1. Patagonia, Inc.:
A Company Analysis
William Duncan
Seth Stephen

2. 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

3. 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

4. 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.

5. Bibliography
Merchant, Kenneth A. Modern Management Control Systems: Text and Cases. Upper
Saddle River, NJ: Prentice Hall, 1998. Print.