Internal And External Environment Analysis
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Question 1: Analyze the internal and external environment, as well as the performance and strategy used by the organization's leaders in marketing, finance and operations. Each team will submit a written report.
Answer: Introduction: The report tries to conduct a case analysis of theAmerican clothing organisation, Patagonia Inc thatmainly sells apparels that are used for outdoor sports activities. The company is headquartered at Ventura in California. Yvon Chouinard is the founder of the company and the innovative idea forstarting the company grew from his passion for outdoor activities.
a. SWOT Analysis.
Answer: Strengths: Product diversificationand Environment friendly manufacturingpromoting and marketingofproducts has earned a large customer base and goodwill for the company. Innovative strategies like buy less campaign(Patagonia Company, 2011)has added more value to the business. The company is very muchsuccessful in North America followed by South America, Japan and European countries.
Weakness: The company does not concentrate on fashion trends advertising and promotion activities. Premium pricing strategy may affect its expansion strategies.
Opportunities: The company can think of targeting differentconsumersegments. International market expansion is possible. Number of retailers and supply chains can be increased.
Threats: The company has been facing competition from other well-known brands like REI and North face. Only brand loyal customers who prefer outdoor activities like climbers and surfers form consumer segment. The aging of thetargetedconsumer segment can be a problem.
b. PESTEL Analysis.
Answer: Political: Patagonia has been in the limelight for supporting two democratic representatives by highlighting their contribution to save public lands, which helped them win the elections. The company also criticised the Trump administration for violating environmental laws by reducing the size of historical monuments. The role of Marcario, known as the best leader in the organisation,played a significant role in theprocess. The leader took the initiative along with othersimilarcompanies like North face to boycott the trade event conducted byoutdoorretailersin the country that earns huge revenue for the government.
Social: The company is also against causing any harm to thesociety. After the employees at the company's store at Boston sufferedfromhealthissues, due to chemical emissions, the company switched over to organiccotton and ensured that such issues don'trecur. The company also provides a safe and enjoyable working environment toits workers apart from a selling nature friendly products to the society
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Economical: Patagonia has been charging very high prices for its products. The company produces quality productsthat can be brought only by consumers having high disposable income
Environmental: The company is highly responsible towards its environment and has been using nature friendly, recycledand organic materials in making clothingapparels.
Technological: Manufacturing new product's from recycled materials shows that thecompany has been using technology for manufacturing products.
Legal: Legally the company hasbeen provided with the status ofBenefit Corporation, for showing strong commitment to environment friendly business.
c. External and Internal analysis.
Answer: Internal analysis: The company contributes one percent of the profits earned to the environmental initiative of saving the planet. It also uses organic cotton and more recycled materials in production. Functional organisational structure is followed in the company. The vice presidents supervise the functional departments of the company, who coordinate the department activities and provide report to the CEO, Casey Sheahen.(Coley Malloy, 2006). Under the vice presidents the directors of the company handle various field like environmental aspects. With a centralised and flat structure, there exists effective coordination and communication between the employees. The company practises an environmental friendly culture within the campus, where barefooted employees, usage of environmental friendly bicycles and surfboards are seen. The working hours are flexible and the employees are allowed to cater to family commitments. Organic food and yoga practice are followed.
Porter's five forces analysis: The bargaining power of buyers of Patagonia products is average as because different brands offer products with minor changes. But the chances of moving to a different brand cannot be ruled out as the consumers do not mind about high prices rather they will opt for the satisfaction that they derive by using the brand. The suppliers bargaining power is low because they are pushed in a position to provide nature friendly raw materials and unethical practice will not be tolerated by the company. One of the supplier's Allied feather had been selling feathers of Geese that were not give natural feed. The company condemned the act as unethical practice and ordered for further investigation. The threat of new entrants is generally low for the company. This is because new consumers will find it difficult to create such a reputation by following high standards in all its operational activities. The threat of substitutes is low, as most of the productsare high priced
d. Challenges and risks.
