Strategic Management Assignment: Corporate Responsibility & Sustainability of Patagonia

Question

Task: In the clothing industry, there has been incredible turbulence in the industry value chain over the last decade. For many firms in the industry, sustainability in supply chains, the fashion cycle and the retail environment are key concerns. In a strategic review, the board of directors of Patagonia (Patagonia.com) are considering strategic options.

Instructions on Strategic Management Assignment
You are required to produce a 3500-word essay based on the following tasks:
1. An introduction to the company and its current approach to corporate responsibility and sustainability (10%) Annual Report Milestones/ Core Development / Founding / Derived into the current state of affairs / Key elements of change
2. With reference to the triple bottom line (and other appropriate theory), discuss the key dilemmas involved in being an ‘ethical’ company. Ensure your answer is theoretically grounded and relates to the sector and organizational context outlined in the scenario (30%) Triple bottom line = Responsive organizational dimension to People affairs / Environmental Protection / Profitability What strategies have they put in place to be an ethical company. Any evidence in which the organization achieve the triple bottom line.

3. Drawing upon value chain and resource-based view, discuss the company’s source(s) of competitive advantage (30%) Analytical dimension. Value chain = comes from Porter 5 forces & value chain theories. How org add value Which aspect that the org have designed (system/process/chain) in which it gives value. Competitive advantage - Difficulty copying what they do

4. With reference to your answer to part (1), (2) and (3), argue for a strategic proposal that can further enhance the company’s source(s) of competitive advantage, and supports one or more of the 17 UN SDG themes (30%) UN SDG = United Nations sustainable developmental goal

Answer

Introduction to Patagonia:
Patagonia is a renowned American clothing company. It markets and sells outdoor clothing to its clients. Patagonia was founded in 1973 by Yvon Chouinard. The company selected to prepare this strategic management assignment is mainly based in Ventura, California. The company operates more than hundreds of stores across more than 10 countries and 5 continents and they have factories in 16 countries. Patagonia is a renowned outdoor apparel company with more than 40 years of successful history of environmental activism and conservation. The main mission statement of the company is “we are operating the business to save the entire home plant”. Patagonia contributes 1% of their annual net revenue to the activities of a non-profit charitable organisation. It helps in promoting sustainability and environmental conservation (1% for the Planet - Patagonia. 2021). Patagonia saves $10 million in taxes and put the amount back to the improvement for the entire planet. The annual revenue of Patagonia was more than $1 billion. Patagonia always focuses on building the best products for their consumers that cause no unnecessary harm. Patagonia achieved a 9.12 score for its high quality and performance of the products (patagonia.com2019). The company is conducting operations that cause no unnecessary harm to society and the planet. The company also shares the best practices to improve its operating activities with other companies. The Company maintains transparency and provides a supportive environment for working with their employees. Patagonia is now becoming a Carbon-Neutral Company.

Current approach to corporate responsibility and sustainability:
Patagonia, a renowned outdoor clothing and apparel company always focuses on prioritizing the durability results of the products while consuming less energy, creating less waste and trash from the products and wasting less amount of water while manufacturing the product. They organise environmental and social responsibility programs to reduce the negative impact on people and the planet (Park, 2020). They have built robust animal welfare and environmental responsibility program while making materials and products. They manufacture 87% of their fabrics of the products with the help of recycled materials. They use 100% virgin cotton for their clothes which are grown organically (Michel et al., 2019). They are always giving importance to using Recycled fishing nets, regenerative organic certified cotton, recycled spandex, organic and recycled cotton, recycled polyester, nylon, down, wool, cashmere, Yulex natural rubber etc. as their raw materials. They also organised social responsibility programs to ensure that the products of the company were produced and manufactured under fair, legal, safe and humane working conditions. In the US, the company meets 100% of electricity needs with the help of renewable electrical energy. 39% of the apparel assembly factories of the company provides an appropriate living wage to workers. Currently, the company repaired 101,706 garments in 2020. They remove 149 tons of plastic wastage from the ocean across the world by increasing the use of fishing nets strategy. The company is also focusing on increasing the investment in Regenerative Organic practices to help the farmers to improve the health of the soil and reduce greenhouse gas emissions. The company pledged 1% of its sales to preserve and restore the natural environment (1% for the Planet - Patagonia. 2021). The company manufacture their products based on environmental profit and loss. Moreover, they are now focusing on becoming an antiracist company. The company cuts its combined waste, water and carbon footprint by 73% by using Worn Wear Program. Since 40 years, Patagonia Company has supported grassroots activists to help them to find the best solutions to meet the environmental crisis (patagonia.com2019).

