A generic strategy, according to Michael Porter, presents how a business achieve

Question

A generic strategy, according to Michael Porter, presents how a business achieves and maintains its competitiveness. On the other hand, Nike’s intensive growth strategy reflects the company’s focus on innovation to develop the business.

Nike’s mission statement is to inspire and innovate on behalf of the athlete. So the sustainability questions for Nike included how to incorporate materials great for performance but that are also regenerative and recyclable; how to transform the supply chain; and finally balance this new mindset with pushing products quickly to market. The cool company in Portland found itself needing to align more closely with agriculture, chemistry, and now must learn from other industries–plus balance a new way of designing and manufacturing products with materials that come from many time zones away.

The task is not easy and is still a learning process. Just start with Nike’s product lines, which are made from about 75,000 different materials. One sneaker could have as many as 300 different components. Its supplier rolodex has at least 2000 companies. And meanwhile you have a consumer base that demands zero compromise on price and performance.

The learning curve is still turning and winding for Nike, but the company has made progress. During last year’s World Cup in South Africa, Nike made waves among football players and fans for its jerseys made out of recycled plastic bottles. Within its industry, Nike has led with efforts such as the Sustainable Clothing Coalition and GreenXchange. Not everyone is happy; the company reduced some of its philanthropic activities in exchange for investing in disruptive technologies that down the road could help build a better, cleaner, and safer planet. But for Nike, creating a company culture where innovation means invention with value has made it a leader not just in Portland and within the apparel industry, but among other industries that are now taking sustainability seriously.

PROFILE OF THE CEO

Phillip H. Knight, Chairman and Chief Executive Officer, is the co-founder of Nike, Inc. He has been the driving force behind our company's success since its inception in 1964 under the name Blue Ribbon Sports. Knight is 61 years of age and holds an undergraduate degree from the University of Oregon and an MBA from Stanford University. Knight practiced as a CPA and taught at Portland State University prior to founding the company known today as Nike. He has been an innovative visionary in the industry of athletic footwear and apparel. His efforts have helped to establish Nike as an industry leader in both national and international markets. Knight's managerial mode is one that is characterized by strategic planning. This mode is representative of an open-minded CEO, one willing to take calculated risks and make conservative decisions based on careful analysis of external and internal environments. Knight's decision-making style favors the participative approach. He is not hesitant to make unilateral decisions, but prefers to look to his trusted management team for their insight and ideas before choosing a course of action.

Strategic Managers

Board of Directors - Strength

Nike’s board of directors consists of both management directors and independent directors. The combination of these two types of directors benefits Nike in that there is a presence of those directly involved with Nike as well as others indirectly involved who bring outside experience, provide another frame of reference and can assist the overall board in thinking "outside the box." Nike’s board would be classified as an oversight board, playing an active role with regards to management’s decisions in the area of strategy formulation.

Board of Directors - Weakness

The average age of Nike’s board is 62, the youngest member being 49 and oldest being 79. This constitutes a possible weakness in that there is a lack of younger members of the board who could serve to bring a new perspective to the company and assist in achieving Nike’s goals.

op Management - Strength

Co-founder, Philip H. Knight, has been with Nike since its inception. As a result, he has much knowledge and experience about the company and the industries in which it competes. Knight’s strategic planning managerial style serves as a strength in that his actions are planned and calculated, allowing for both risky and conservative decisions based on careful thought and analysis. His participative decision-making style can also be viewed as a strength such that Knight is willing to listen to others to generate ideas. He does not limit the company’s options to one-sided ideas and decisions.

Strategy Formulation

Mission - Weakness

Nike's Corporate Mission Statement:

"To be the world's leading sports and fitness company."

Nike’s mission statement resembles a vision statement and is therefore a weakness. While the mission does broadly identify the business we are in, namely the sports and fitness industry, it is not specific as to what products and services we provide. The mission statement also omits any mention of distribution channels and customers. It does, however, portray management’s beliefs and values of our desire to be number one and maintain the leading position in the sports and fitness shoe and apparel industry.

Corporate Objectives – Weakness

Nike has no published corporate objectives in relation to the overall company. This lack of corporate objectives represents a weakness. Stakeholders should be well aware and informed of a company’s corporate objectives to better understand the nature of the company and its direction.

Nike has established corporate objectives in relation to our perceived corporate responsibility. Our objective is to "lead in corporate citizenship through programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike." This corporate objective represents a weakness as it does not meet the two requirements of being measurable and having a time frame in which to complete or accomplish said objective. Nike’s objective is immeasurable and broad lacking any time specifications for implementation of programs to meet this objective.