Answer: • Patagonia might be put under tremendouspressure from the Government of its home country for questioningthe Trump administration. Any business facing such issues in the home country can be risky and the risk taking attitude of theleaders who give more importance to values than profits may not prove beneficial in the long run.
• The clothing apparel industry is facing challengein the form of climate change and the availability of Organic cotton can be affected duetothe changes in climate. The water consumption oftheFashionindustry is also affecting thesupply chain of the nature leading to less availability of water. The climate change can lead to serious natural calamities affectingcompanies like Patagonia that depend on organicraw materials(IPCC, 2014)
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• Patagonia has been facing high competition from its rivals like north face.The revenue earned by the company is lessthan North face. The demand for outdoor clothing apparels may not be high in other countries where such sports are not encouraged leading to decreased demand
e. The performance and strategy used by the organization's leaders in marketing.
Answer: Marketing performance: The leaders of thecompany had been following a practice of giving more importance to values of business, rather than just earning profits.Integrated market communicationsstrategyand Content marketing strategyis practiced. Thesales of the company recently showed an annual growth rate thatcould be anywhere between 3 to 8%.The strategiesadopted by the leaders were in accordancewith the organisationalobjectives. As a part of its promotional activities the leaders of the company, had been engaging its consumers in a program called tools conference, to create awareness on the need for environmental safety. The Company has been highly rated as a sociallyresponsible undertaking for donating about one percent of its annual sales for supporting environmental Organisation. This has also helped the company to be accepted by the consumers as an ethical organisation thereby increasing the sales of the organisation.(Ethisphere institute, 2012).The corporate culture, framed by the leaders has increased the marketing performance of the company, which is based on the following business values.
Reduce: It advices its customers to purchase less and also gives suggestions on how to use the products for a long time.
Repair: The company tries to repair the faultyproducts at a reasonable price and does not take more than ten business days for returning the same.
Reuse: In order to avoid wastage of products, the company advices is customers to resell the product through online platform.
Recycle: Iftheclothes purchased are completely worn out. then customerscan return it to the company. The companyhas been successfulin recycling the same into new clothes. This sort of marketing has helpedthecompany to save costs.
Reimagine: A naturefriendlyinitiativecalled as Common threads by Patagonia insists on reducing landfills (Mary , 2017)and sees to it that the products are manufactured making optimum use of resources. The owner Yvon Chouinard encourages more outdoor marketing activities likeengaging brand ambassadors from the outdoor sports community.(Jennifer Wang, 2011).This has helped the leader to be more innovative and also invest in research and development activities.Focusseddifferentiationstrategy that targets customers with a dirt bag lifestyle, who are willing to pay a premium price for the products is practiced by the leaders.The Company has investedabout one lakhdollars in qualitycheckingof its products through brand ambassadors. The textileexchange program brings all itsstakeholders under one platform .The platform helps in educating the stakeholders about its environmentfriendlyapproach.
f. The performance and strategy used by the organization's leaders in finance.
Answer: Financial performance: The financial performance of the company was affected, when the leaders adopted the expansion strategy, but Banks were not ready to support the company and did not provide them with the necessary credit. To compensate the company had to lay off few of its employees. In order to increase the firms supply costs, the leaders of the organisation took a risky decision by deciding to use overpriced cotton which was also organic. The leaders also decided to invest in materials that focussed on sustainability and durability, in the long term point of view. This further involved large investment. However this depended on the number of customers, who were willing to get an exchange for the products that they have already purchased. This was again a risky investment because if the products were more durable then, due to the high quality of the product replacements will also be less. The decision of the leaders went in favour of the organisation, as buyers were happier with the company's environmental culture. This increased the sales. The initial move of expansion and further investment led to serious debts.