Key dilemmas in being an Ethical Company:
According to the Triple Bottom Line Framework, it is the sustainability framework of the organisations and it measures the success of the business in three key areas people, profit and the planet (Treiblmaier, 2019).

Triple Bottom Line Framework Analysis:
The Planet:Patagonia contributes 1% of their annual net revenue to promote sustainability and environmental conservation activities with the help of non-profit charitable organisations. The company donates more than $5000000 dollars to protect lands and waters. They contribute more than $400000 dollars for advancing renewable energy activities. They made in grants of more than $1000000 dollars to support regenerative organic agriculture and help farmers to enhance their practices to improve their health of the soil and reduce the amount of greenhouse gas emissions in the entire atmosphere (O’Rourke & Strand, 2017). In 2018, Patagonia launched a Blue Heart of Europe Campaign to protect their Balkan Region from 3000+ hydropower projects by bringing international awareness to the particular issue. The company is always focusing on building high-quality products that reduce the percentage of harm to the planet. They are fabricating and designing the highest quality products by following non-obsolescence, durability and multifunctionalism mechanism. They use recyclable and reusable raw materials for fabricating and designing their products (patagonia.com2019). They create minimal negative impacts on the environment throughout their supply chain during the time of resources extraction, transportation and manufacturing of the products. They always focus on reducing the use of water and energy and toxic chemicals, minimal greenhouse emissions and minimal wastage while production. They always focus on the repair, reuse and recycling of the products. They increased the use of recycled materials by 31%, reduced the use of Cotton and other plant-based materials by 16%, and Wool and other animal products by 5%. According to the report of 2020, 87% of the production line of the company uses the highest rate of recycled materials. The process of switching to the use of recycled materials helps the company to avoid 4300 metric tons of carbon emission (patagonia.com2019). The Company uses organic cotton that reduces the use of water and reduces carbon emission by 45% in comparison with the use of conventional cotton. The company is organised Worn Wear Programme to inspire consumers to stop buying the new apparel and clothes and buy used staff to cut down the water consumption and carbon emission (patagonia.com2019).

Profit:The Company is conducting their operations sustainably that causes no harm. The company is continuously seeking for reducing the environmental footprint by reducing the usage of water, electrical energy and toxic chemical. The company is also now focusing on improving the quality of water and reducing greenhouse gas emissions while producing the manufacturing its products. The Company is also now focusing on reducing the use of single-use plastic items. They also emphasise on recycling of polybag and revitalising the entire distribution centre landscape to reduce the transport time. Patagonia is now sharing the best and effective practices with other partner companies to inspire and implement effective solutions to meet the environmental crisis. They also share proprietary information of the business and best practices with other business partners including direct competitors to create a positive impact on the environment (Rattalino, 2018). The design philosophy of Yvon Chouinard has guided the entire company since its inception of the company. The Company is always focusing on implementing effective programmes to improve the quality of the product by using innovative product technologies (patagonia.com2019). It helps in improving the quality of their toolboxes, developing their new low-impact materials, fair trade activities and focuses on repairability strategy that helps the company to enhance their reputation of the brand. It helps the company to lessen the environmental impact of the company’s product (Environmental & Social Footprint - Patagonia. 2021). The overall activity helps the company to increase the demand for the products of the company among its consumers. Currently, the company generates more than $1 billion in revenue. The entire environmentally friendly activity helps the company to be profitable and economically viable. Patagonia also maintains the highest possible transparency while operating its business. They are keeping their customers up-to-date with the new updates, problems and also shares tips to reduce microfiber shedding at home. It helps in developing a trustworthy and loyal relationship between customers and the company. It increases the sale and demand of their products and profitability of the company in their operating markets.