Grand Strategies - Strength

For our grand strategy, Nike utilizes innovation to produce top quality athletic footwear and apparel. As a result of devoting vast resources to the research and development of its products, Nike has captured the largest market share in the athletic footwear and apparel industry and continues to be the leader of quality products.

Competitive Strategies - Strength

The competitive strategy that Nike introduced at the end of the 1990's concentrates on honing the focus of our marketing strategies and product offerings through product differentiation. We realize that the team-mentality that captured the spirit of athletics in the late 1980's and early 1990's has been replaced by a sense of individualism. Younger consumers especially, look to extreme sports and retail outlets such as Ambercrombie & Fitch and Old Navy to find a sense of individual style. We are responding to this movement in a number of ways. While retaining our company's long-standing tradition of placing performance through new-product development as a top priority, a never-before seen element of fashion will receive a second-place priority built into our products and image. For the 1999 back-to-school season, we conducted fashion shows in twelve U.S. cities. In addition, an element of individualism is most obvious in our Web site. Customers can select the color and design a monogrammed heel-insignia for our made-to-order athletic shoes.

Strategy Implementation

Corporate Culture - Strength

Nike has created a corporate culture rich with employee loyalty and team spirit. Red "Swooshes" float across everything from screen savers to coffee cups at the company's headquarters in Beaverton, Oregon. The company chooses to call its headquarters a "campus" instead of an office. Employees are called "players," supervisors are "coaches" and meetings are "huddles." These terms go a long way to make the daily work experience less than dull for the lucky employees in Beaverton.

In 1985, thirteen years after the company was founded, Nike was blindsided when Reebok developed its multicolored aerobic shoes. It was then that we decided to reinvent our business and culture, becoming highly motivated about selling sports and a "Nike way-of-life." With this decision the company also restructured its marketing campaign, focusing more on an image rather than just product advertising, a strategy which led to the "Just Do It" mantra.

Since then, Nike has been striving towards an inner culture that reflects this mantra. Employees are given an hour and a half for lunch to play sports or simply workout. The new Nike is not just about shoes and slam-dunks, but about promoting a lifestyle. All new employees view a video of sports highlights accompanied by a soundtrack that discusses the soul of the athlete and the competitive spirit. In addition, management sends weekly emails to update employees on the recent successes of Nike-sponsored athletes, and often hosts spokespeople to motivate and thank its staff for contributions to the sports world. It is not surprising that an athletic background helps a prospective employee. In keeping with its sports approach Nike asks its players to work by two principals above all others -- "Honesty first, and competition second. Compete with yourself not your colleagues."

Nelson Ferris, a 47 year-old head of its corporate education department states that, "The Swoosh represents something other than just a company. It represents a whole value system."2 Ferris, a longtime employee, even has a Swoosh tattooed above his ankle. "It stops being a job and starts to become a way that your are defining the way your are living on earth."2

Communication - Strength

In late spring of 1999, Nike Retail, Nike's subsidiary consisting of the Nike Town shops and employee stores around the world, upgraded their hardware and software. Our former technology offerings consisted of IBM 4690-series point-of-sale cash registers running on the OS/2 operating system. We have upgraded to PC-based systems running the more sophisticated Windows NT operating system. The software we have been using for the past few years called, Connect: Remote, made by Sterling Commerce Inc., is also being upgraded to the new operating platform. Corporate office communications capabilities with these branch locations will be improved dramatically. Sales and inventory data can be monitored in real-time. Electronic journaling, credit authorization, and sales reconciliation processing-efficiency will increase due to the addition of in-store databases. Modems transmitting data at 56K BPS, or even with digital technology, will replace the 9600 BPS modems and provide for quicker processing times. All of these innovations will allow executives at the corporate office and in other branches to better manage operations.

Leadership - Strength

Nike’s top management’s leadership style can be characterized by the team management approach. Top management consists of a committed group of executives all bringing together vast experience and knowledge. The group is team oriented, but is capable and does work independently recognizing the common stake that each places in Nike. This style of leadership leads to relationships of trust and respect. The company culture lends a hand to the fact that top management’s teamwork style has spread throughout the organization.

Motivation - Weakness

While Nike employees have been loyal and committed workers, after the cost-reductions that took place in the fourth quarter of 1998 resulting in a reduction of the number of employees, we have had to place greater emphasis on motivation among the retained employees. Morale also fell as a result of bad media coverage over reports of substandard working conditions for our Asian factory workers. While initiatives have been set to increase overall employee morale, this area remains a challenge to the company.