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Off late the company's financial performance has been extremely good and it was able to pay off all its debts and the leaders decided to go for further expansion in the international market, including Asian countries like Sri Lanka and Bangladesh.(Huffington Post, 2013)
This upsurge of profits was due to the thoughtful investment strategy of the leaders'. Also the company invested in a campaign that insisted in buying less number of Patagonia products. The company promoted its campaign stating that the consumers can sell the used products through eBay. This was again a risky investment by the leaders, but it worked for the company, as the company began to get more number of consumers who appreciated the company's strong environmental commitment. Also the consumers were able to sell their used products and able to buy a new one, and this increased the profits and sales of Patagonia brand. The switch over to organic cotton demanded more investment and the consumers initially had to pay more than conventional cotton. The change reaped profits in the long run and financially the company performed well. The company has been continuously investing 3 % of its revenue in technology that suppose the making of apparels from recycled products.
g. The performance and strategy used by the organization's leaders in operations.
Answer: Operational performance: The operations of Patagonia has been guided by the core values of the leaders of the organisation. The leaders believe in staying innovative in the manufacturing of Patagonia products. Maintaining healthy relationships with all its stakeholders has been key in developing an integrated network in the organisation. The employees recruited at the organisational are highly motivated and are given a promising work environment where they're able to work and also enjoy with their families. The leaders believed in seeking for consistent quality in all the operational aspects of the company without compromising on the environmental factors have enabled the company to survive in the global environment.(Erika Altmann, 2014)
The replacement of used apparels and reusing them is an example. The company had earlier faced challenges in the year 1990, when the leaders were not keen in following the values of the company. The leaders of the company emphasise that all the operational activities in the organisation must be in accordance with the key values of the organisation. This has helped the company to continuously improve its performance. Regarding the operations in the production department, the company produces and markets clothing apparel that offer a simple design and later on organic cotton was introduced. When the company found that organic cotton cannot be reused. As a change the leaders came up with the idea of making clothing apparels from recycled materials like wool, which was free from chlorine and polyester or nylon materials that were recycled.(Jordan Calmes, 2010). Patagonia attained operational efficiency when its leaders tried to partner with Walmart. This was a part of its strategy to remain sustainable in the long run. The company has been one of the four board members in conservation alliance that discusses issues relating to environment and its applicability in the vast business community. In collaboration with Blue standard technology, the company has been advised to follow the management systems provided by the company. The management systems helped the company to improve the productivity in resources usage, safety of the consumer and controlling environment pollutants that may have occurred, as result of chemical contaminated water or air pollution. Blue standard technology has given colour codes that specify the harmful effects of chemical usage in manufacturing clothing apparels. The business ethics (Michael Conner, 2012)followed by the leaders, disallows the company from using forbidden materials that come under the Black colour category. The company has also entered into apparel alliance with the renowned company Adidas. The sustainable coalition of Apparels has helped the company to benefit from the supply chain assessment of Walmart. (Ariel Schwartz, 2011). The alliance tries to judge the sustainability based on certain criteria's like the working environment of the employees and environmental concerns like that of the use of energy. As regards judging the operational efficiency of manufacturing processes, Higgs index is used. By using such practice the company was able to increase its operational performance.
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h. Lastly Recommendations.
Answer: • Patagonia can adopt the Cost leadershipstrategy in the domestic market, to counter thedomestic competition. By lowering the price than its competitors, the company can attract more consumers. In the internationalmarket, the company can establish factory units where the raw materialavailability is in abundance.
• The apparel industry can try to limit the use of water by reusing the water, after processing the same. Thecompanies can createawareness among the employees in the manufacturing unit and the farmerswho areinvolved in theproduction of Organic cotton by showingvisual images that shows the importance of conserving water. Raw materialslike Hemp and Bamboo can be used instead of Organiccotton that requires less water for cultivation.
• Leaders of Patagonia can use the persuasive strategy to convince the US Government. And must develop influential skills. The leaders must use logicalreasoning to present facts that involves numerical data. By using emotional tactics, the impact that the government'santi-environmentalactivism can have onthesociety, must be communicated by the leaders. The leadersof Patagoniaalong withsimilarnon-governmentalinstitutions and industry partners must try to convincethe government using cooperative tactics.
Conclusion: The report shows that Yvan Chouinard follows ethical eldership. The leadership hashelpedin defining the corporateculture of the organisation based on Ethical practices and business values. The risk taking nature and collaborative approach of the leader, has helped thecompany to achieve the organisational objectives.
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