When Yvon Chouinard, the American son of French-Canadian parents, decided to create a sportswear manufacturing and sales business in California in the early 70s, he was sure of one thing: he wanted to keep climbing mountains and soaring over waves in his business life too. That is why the fi rm is named after the mountain region between Argentina and Chile and why it is involved in the protection of the nature parks in southern Patagonia, the Natural Austral Parks.

Although he began by selling sports clothes for rugby teams (the money to start the fi rm came from the sale of rugby shirts bought in Scotland), the business now sells every type of sportswear, for skiing, surfi ng, rock climbing and alpine climbing, as well as the equipment necessary for these activities.

Its customers are sportsmen and women with an average age of 38 and a medium salary of $160.000 gross a year, which situates it in a quite

high segment of the market in terms of purchasing power. Basically it sells its customers extremely high quality, durable products that are constantly being improved/updated, but something more as well: it sells them a unique life-style, practically a religion, of which they become devotees.

At present, the fi rm has global earnings of almost $300m, and a workforce of 1,400 with a turnover of 4.5%, compared to 20% for the sector. Patagonia owns 40 outlets and appears every year on Fortune magazine’s list of the best and most admired companies in the world, with the highest reputation. It is also considered the “coolest”.

The ethos of the fi rm is based on integrity, authenticity, simplicity, community, social conscience and openness. It conducts very few advertising campaigns because its outlets, public relations and sponsoring (especially for its own in-house projects in the environmental sector,

What makes a fi rm that sells sportswear and outdoor gear so successful in its environmental integration of business strategy? Can a socially responsible organization be built from surfi ng - a life-style that is very different - and create its own community?

La Patagonia: Integrating CSR into business model creation and strategic management

Public Affairs

Strategy DocumentsC03/2011

Cases

Document prepared by Corporate Excellence with reference to, among other sources, the intervention of Govert Room (Associate Professor of the Strategic Management Department at IESE) during the sessions of the Executive Education Program “Making Social Responsibility Work: The Cornerstone of Sustainable Business” organized by IESE Business School in Barcelona in July 2011.

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for example 1% For the Planet, the World Trout Initiative, Environmental Internships or The Footprint Chronicles and projects by other bodies such as the Conservation Alliance and the Organic Exchange), serve as the main window for its brand.

But if there is a constant in the history of the company it is to be found in its commitment to “green” issues, the fact is that in essence and by definition it is “green” through and through. Since the 80s 1% of sales or 10% of profits have been devoted to projects for the care and recovery of nature, and the business uses only organic cotton in the clothes it manufactures. This is the main reason it opened its own cotton production factory in California in the 90s and is in line with the company’s mission statement: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis”.

A special leader for a special businessNone of this would have been possible without a founder who was a very special person, different from the general idea of an entrepreneur and very different from run-of-the-mill businessmen. He describes himself by saying: “I would never be happy following the routine rules of the market. I wanted to get as far away as possible from those faces of people in corset-like garments that I used to see in the business advertisements in airline magazines”.

Chouinard was an ‘outsider’ in the business world: his ideas were not aimed at earning a lot of money but at making things that were good, because then the profits would come of their own accord. He did not want to flush toxins into Canada’s rivers, cause nervous breakdowns in his workforce or go for crazy growth all over the world.

As he said once, “everyone tells me that the company is undervalued, that we could have exponential growth (which in fact it has, with an annual growth of 6%) and then expand and launch our company on the stock exchange. But that would be the end of everything I have wanted to do, and would destroy everything I believe in”.

This shows we are in the presence of a real inspirational leadership (as there is in other companies with a strong social conscience, such as Starbucks, The Body Shop, Ben & Jerry’s, Honest Tea, Ethos Water or Hallmark), centered on an ethos of responsibility underlying the construction of its business model and with coherent decision-making. That is one with its activity in its own sphere of action.

Chouinard’s profile fully coincides with an inspirational leader’s characteristics:

• Hebringsvisionandinspirationand sketches out the future.

• Hebringstogetherhisowngoalsand those of the company.

• Forhim,unremittinginnovationisareligion.• Hepromotescreativityandexperimentation.• Hemakeseveryonefeelinvolved

and creates confidence.• Heimplementsideasandbringsthemtofruition.• Hemakesbusinessandworkfun.

