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Patagonia Case Analysis


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Patagonia Case Analysis

  1. 1. Patagonia, Inc.: A Company Analysis William Duncan Seth Stephen
  2. 2. Cultural Control Issues: Patagonia, Inc. is an outdoor clothing and equipment company with a conservationist mindset. Their environmentally-friendly primary objective can be found in the company mission statement: “To deliver innovative, excellent, useful products and service to our customers; to reduce the environmental harm we cause; to honor our obligations to each other and to our stakeholders; to earn a sufficient profit to achieve these objectives, but without the pursuit of growth for growth’s sake” (Merchant, 351). Patagonia’s primary objective is different than the majority of other companies, regardless of industry. Rather than focus on maximizing shareholder wealth, Patagonia’s objective is to earn sufficient profits to continue their environmentalist actions. This objective, while abnormal, can be appropriate for successful operation of this company. However, this primary objective can only be obtained if the company’s leaders understand the importance of profitability if they want to continue to impose on itself “a tax of 1% of sales or 10% of pretax profit, whichever was greater, and used the money to safeguard and restore the natural environment” (Merchant, 342). While the board of directors and Chairman Chouinard strongly dislike normal business-friendly growth, the recommended 3-5% annual growth is critical to continue to tax itself and impact the world in the way Patagonia desires. Patagonia’s business culture, as exemplified through the implementation of the Workbook Process, is very transparent and employee-oriented. The company focuses on reducing anxiety and frustration through benefits such as childcare. “Both parents [are] allowed two months paid leave after a birth. Mothers were
  3. 3. encouraged to continue nursing when they were back at work. Parents were encouraged to take breaks and have lunch with their children. Parents were allowed to keep young babies right at their desk” (Merchant, 343-344). Regarding if employee production was hard and consistent, “[the benefits] created less anxiety and frustration in the parents and children and, consequently, increased work satisfaction and productivity” (Merchant, 344). Planning and Budgeting Processes and Open Book Management: The Workbook Process put in place after Patagonia’s 1991 crisis was in response to employees’ discontent with the company’s budgeting process. In order to make the company more transparent for its employees, the Workbook Process was in place involving, “(1) making every department’s and the corporation’s plans visible to all employees; (2) making monthly department and corporate financial and operating reports visible to all employees; (3) investing substantial time and resources to train every employee in financial management so that they would understand the information make available to them; (4) encouraging all employees to become actively involved in the planning and operating review processes” (Merchant, 344). This process meets the demand of the employees for more transparency and we recommend that Patagonia continue to apply it. The Workbook Process also gives the employees a hands-on approach and understanding to how the business operates as well as empowers employees to give ideas and thoughts to how the company can improve itself. However, due to lack of enthusiasm for the process by managers and employees in creative divisions, we recommend that a senior
  4. 4. manager sit in on the required meetings. Having a senior manager attend required meetings will cut out the running through the motions that reportedly occurs with less enthusiastic work group managers. Next, we recommend that the division managers turn in a report at steps 5, 10, 16, 19, and 22 of the Workbook Process. At step 5, each manager would be required to turn in a detailed management control system to their director as well as sending the cross-functional objectives to departments. Having a customized management control system catered to each specific division will allow the division to take ownership of their work as well as allow the director to have a quantitative system to judge divisional performance. If a division does not perform up to set objectives, that division is up for audit by the overseeing director, starting with an audit of the division manager and trickling down to each individual employee. After an established amount of mistakes or failure to meet objectives, an employee is up for termination. Having a quantitative method to judge termination solves our next issue, the cost of training employees to be financially literate. We would like to evaluate if the cost of training current employees in financial management is less than replacing them with employees with a financial background and the same passion for the environment and only having to incur the costs of basic training.
  5. 5. Bibliography Merchant, Kenneth A. Modern Management Control Systems: Text and Cases. Upper Saddle River, NJ: Prentice Hall, 1998. Print.