People:Patagonia provides a supportive and safe working environment and high-quality healthcare services to their workers. 47% of the executives in Patagonia are women. Patagonia employees enjoy the weekend facility with the 9/80 work schedule that helps employees to maintain their work-life balance efficiently. 50% of the board members are women at Patagonia. Around 157 children enrolled by the company in Patagonia on-site child care facility. The Company organised an effective social responsibility program. 87% of the production lines maintain the Fair Trade Certified program activities. The participation of Patagonia Company in the Fair Trade Programme supported more than 64000 workers. The Company supports more than 550 farmers by involving them in the Regenerative Organic certified program to produce organic cotton. The program helps in maintaining the health of the soil to make it more effective for harvesting required raw materials. The main goal of the social responsibility program is to minimise the harm and create positive benefits for employees’ lives (patagonia.com2019). The company influence their suppliers to maintain the highest social and environmental standards to manage the entire process ethically. The company provides tangible benefits to improve the lives of the employees through the Fairtrade program. The Company is promoting fair labour practices and maintains safe working conditions throughout the entire supply chain of Patagonia. Corporate responsibility is the broad-based movement of the Company that encourages the other partner companies and supply chain of Patagonia to take the appropriate responsibilities to reduce the negative impact of the business activities on employees, customers, communities, and the entire environment. The company also follows international human rights and labour standards to ethically operate the entire business operation. The company follows the California Transparency Act of 2010 in Supply Chains to monitor and assist the entire supply chain partners to meet their human rights standards and reduce the child labour issue and human trafficking issues (patagonia.com2019). These best practices followed by Patagonia helps the company to manage and follow the responsible business practices in an international context.

Competitive Advantage of Patagonia:
The section helps in drawing the value chain and resource-based view of the company by using Value Chain Analysis Framework and Porter’s Five forces analysis framework. The section also discussed the sources of the competitive advantage of Patagonia by using the VRIO Analysis Framework.

Porter’s Five Forces Analysis:
Competition in the industry:
The main competitors of the Patagonia Company are Amer Sports, Canada Goose, Columbia Sportswear, IceBreaker, Zulily and Farfetch and Burton. The Huge presence of competitors creates a high force on the business activity of Patagonia in the market. The company’s perception of supporting the social responsibility program and highest quality of the products increases the sales percentage of the company and demand of the products among the consumers (patagonia.com2019).

Power of Suppliers:
Patagonia Company is doing their partnership with the responsible supplier to reduce the negative impact on the environment. They influence their suppliers to ensure that products of Patagonia are produced under fair, safe, legal and humane working conditions (Song, Wang & Zhu, 2018). The company also encourages their suppliers to maintain international labour and human rights standard. It creates a moderate force on the business activities of Patagonia while switching from one to another.

Power of Buyers:
Patagonia Company always focuses on creating a positive impact on people and the planet. The company make their materials and products responsibly. The Company also inform their buyers regarding problems, new arrivals and teach them regarding the sustainable use of cotton clothes to reduce wastage (patagonia.com2019). It makes Patagonia different from each other that increasing the demand for the products and reducing the switching cost of consumers. It creates a moderate force on the business activities of Patagonia.

Threats of substitute products:
Patagonia Company always focuses on producing high-quality products that are hard to imitate. Patagonia Company conducts their operation with innovative and creative technologies to reduce unnecessary harm. Patagonia is also a socially responsible Company. The threats of substitute products create a low force on business activities of Patagonia.

Threats of New Entrants:
Patagonia is a renowned outdoor clothing company and for 40 years they are operating their business as an environmental conservation and activism. Patagonia became one of the registered business corporations in 2012 (patagonia.com2019). The high demand for their products and the high brand reputation of the company is hard to imitate by the new entrants. However, it creates a low force on the business activity of Patagonia.

Value Chain Analysis:
According to the Porter’s Value Chain Analysis Framework, the value chain activities of Patagonia split into two categories that help in assessing their competitive advantage.

