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Defining the Organization's Strategic Direction by: Johannes Mahlich Mara Schneider Patagonia
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Defining the Organization's Strategic Direction
by: Johannes MahlichMara Schneider
Patagonia
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1. Introduction2. Strategy3. Business Model4. Tactics5. Requirements for Success6. Key Takeaways7. Discussion
Agenda
Introduction Strategy Business Model TacticsRequirementsfor Success
Key Takeaways
Environmentalism in companies is likely to divert management attention and capital
Not competitive if focus is only on environmental objectives
Lose customers if environmental quality providence goes beyond required law
High dependency on consumer who bear the burden of extra cost through environmental investments
PROFIT
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Basis economic theory:
Profitability vs. Environmentalism
Discussion
Source: Reinhardt (1998)
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• Privately held company• Initial purpose: Financing of
founder’s outdoor hobbies• Produces sportswear, technical
outerwear / knits, hard goods
Patagonia
Introduction Strategy Business Model Tactics DiscussionRequirementsfor Success
Key Takeaways
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Basic economic theory applied to Patagonia:
Patagonia Doomed to Fail?
Introduction Strategy Business Model Tactics Discussion
PROFIT?
Managements attention and capital is diverted by environmentalism
Focus is on environmental objectives
Environmental quality providence goes beyond required law
They have extra costs through environmental activities
Requirementsfor Success
Key Takeaways
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“[…] choice of business model through which the firm will compete in the market place.”
Strategy
Introduction Strategy Business Model Tactics DiscussionRequirementsfor Success
Key Takeaways
Source: Casadesus-Masanell & Ricart (2010)
“Environment conservation and restoration”
Vision
“Strive to build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.”
Mission
- Quality- Integrity- Environmentalism- Not bound by
convention- Zen Philosophy
Believes
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Introduction Strategy Business Model Tactics Discussion
Environmental differentiation strategy
Requirementsfor Success
Key Takeaways
Source: Reinhardt (1998)
Strategy
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„[...] logic of the firm, the way it operates and how it creates value for its stakeholders.“
Business Model
Introduction Strategy Business Model Tactics Discussion
Source: Casadesus-Masanell & Ricart (2010)
Requirementsfor Success
Key Takeaways
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Introduction Strategy Business Model Tactics Discussion
Business Model
Requirementsfor Success
Key Takeaways
Operational Excellence
Customer Intimacy
Product Leadership
Environmental Stewardship
Create Value
Perceive Value
Customers
EnvironmentExcellent Quality& Services
Good Feeling
Product & Service
Innovation
Business Model Innovation
Process Innovation
Capture Value
Profits Growth Market Share
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„ [...] residual choices open to a firm by virtue of the business model it chooses to employ.“
Tactics
Introduction Strategy Business Model Tactics Discussion
Source: Casadesus-Masanell & Ricart (2010)
Requirementsfor Success
Key Takeaways
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Virtues of Business Model
Introduction Strategy Business Model Tactics Discussion
Product Lifecyle Initiative
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Requirementsfor Success
Key Takeaways
Operational Excellence
Customer Intimacy
Product Leadership
Environmental Stewardship
Key Tactics
Product Lifecycle Initiative
“The Product Lifecycle Initiative represents a holistic commitment to lengthen the lifecycle of each product and reduce landfill waste.”