Strategy Control

Establishment of Standards - Strength

A comprehensive establishment of profitability standards has assisted Nike in our evaluation of individual performance as well as a comparison to other competitors. Nike utilizes standards such as net profit, earnings per share, return on investment, return on equity, sales growth and asset growth. Performance standards are also established and checked regularly. Some of the areas in which our company has established standards are productivity of productions sites, competitive position in the United States relative to the global market, technological leadership in comparison to competitors and overall social responsibility and the public’s perception.

Evaluation of Performance - Strength

Nike thoroughly examines and compares the aforementioned performance standards to the actual results that have occurred as a result of implementing strategies to meet or exceed performance standards. These standards are important to Nike as a comparison of past performance to present performance as well as in our attempt to forecast future results in these areas.

Correction of Deviation - Strength

Though Nike has established profitability and performance standards, correction of discovered deviations has been a slower and less timely process. Management’s slow response time can be attributed to the careful analysis that is performed prior to making any decisions. While in general this is a good policy to abide by, at times Nike would be better served by a management team that can react more quickly to given information.

Strengths and Weaknesses of the Functional Level

Marketing

Market Share - Strength

Nike’s global market share was an impressive 30.4% in 1998. Despite a slight decline from prior years, Nike continues to have the greatest market share in the U.S. branded athletic footwear market. In 1998, the closest competitor, Adidas, held 15.5% of the market share while Reebok held 11.2%. The remaining competitors, including Fila, Timberland, Asics, Converse, and New Balance, among others, each hold approximately 3-5% of the remaining market share. While Nike’s market share is still in the lead, it is expected to increase with new products. Nike’s market share is expected to do especially well as a result of sponsoring the summer Olympics in 2000 in Sydney, Australia, the 2002 World Cup in Japan and Korea, and the U.S. Speedskating team in the 2002 Winter Olympics in Salt Lake City, Utah.

Distribution through E-commerce - Strength

Nike has taken the lead in e-commerce by being the first to market with its e-commerce web-site. Nike launched its e-commerce site in April 1999 by offering 65 styles of shoes to the U.S. market for purchase. Nike increased its e-commerce presence by launching NIKEiD in November 1999. NIKEiD enables online consumers to design key elements of the shoes they purchase. The program represents the first time a company has offered mass customization of footwear. Nike’s future plans include opening an online shop for the Japanese market next year followed by global rollout. By being the first to market, Nike enables itself to become established while competitors rush to join us.

Advertising and Promotion - Strength

Nike’s brand images, including the Nike name and the trademark Swoosh, are considered to represent one of the most recognizable brands in the world. This brand power translates into bottom-line revenues. The Nike name and associated trademarks have appeared everywhere from players' shirts, pants, and hats to stadium banners and walls. Aggressive advertising campaigns, celebrity endorsements, and quality products enhance the brand. Nike demonstrated an example of Nike’s brand presence at the 1999 NCAA Basketball tournament when 42 of the 64 teams participating wore shoes provided. Nike's most recent brand-building endeavors are focused on strengthening our association with women’s sports. Some examples are our sponsorship of the 1999 Women's World Cup Soccer Tournament and our sponsorship of the U.S. Speedskating team in the upcoming 2002 Winter Olympics.

Products - Strength

Though Nike leads the apparel division among industry competitors, Nike has not claimed to be leading the race among the apparel industry as a whole. Due to increased emphasis by consumers on fashion in relation to sportswear, we have had to make strides to appeal to a fashion savvy market. Our apparel line is not only being challenged by our typical industry competitors such as Adidas and Reebok, but also by clothing and accessories retailers such as Old Navy and Abercrombie & Fitch. Continuous marketing research could prove to be key in assessing the market. Nike is planning on initiating five structures within the apparel division to focus on the following areas:

We are also spending more time on continuing to support and develop programs to gain a better understanding what our customers would like to see in the market.

Products - Weakness

Nike has had much success as a result of collaborating with other companies within the sports and fitness industry. However, at times we expanded into markets for which we were not strategically suited. An example is the decrease in brands made available due to declining sales of in-line skating and roller hockey products at Bauer Nike Hockey. As a result, we have had to exit two manufacturing operations at our Bauer Nike subsidiary. We had to terminate 51 employees. Had we anticipated the decline sooner, perhaps gradual changes could have been made so that the end result may not have been as finite in nature. The desire to prevent situations such as these from continuing to occur, we have initiated a more aggressive program to review product collaborations that are outside of our core basis of products.