Primary Activities while manufacturing and production of Company’s products:
Inbound Logistics and outbound logistics:
Patagonia is a globally highly recognised brand. The company is a high socially responsible company. The company always prioritizes lower impacts on the environment while shipping, receiving of the products, packaging of the products, warehousing and managing the inventory of the products and raw materials (Simatupang, Piboonrungroj& Williams, 2017). Patagonia reduces the use of single plastics for packaging their products. Patagonia opened an East Coast distribution centre in the USA that was constructed on the state of reclaimed mine in state Pennsylvania. It allows third-party logistics providers to operate this distribution centre for transporting the products from one place to another. It reduces the time of transportation that reduces CO2 emissions from transportation. The company prioritised the social and environmental activities at every turn.

Operations:
Patagonia also emphasises Regenerative organic practices by framers while growing fibre. It helps in reducing the rate of greenhouse emissions while harvesting and improving the health of the soil. The Company is also now investing in the Fairtrade program to provide safe working conditions by implementing innovative technology while transferring the raw materials into the finished products (patagonia.com2019).

Sales and Marketing:
Patagonia promotes their products through social media platforms such as Facebook, Instagram, and YouTube. It helps them to engage with their consumers directly. The Company shares the experiences of members and consumers of the company on social media platforms along with attractive images. They also share their process and social and environmental initiatives to enhance the social and environmental awareness of consumers. It helps in marketing their products and services to the consumers (patagonia.com2019). Patagonia sells their product through both physical stores and online stores through websites and other e-commerce platforms. It increases the sale of its products and profit percentage of the company.

After-sale services:
The company provides excellent customer care services to their consumers after selling their products to consumers. The company operates their business activities through social media platform that helps the company to engage with their consumers. It enhances the loyal relationship between customers and the company.

Secondary Activities:
Procurement:
Patagonia always focuses on growing virgin cotton organically without the use of harmful chemicals. It helps the company to save water and reduce CO2 emissions by 45%. Patagonia sources the raw materials of the products through sustainable practices. The company encourages farmers to switch from the fossil fuel-intensive farming mechanism to organic and low-till farming practices to build healthy soil and maintain the highest organic standard of their products.

Technological Development:
Patagonia focuses on using creative and innovative technologies to reduce the negative impact on the environment. As an example, the company uses CO2 Technology to conduct their Worn Wear Program. It helps the company to capture microfibers and reduces additional water usage (patagonia.com2019). The company also uses innovative product technologies to constantly update their seasonal product design. It helps the company to maintain the quality of their products.

Human resource Management:
Skilled and knowledgeable and social and environmentally responsible employees play a key role to improve the business activities of the company. The company also provides fair living wages, appropriate facilities for women employees, safe working conditions for employees, and follows human rights standards to protect employees from discrimination. It meets the satisfaction level of employees that enhances the productivity of the company. The company also organises the training for their employees to improve their skills and capability.

Infrastructure:
The management of Patagonia always emphasises maintaining a high standard of practices within the workplace to maintain a safe and motivating working place for their employees. Patagonia follows a functional organisational structure to operate its business ethically (patagonia.com2019). The management of the company focuses on creating economic and social value through its business activities.

VRIO Analysis:

Based on the outcome of the VRIO Analysis, it defines that the company is positioned itself in a sustained competitive advantage position. Core values, capabilities, corporate social responsibility practices and sustainability practices are valuable, rare, organised and are hard to imitate by the company’s competitors (Buzatu et al., 2019). Patagonia always focuses on socially and environmentally responsible practices. It helps the company to add value to their processes and system. Moreover, it increases the competitive advantage of the company that helps the company to be competitive in the market. Based on the innovation and customer care service perspective, the company is also positioned itself in a competitive equality position.

Overall analysis and outcomes from Value chain analysis, Porter’s five forces analysis and VRIO Analysis defined that Patagonia is positioned itself as a strong competitor for other potential competitors in the market.