There are a lot of ways to be ‘green’ but only one right wayThe reason for changing the way that organizations are managed is because their purpose has changed: sustainability is now at the center of what we do. Resources (especially natural ones) are getting scarcer and this situation will get worse (Patagonia has concentrated on the surfing sector rather than on skiing because they know that snow is getting scarcer due to global warming). This is why business companies are becoming more careful, and not least because, otherwise, the cost of sourcing these materials will become prohibitive.

The question is this: To what extent do companies really contribute to the care of the environment by implementing programs that are truly ‘green’? Are they prepared to see their profits reduced in the short-run in order to obtain long-run sustainability? Is going green a marketing ploy or is it really on the company agenda, as in the case of Patagonia?

Because these questions are a very good description of a certain business environment, that of green politics, and in this we can appreciate and see the true dimension of how effective, and yet how unusual, Chouinard’s model is. Its success is based on the organization’s high level of commitment and dedication to the environment. There are three different types of approach to this subject:

1. Green ‘paint’: cooperating in only some campaigns and giving a few donations so that it ‘looks like’ the company is really involved with this cause.

2. Green activities: basically, initiatives that are in the right direction but which only affect the business’s ethos in a superficial way.

La Patagonia: Integrating CSR into business model creation and strategic management

Source: MRJ Consulting, 2010.

Model of inspirational leadership

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Plans, structures,

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Managing people

VALUES

Application of ideas

Involve other

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means of building the

rest of the business

model and of taking coherent

decisions’.

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3. Green strategy: developing a green business model throughout the company, integrating it into all the company’s activities, and taking part in related projects.

Obviously, Patagonia’s place is in the third category, and it goes even beyond this, because in its commitment to the environment it involves both customers and staff in the management in its commitment to the environment: for Patagonia both these groups are an integral part of the environment, and form part of its surroundings. From the company’s view, it cannot create high quality products without a high quality working, social and natural environment. As Yvon Chouinard says: “If you miss out on one of the pieces in this puzzle, it’s highly likely that you’ll lose the lot”.

Responsible values as a source of innovationThe way in which Patagonia approaches the production of high quality products means that it has to make clothes that do not involve processes that damage the environment. This, of course, makes its work harder. The continual process of obtaining quality products, and how they use and deal with raw materials implies development and innovation in new technologies - as in the case of the organic cotton mentioned above - and this, in turn, increases operational costs.

The company is carrying out a project called ‘Common Threats’ to allow the cover of its clothing products to be recycled. The impact on the environment of converting worn coverings

into new polyester fi ber is lower than making it straight from previously unused raw materials, with savings of 76% in economic costs and of 72% in Co2 emissions. Patagonia has succeeded in reducing the impact on the atmosphere by producing polyester wool from recycled soft-drink bottle ends. As of now, it has salvaged 86 million units, which would have otherwise ended up in waste disposal.

There is an initial cost and barrier for Patagonia in environmental innovation, technology, but which has an important advantage not only for the company but also for the rest of society, fulfi lling its promise to provide solutions from business for environmental issues and climate crisis.

Conclusions: total integration of CSR and strategyPatagonia’s values are clearly aligned with what its customers expect of it: love of nature and adventure. The company has not used these values as a means of making its product brand better known, but instead it has sought to invent new ways of showing that these values are at the heart of its strategy and are not just a result of it.

Unlike its closest rivals, Patagonia has succeeded in becoming more than a mere manufacturer and seller of clothes for sports and outdoor activities. The company feels part of an economic system which must exercise care and responsibility towards the environment and surrounding nature. The link between its mission, its vision and its CSR values to its business activity and strategy is really exceptional.

La Patagonia: Integrating CSR into business model creation and strategic management

Source: Patagonia 2011.

Patagonia: Built the best product, cause no unnecessary harm, use business to inspire and implement solutions to the enviroment crisis

Financial:

Customer:

Internal Process:

Learning & Growth:

Improve Profi ability

Improve Efi ciency

Operational Excellence

Customer Intimacy

Product Leadership

EnvironmetStewardship

Create Lifetime Employees

Maintain Patagonia Culture

Enable Technology

Solve their problem

Understand the customer

Inspire Innovation

Reduce Impact & Footprint

Create Customer Value Enviromental Goodwill

Grow Revenue Increase Market Share

Provide Extreme Gear Protect our Clients Fight to Save

Community

‘Patagonia has not used its

values as a means of making its

products more

widely known but

rather these are at the

heart of its strategy and are not just a result

of it’.

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