Patagonia's Individualists Approach to Management Term Paper
- Length: 6 pages
- Subject: Business
- Type: Term Paper
- Paper: #59516890
Excerpt from Term Paper :
People Side of Implementation and Staying the Course With Strategy
Implementation and Strategy
Effective strategy implementation is not intuitive. It is not accomplished by making structural changes to an organization chart, or even necessarily by recruiting and hiring new blood (Nielsen, et al., 2008). Both of these responses to devolving strategy implementation are common, but they are not almost always not the right response -- not the response that will help a company achieve its most sought after strategic goals (Nielsen, et al., 2008). Research in the area of strategic implementation has shown the importance of two attributes of strategy execution: Ensuring that decisions rights are clear, and that information is pushed to those who need it (Nielsen, et al., 2008). Decision rights can be thought of as the lines connecting the nodes in a flow chart. Not only do decision rights indicate who owns critical decisions, but they also illustrate the relationships between the several decision owners and decision makers in a process or unit (Nielsen, et al., 2008). In order to provide and push information where it is needed, a cross-functional network is needed (Nielsen, et al., 2008). One way to build this type of information-rich network is to promote managers laterally rather than vertically, so that cross-unit collaboration becomes the functional norm (Nielsen, et al., 2008).
Companies tend to create and use metrics that do not enable them to measure organizational performance (Bassi & McMurrer, 2007). For example, tracking employee turnover rates, total hours of training per employee, and average time successfully recruit and hire for open positions are not good predictors of organizational health or performance (Bassi & McMurrer, 2007). While there is some evidence that the total expenditure on training per person is a good marker for organizational performance, a more comprehensive and systematic model is available (Bassi & McMurrer, 2007). A set of human capital management (HCM) best practices has been developed through research in the areas of economics, human resources, and organizational development (Bassi & McMurrer, 2007). This set of best HCM practices can be measured in individual organizations through surveys, and the results used to improve the performance of the participating organizations (Bassi & McMurrer, 2007). The primary HCM best practices categories are as follows: Employee engagement, knowledge accessibility, leadership practices, organizational learning capacity, and workforce optimization (Bassi & McMurrer, 2007).
Boston Consulting Group has developed a quadrant-based analysis for examining the parameters of market share and market growth as a basis for making decisions about whether to invest in a company, or take some other action. The quadrants support decision-making and they assist with identifying where a company might be located in the lifecycle continuum -- a factor that can have great influence on investment decisions. Companies are represented in this matrix as Stars, Question Marks, Cash Cows, or Dogs, nomenclature related to the probable actions that investors and owners are likely to make given the cluster of indicators related to a company's market share and market growth. All other things being equal, a company that is a Cash Cow is generally considered mature, and generally does not need an infusion of cash, whereas a company that is a Dog is considered to be in decline and requires a radical decision that can reposition the company. A company that is considered to be a Star may need money from the Cash Cow, but it is likely to continue on a trajectory toward increased market share and sales growth. A company that is considered to be a question mark may be an as-yet unproven startup or a more established company that seeks to increase market share. Strategic decisions for a Question Mark company entail both risk and opportunity, and will likely be designed to attract investments and to grow sales in order to increase market share.
Patagonia would be considered a mature company in terms of lifecycle, but the company behaves more like a startup. It is a company driven by mission with the intensity and focus expected of a business started by a passionate entrepreneur. The mission is the centerpiece of the company and it has helped to articulate management practices that have substantially contributed to increased market share and market growth. The mission of Patagonia is two-fold: Sell incredibly good quality products and build environmental awareness among consumers. Patagonia's loyal customers are unlikely to require eco-edification as they are cut from green whole cloth. The company hires people who share the characteristic Patagonia outlook that considers saving and preserving the world to be its purist motive -- profits are seen as an avenue to accomplish the mission, provide for employees, and conduct manufacturing in a manner that the company can defend to future generations. For Patagonia, the rationale is a simple one: To ensure that the environment is worth exploring and continues to offer quality outdoor adventure to enthusiasts, it must be preserved.
Patagonia is faced with growing competition from multinational companies focused on profit and apparently oblivious to environmental concerns. But since 1985, Patagonia has implemented a strategic, philanthropic business plan that has fostered a unique position among its competitors. Patagonia donates one percent of sales or 10% of annual pretax profits to grassroots environment organizations. In a particular year, the 1% for the Planet campaign translated into $17 million cash contributions and an additional several million in-kind donations of equipment. Moreover, Patagonia has established the Common Thread, Garment Recycling campaign that recycles old base layer Patagonia clothing as raw material for new clothing made from polyester. Patagonia holds to strict environmental standards with suppliers, too, using only organic, pesticide free cotton in its manufacturing since 1998.
Patagonia's human capital management (HCM) practices would rank particularly high on the Bassi and McMurrer (2007) structured surveys, particularly in the areas of employee engagement, leadership practices, and organizational learning capacity. These drivers are linked through the company passion for the two prongs of their work: quality product and environmental preservation. According to a recent Gallup Poll, one-third of Americans workers are passionate about their jobs. Patagonia this number is much higher since, as Chouinard asserted, "Most people want to do good things, but don't. At Patagonia, it's an essential part of your life" (Hamm, 2006). Stanford University professor Jeffry Pfeffer argued that, "There are companies that stress continuous improvement and being way better than the competition but also make people feel comfortable, "What these companies have in common is that they function as ambitious meritocracies "that trust their employees to do the right thing -- and give them the tools and time they need to do it" (Hamm, 2006). Patagonia is one of these companies. With respect to the HCM Maturity Level, Patagonia falls in the Level 5 category, as an organization that consistently demonstrates superior capability in optimizing its human capital management in the HCM area factors, apparently without exception (Bassi and McMurrer, 2007).
Chouinard intends to maintain Patagonia's position as a Cash Cow company over the long-term. He clearly communicates his ideas about sustainability: "I look at this company as an experiment to see if we can run it so it's here 100 years from now and always makes the best-quality stuff" (Hamm, 2006). Patagonia sustains a slow but steady market growth rate of about five percent per year. Market share is high and revenues reflect that fact, with operating margins at the high end for the industry, averaging about 12 to 15% on average -- and that figure after Patagonia has donated one percent of revenues to grassroots environmental groups.
Chouinard has a reputation as a reluctant businessman who is definitely not hyper-focused on quarterly earnings. He sees no conflict between his desire for a sustainable company and the production of quality products. Indeed, he has expressed his belief in this pairing, having said, "Every time we do the right thing, our profits go up" (Hamm, 2006). Chouinard implements his own particular version of managing by walking around: he does a considerable amount of business in the field -- standing waist-deep in water to test fishing waders, and so forth. Chouinard calls this practice his MBA or managing by absence, and the term rather succinctly conveys his leadership philosophy. Chouinard does much of the company's market research directly by traveling around the globe, talking to people who enjoy outdoor activities to discover their preferences and peeves. An example of Chouinard's knack for ensuring that information flows to the people who need it is illustrated in this vignette that serves as a bit of company lore:
Chouinard and Patagonia CEO Casey Sheahan were getting some face time while fishing for steelhead in British Columbia when they observed that their feet were cold. The Patagonia waders they were wearing were not adequate, so the two executives decided to set up a series of meetings to review the quality of Patagonia's products overall, and find solutions for improving them.
This is completely aligned with Chouinard's lifelong practices -- and the origin of Patagonia, which stemmed from Chouinard's hand-forged…