Strategic proposal for further enhancement of Patagonia’s sources of Competitive Advantage:
Patagonia clothing company is mainly focusing on environmental protection and wellness activities. According to Porter's Generic Strategy framework, the company should focus on a differentiation strategy to make difference while serving their products and services to consumers (Islami, Mustafa &Latkovikj, 2020). It would enhance the source of competitive advantage of Patagonia. Patagonia should contribute to the sustainable development goals to improve the nature of the business and enhance the scale of the business. Patagonia should contribute to developing appropriate strategies to support the 12th goal “Responsible Consumption and Production”, the 13th goal “Climate Change”, and the 15th Goal “Life on land”. Patagonia is currently now focusing on manufacturing the best products that cause no harm to humans. They also conduct their business operations in a sustainable way to reduce the negative impact on the environment. The company should support the 12the goal of SDGs to ensure sustainable consumption and use appropriate patterns for manufacturing the products to enhance the environmental aspect of the company.

As an example, Nike, a Footwear manufacturing company has their biggest contribution to SDGs. The company mainly focuses on six areas of impact SDG 3 “Good health and Wellbeing”, SDG 5 “Gender Equality”, SDG 8 “Decent Work and Economic Growth”, SDG 13 “Climate Action”, SDG 12 “Responsible consumption and production” and SDG 17 “Partnerships for the goals” (THE 17 GOALS | Sustainable Development. 2021). Nike always focuses on maximum performance and minimum impact. Nike aims to use 80% recycled materials to manufacture new products and other goods (NIKE_Inc_Impact_Report2,2020). Nike targets are to reduce their wastage by 10% per unit in distribution, manufacturing and packaging of the products through improving operational and design efficiency. Nike’s target is to reduce the usage of fresh-water per Kg by 25% while textile dyeing and finishing (Nike Purpose: FY20 NIKE, Inc. Impact Report. 2020). Nike is also taking their stand for developing appropriate initiatives for climate action through moving towards Zero. Nike’s target towards Zero waste and Zero carbon future. Nike uses 100% renewable energy sources in Canada and U.S. across their operated sites. Nike’s target is to reduce the GHG emission by 70% in their operated sites by using 100% renewable electricity and the facility of fleet electrification (Nike Purpose: FY20 NIKE, Inc. Impact Report. 2020). The company aims to reduce their carbon footprint by 65% in their operated spaces and 30% across its supply chain in 2025 (Nike Purpose: FY20 NIKE, Inc. Impact Report. 2020).

These strategies would help Company to increase the sale of their products and services because many customers purchase the products of Patagonia to be part of the environmental aspects. Patagonia is also practising regenerative organic agriculture to diverse waste, conserve water and create sustainable materials that reduce the rate of GHG emissions in the operating spaces (patagonia.com2019). It recommended that the company can focus on improving their best practices for their future enhancement to fulfil the future corporate social responsibility goals. Being a part of UN SDGs would help the company to take appropriate necessary actions and collect support from other industries for the company’s future enhancement.

Effectiveness of these strategies:
Based on the Annual beneficial report of Patagonia, the company used 31% recycled materials and only 16% cotton and other plant-based materials in 2019. The above-identified strategies would help Company to meet its target to become a Carbon-Neutral Company by 2025 (patagonia.com 2019). It would increase the use of renewable energy in their manufacturing sites to reduce the use of electricity. It will support the use of advanced CO2 technology to avoid the excess water usage problem. It will help the company to achieve the target to become a zero-waste to landfill organisation across its offices, stores and distribution centres by donating its products, recycling, reusing and upcycling its products. Patagonia uses 100% renewable electricity sources in its owned and operated facilities (patagonia.com 2019). Patagonia should bring the difference by collaborating UN SDGs and driving the progress of the company to reduce the negative impact on the environment.

Strategic changes to add value to the new strategies of the company:
Patagonia should organise training and development sessions for their employees. It will improve new skills and knowledge of employees to support their new goals. It will help Patagonia to add value to above –identified new strategies for Patagonia. Patagonia should increase the investment in Research and development segment and use more updated advanced technology to integrate innovation in their products. It will help Patagonia to bring the difference in their products and services for becoming competitive in the market.