Pricing - Weakness

In general, Nike’s products are considered to be of higher quality and as a result have higher prices relative to our competitors. While the prices are realistic given the nature of the products we offer to our consumers, at times our consumers may not agree. This presents a weakness. To mitigate any future problems in our high quality/high price lines, we are placing a renewed emphasis on emerging technology and innovation towards the development of new products, specifically the Nike Alpha Project, a revolutionary new line of athletic shoes. Despite the fact that in the past we may have overlooked the mid- to lower-price-point products, presenting another weakness with room for improvement, we are dedicating our time and money to better develop our competitive position at all price points to build strengths at each of these levels. We see much potential in the lower price points and plan to meet the needs of those markets.

Marketing Research - Strength

Nike primarily conducts marketing research on a continual basis to assist in maintaining our company’s position as the leader in the athletic footwear and apparel industry. Because of such research, we have decided to revamp our apparel division, an area in which we can still greatly improve. Nike will be organizing the internal business by gender as opposed to sport category and conducting increasing amounts of research addressing the buying habits of men, who tend to be item-driven, and women, who tend to be collection-driven, with specifically targeted product lines.

Production

Location of Facilities - Strength

Nike’s facilities are located throughout Asia and South America. The locations are geographically dispersed which works well in our mission to be a truly global company. The production facilities are located close to raw materials and cheap labor sources. They have been strategically placed in their locations for just this purpose. In general, the facilities are located further from most customers, resulting in higher distribution costs. However, the cost savings due to the placement of our production facilities allows for cheaper production of our products despite the higher costs of transporting our products. As Nike continues to expand in the global economy and increase its market throughout the world, these dispersed facilities will prove to be beneficial.

Newness of Facilities - Weakness

Our facilities abroad have attracted bad publicity in recent years. Though our facilities comply with local labor standards, generally, they have not met U.S. standards. We want to be a leader and set a responsible corporate example for other businesses to follow. As part of Nike’s new labor initiative, we commit to:

While establishing these policies is a step in the right direction for Nike, the difficult task at hand will be the implementation of the aforementioned goals to ensure the success of the program

Explanation / Answer

Key Components of the Strategy Execution Process

Read the overview below and complete the activities that follow.

In this exercise you will be asked to examine the effectiveness of Nike’s strategy execution. Be sure to read Chapter 10 before completing the exercise so that you understand the key actions involved in executing strategy.

When a company’s strategy fails, it is often due to poor execution. Even a brilliant strategy can fail if managers do not ensure that it is well-implemented. Proficient strategy execution depends foremost on having in place an organization capable of the tasks demanded of it. Building an execution-capable organization is thus always a top priority. As shown in Figure 10.2, three types of organization-building actions are paramount: (1) Staffing the organization—putting together a strong management team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital; (2) Acquiring, developing, and strengthening the resources and capabilities required for good strategy execution—accumulating the required resources, developing proficiencies in performing strategy-critical value chain activities, and updating the company’s capabilities to match changing market conditions and customer expectations; and (3) Structuring the organization and work effort—organizing value chain activities and business processes, establishing lines of authority and reporting relationships, and deciding how much decision-making authority to delegate to lower-level managers and frontline employees.

If the strategy being implemented is a new strategy, the company may need to add to its resource and capability mix in other respects as well. But renewing, upgrading, and revising the organization’s resources and capabilities is a part of the strategy execution process even if the strategy is fundamentally the same, since strategic assets depreciate and conditions are always changing. Thus, augmenting and strengthening the firm’s core competencies and seeing that they are suited to the current strategy are also top priorities.

Case:

The foundation of Nike’s global sports apparel dominance lies in the company’s continual ability to out compete rivals by aligning its superior design, innovation, and marketing capabilities with outsourced manufacturing. Such a strategy necessitates a complex marriage of innovative product designs with fresh marketing techniques and a global chain of suppliers and manufacturers. Explore Nike’s most recent strategic management changes at http://news.nike.com/news/nike-announces-strategic-leadership-changes.

How well do these changes reflect the company’s focus on apparel innovation design and marketing strategies? Has the company’s relentless focus on apparel innovation affected its supply chain management? Do these changes – or Nike’s strategy, more broadly – reflect the company’s ubiquitous Swoosh logo and “Just Do It” slogan? Visit Nike’s corporate website for more in-depth information: http://about.nike.com/.

Do these changes—or Nike’s strategy, more broadly—reflect the company’s ubiquitous Swoosh logo and “Just Do It” slogan?

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