?