Patagonia, Inc.:A Company Analysis

William DuncanSeth Stephen

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

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

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.

Bibliography

Merchant, Kenneth A. Modern Management Control Systems: Text and Cases. Upper

Saddle River, NJ: Prentice Hall, 1998. Print.