Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Department
Type
Details
Advantages
Drawbacks
Product Teams
Team-Based
– Self-managing, cross-functional product teams. Teams include designers, product developers, and marketers.
– High collaboration and innovation. – Quick decision-making.
– Potential challenges in coordinating across multiple product teams. – Possibility of overlapping responsibilities.
Retail Stores
Divisional
– Separate divisions for company-owned stores and e-commerce. Each division has dedicated leadership.
– Specialization in retail and e-commerce operations. – Efficient management of different sales channels.
– Potential variations in customer experience between retail and online. – Challenges in standardizing operations across divisions.
Environmental and Social Activism
Functional
– Functional department focusing on environmental and social initiatives. Functional managers oversee these activities.
– Specialization in activism and corporate social responsibility. – Effective management of sustainability efforts.
– Potential disconnect between activism initiatives and other business functions. – Challenges in aligning sustainability goals with profit-oriented activities.
Customer Service
Functional
– Functional department responsible for customer service operations. Functional managers oversee customer support.
– Efficient handling of customer inquiries and concerns. – Specialized expertise in customer service.
– Limited integration between customer service and other operational departments. – Challenges in ensuring consistent customer experiences across channels.
Supply Chain and Sourcing
Divisional
– Separate divisions for supply chain management and product sourcing. Each division is led by dedicated managers.
– Specialization in managing the supply chain and sourcing activities. – Efficient sourcing and production processes.
– Potential coordination issues between supply chain and product teams. – Risk of supply chain disruptions affecting production.
Key Elements of Patagonia’s Organizational Structure:
Holacratic Approach:
Patagonia adopts a holacratic organizational model that emphasizes self-management, distributed authority, and dynamic roles.
In a holacracy, decision-making authority is distributed across autonomous teams or circles, allowing employees to make decisions and take ownership of their work.
Flat Hierarchy:
Patagonia maintains a flat organizational structure with minimal levels of hierarchy and bureaucracy.
The company values transparency, open communication, and accessibility, enabling employees to collaborate effectively and engage in cross-functional initiatives.
Cross-Functional Teams:
Patagonia organizes employees into cross-functional teams that collaborate on projects, initiatives, and business functions.
Cross-functional teams promote interdisciplinary collaboration, knowledge sharing, and innovation, fostering a culture of creativity and agility.
Decentralized Decision-Making:
Patagonia encourages decentralized decision-making, empowering employees at all levels to make decisions that align with the company’s mission, values, and goals.
Decentralization enables faster decision-making, greater adaptability to changing market conditions, and a sense of ownership and accountability among employees.
Employee Empowerment:
Patagonia emphasizes employee empowerment, autonomy, and trust, recognizing that engaged and empowered employees are key drivers of organizational success.
The company encourages employees to take initiative, pursue their passions, and contribute to causes they believe in, fostering a culture of empowerment and purpose.
Values-Driven Culture:
Patagonia’s organizational structure reflects its values-driven culture, which prioritizes environmental stewardship, social responsibility, and ethical business practices.
The company integrates its values into all aspects of its operations, from product design and manufacturing to supply chain management and community engagement.
Implications of Patagonia’s Organizational Structure:
Innovation and Creativity:
Patagonia’s flat hierarchy and cross-functional teams promote innovation and creativity by facilitating collaboration, idea-sharing, and experimentation.
Employees are encouraged to explore new ideas, challenge conventional thinking, and drive continuous improvement across the organization.
Employee Engagement and Retention:
Patagonia’s emphasis on employee empowerment, autonomy, and purposeful work enhances employee engagement, satisfaction, and retention.
Employees feel a sense of ownership and pride in their work, leading to higher levels of motivation, loyalty, and commitment to the company’s mission.
Environmental and Social Impact:
Patagonia’s organizational structure supports its environmental and social impact initiatives by enabling employees to champion sustainability efforts and community outreach programs.
Employees are empowered to advocate for environmental conservation, social justice, and responsible business practices, aligning their personal values with the company’s mission.
Challenges and Considerations:
Scalability and Growth:
As Patagonia continues to grow and expand its operations, maintaining its decentralized and values-driven organizational structure may pose challenges in terms of scalability and coordination.
The company must balance its commitment to employee empowerment and autonomy with the need for operational efficiency and strategic alignment.