Reduce Repair Reuse Recycle
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Key Tactics
Introduction Strategy Business Model Tactics Discussion
Reduce
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Requirementsfor Success
Key Takeaways
Product Lifecycle Initiative
Reduce Repair Reuse Recycle
Description
Assessment
High Quality Low Footprint Organic & Recycled Materials
Big increase in production costs
Limited product variety
Only small price increase
Not enough capacityHigh costs
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Key Tactics
Introduction Strategy Business Model Tactics Discussion
Repair
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Requirementsfor Success
Key Takeaways
Product Lifecycle Initiative
Reduce Repair Reuse Recycle
Description
Assessment
Free repairing service Considers repair for other brands
Increases trust in quality Miss out on potential new sales
New less affluent customer segments
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Key Tactics
Introduction Strategy Business Model Tactics Discussion
Reuse
Requirementsfor Success
Key Takeaways
Product Lifecycle Initiative
Reduce Repair Reuse Recycle
Description
Assessment
Second market for used products Considers opening for other brands
Additional revenue stream Cannibalization of sales
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
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Key Tactics
Introduction Strategy Business Model Tactics Discussion
Recycle
Requirementsfor Success
Key Takeaways
Product Lifecycle Initiative
Reduce Repair Reuse Recycle
Source: Reinhardt (1998); Reinhardt & Casadesus-Masanell, Kim (2010)
Cheap resources for production Capacity constraints
High operating costs
Description
Take broken products back for free Considers providing service for other brands
Assessment
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Introduction Strategy Business Model Tactics Discussion
Business Model
Requirementsfor Success
Key Takeaways
Operational Excellence
Customer Intimacy
Product Leadership
Environmental Stewardship
Create Value
Perceive Value
Customers
EnvironmentExcellent Quality& Services
Good Feeling
Product & Service
Innovation
Business Model Innovation
Process Innovation
Capture Value
Profits Growth Market Share
p p p p
p p
? ??
Find or create a willingness among customers to pay for environmental quality
1
Establish credible information about environmental attributes of its products2
Innovation must be defensible against imitation by competitors3
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Requirements for Success
Introduction Strategy Business Model Tactics DiscussionRequirementsfor Success
Key Takeaways
Source: Reinhardt (1998)
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Introduction Strategy Business Model Tactics Discussion
1. Willingness to pay
Requirementsfor Success
Key Takeaways
Patagonia
Bundling of public and private goods (Environment & Quality)
Environmental prestige
Altruistic reasons (Donation)
Differentiation strategy resonates with customer value
Perceive Value
Environment
Customers
Excellent Quality & Services Good Feeling
Capture Value
Profitability Growth Market Share
?
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Introduction Strategy Business Model Tactics Discussion
2. Credibility
Requirementsfor Success
Key Takeaways
Patagonia
Footprint chronicles
Retail store lounge - to inform about patagonia and projects
Environmental impact of 150 different products documented
Reporting Labeling
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Introduction Strategy Business Model Tactics Discussion
3. Protection Against Imitation
Requirementsfor Success
Key Takeaways
Low transparency
Medium protection
Process InnovationProduct & Service
Innovation
Patents, infrastructure
Medium / high protection
Business Model Innovation
Highly integrated; strongcustomer relationship
High protection
Find or create a willingness among customers to pay for environmental quality
1
Establish credible information about environmental attributes of its products2
Innovation must be defensible against imitation by competitors3
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Requirements for Success
Introduction Strategy Business Model Tactics DiscussionRequirementsfor Success
Key Takeaways
Source: Reinhardt (1998)
pp
p
Don’t just rely on basic economic logic! Environmental differentiation strategy can work!
Introduction Strategy Business Model Tactics Discussion
Key Takeaways
Requirementsfor Success
Key Takeaways
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Environmental differentiation strategy must provide value to the customer and the firm must be able to capture the value!
Company must be credible for their environmental efforts!
Environmentalism must be deeply integrated in the business model to be difficult to imitate!
Innovation must be managed with respect to capacity and resources!
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Introduction Strategy Business Model Tactics Discussion
Discussion
Requirementsfor Success
Key Takeaways
Should Patagonia go public?
InvestorsExpectation
Profitability Growth
- Profits = main objective
- ROI decision making- Short term focus
- profits = only means to an end - Many environmental activities only
capture value as an integral part of business model
- Long term focus
Shareholder Patagonia
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Introduction Strategy Business Model Tactics Discussion
Discussion
Requirementsfor Success
Key Takeaways
Should Patagonia go public?
InvestorsExpectation
Profitability Growth
- Focus on growth - Capacity and resource constraints can’t handle fast growth without compromising believes
Shareholder Patagonia
Thank you for your attention!