Conclusion:
Based on the overall findings and analysis, Patagonia should support and contribute towards United Nations SDGs to improve their actions and initiatives towards becoming a socially responsible organisation. Based on the competitive advantage analysis of Patagonia, it defines that the company always focuses on responsible sourcing and production while manufacturing their products. They always focus on minimising their negative impact on the environment to meet their goal to do the best for the planet. It would help Patagonia to enhance its productivity and social activities to reduce the negative impact on the environment. It would help the company to be competitive for their potential competitors in their operating spaces. The appropriate initiatives and differentiation strategy will help Patagonia to achieve its target per year. It would help in increasing the sales percentage of Patagonia. Proper corporate social responsibility activities will increase the demand for products offered by Patagonia. Patagonia’s contribution towards SDGs would help in expanding their business in new countries.

References:
1% for the Planet - Patagonia. (2021). Retrieved 8 November 2021, from https://www.patagonia.com/one-percent-for-the-planet.html

Buzatu, A. I., Pleea, D. A., Iulian, C., & Valentin, W. P. (2019). Managing organizations for sustainable business development: Interaction between VRIO framework and Mckinsey 7s framework. New trends in sustainable business and consumption, 243-251.https://www.researchgate.net/profile/Ann-Katrin-Arp-2/publication/333902657_Study_on_European_funding_programmes_for_sustainable_development/links/ 5dbaf94d299bf1a47b05a8d3/Study-on-European-funding-programmes-for-sustainable-development.pdf#page=243

Environmental & Social Footprint - Patagonia. (2021). Retrieved 8 November 2021, from https://www.patagonia.com/our-footprint/ Islami, X., Mustafa, N., &Latkovikj, M. T. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(1), 1-15.https://link.springer.com/article/10.1186/s43093-020-0009-1

Michel, G. M., Feori, M., Damhorst, M. L., Lee, Y. A., &Niehm, L. S. (2019). Stories we wear: Promoting sustainability practices with the case of Patagonia. Family and Consumer Sciences Research Journal, 48(2), 165-180.https://onlinelibrary.wiley.com/doi/abs/10.1111/fcsr.12340

Nike Purpose: FY20 NIKE, Inc. Impact Report. (2021). Retrieved 8 November 2021, from https://purpose.nike.com/fy20-nike-impact-report NIKE_Inc_Impact_Report2(2020). Retrieved 8 November 2021, from https://purpose-cms-preprod01.s3.amazonaws.com/wp-content/uploads/2021/04/26225049/FY20_NIKE_Inc_Impact_Report2.pdf O’Rourke, D., & Strand, R. (2017). Patagonia: Driving sustainable innovation by embracing tensions. California Management Review, 60(1), 102-125.https://escholarship.org/content/qt9k03p0vs/qt9k03p0vs.pdf

Park, S. H. (2020). A case study on the corporate social responsibility in Patagonia'Worn wear'.Strategic management assignment Journal of the Korea Fashion and Costume Design Association, 22(1), 61-71.https://www.koreascience.or.kr/article/JAKO202012758285533.pdf

patagonia.com(2019). Retrieved 8 November 2021, from https://www.patagonia.com/on/demandware.static/-/Library-Sites-PatagoniaShared/default/dwf14ad70c/PDF-US/PAT_2019_BCorp_Report.pdf Rattalino, F. (2018). Circular advantage anyone Sustainability driven innovation and circularity at Patagonia, Inc. Thunderbird International Business Review, 60(5), 747-755.https://onlinelibrary.wiley.com/doi/abs/10.1002/tie.21917 Simatupang, T. M., Piboonrungroj, P., & Williams, S. J. (2017). The emergence of value chain thinking. International Journal of value chain management, 8(1), 40-57.http://courseware.cutm.ac.in/wp-content/uploads/2020/06/value-chain-pdf.pdf

Song, Y., Wang, H., & Zhu, M. (2018). Sustainable strategy for corporate governance based on the sentiment analysis of financial reports with CSR. Financial Innovation, 4(1), 1-14.https://link.springer.com/article/10.1186/s40854-018-0086-0
THE 17 GOALS | Sustainable Development. (2021). Retrieved 8 November 2021, from https://sdgs.un.org/goals
Treiblmaier, H. (2019). Combining blockchain technology and the physical internet to achieve triple bottom line sustainability: a comprehensive research agenda for modern logistics and supply chain management. Logistics, 3(1),
10.https://www.mdpi.com/2305-6290/3/1/10/pdf