Leadership and Decision-Making:
Patagonia’s decentralized decision-making approach requires strong leadership and communication skills at all levels of the organization.
Leaders must empower employees while providing guidance, support, and strategic direction to ensure alignment with the company’s mission and goals.
Cultural Alignment:
Maintaining a values-driven culture requires ongoing effort to ensure that employees at all levels share and uphold the company’s core values and principles.
Patagonia must invest in cultural alignment initiatives, employee training, and communication strategies to reinforce its organizational values and foster a sense of belonging and purpose among employees.
Comparison with Top Related Companies
The North Face: Operates under its parent company, VF Corporation, and uses a more traditional corporate structure with a focus on profitability and market share alongside environmental initiatives. Unlike Patagonia, The North Face balances corporate interests with sustainability goals but does not prioritize them to the same extent.
REI (Recreational Equipment, Inc.): As a consumer cooperative, REI is unique in that it is owned by its members and focuses heavily on sustainability. This structure allows for a strong alignment with customer values, similar to Patagonia’s alignment with environmental goals. However, REI does not have the same direct investment in environmental causes through a structure like Patagonia’s Holdfast Collective.
Timberland: Known for its environmental and social responsibility efforts, Timberland operates under a traditional profit-driven structure as part of VF Corporation. It focuses on sustainability within the constraints of a corporate framework that aims to balance profit with purpose, unlike Patagonia’s model which places mission before profit through its non-profit ownership.
Similarities and Differences
Similarities: All these companies integrate environmental sustainability into their business models to varying degrees. They also emphasize ethical practices and have initiatives aimed at reducing environmental footprints.
Differences: Patagonia’s use of a non-profit structure to reinvest profits into environmental causes sets it apart. This model allows Patagonia to prioritize its environmental mission over profitability in a way that other companies, like The North Face and Timberland, cannot due to their obligations to shareholders and corporate structures.
Implications
Mission and Strategy Alignment: Patagonia’s structure ensures that its strategic decisions are always aligned with its environmental and social mission, which may enhance brand loyalty and customer trust. This is a contrast to more traditional structures where environmental goals might be secondary to financial objectives.
Flexibility and Responsiveness: The non-profit ownership model provides Patagonia with a high degree of flexibility to pursue initiatives that might not yield immediate financial returns but advance its broader mission. This can be a competitive advantage in attracting a customer base that values ethical practices.
Innovation in Sustainability: Patagonia’s structure fosters innovation in sustainable practices by reinvesting profits into environmental causes. This ongoing investment in sustainability can lead to long-term advantages in product development and corporate social responsibility.
Slow fashion is a movement in contraposition with fast fashion. Where in fast fashion, it’s all about speed from design to manufacturing and distribution, in slow fashion, quality and sustainability of the supply chain are the key elements.
Fash fashion has been a phenomenon that became popular in the late 1990s and early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics and flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.
With over €27 billion in sales in 2021, the Spanish Fast Fashion Empire, Inditex, which comprises eight sister brands, has grown thanks to a strategy of expanding its flagship stores in exclusive locations around the globe. Its largest brand, Zara, contributed over 70% of the group’s revenue. The country that contributed the most to the fast fashion Empire sales was Spain, with over 15% of its revenues.
The Ultra Fashion business model is an evolution of fast fashion with a strong online twist. Indeed, where the fast-fashion retailer invests massively in logistics and warehousing, its costs are still skewed toward operating physical retail stores. While the ultra-fast fashion retailer mainly moves its operations online, thus focusing its cost centers on logistics, warehousing, and a mobile-based digital presence.
ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products. ASOS further expanded on the fast fashion business model to create an ultra-fast fashion model driven by short sales cycles and online mobile e-commerce as the main drivers.
Real-time retail involves the instantaneous collection, analysis, and distribution of data to give consumers an integrated and personalized shopping experience. This represents a strong new trend, as a further evolution of fast fashion first (who turned the design into manufacturing in a few weeks), ultra-fast fashion later (which further shortened the cycle of design-manufacturing). Real-time retail turns fashion trends into clothes collections in a few days or a maximum of one week.
SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved the ultra-fast fashion model by leveraging real-time retail, quickly turning fashion trends in clothes collections through its strong digital presence and successful branding campaigns.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
