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Case Study 11 Nike Spreading Out to Win the Race to 9 the ove de Compe Nike is indisputably a giant in the athletics industry. But the Port- land, Oregon, company has grown large precisely because it knows how to stay small. By focusing on its core competencies and out- sonrcing all others-Nike has managed to become a sharply focused industry leader. But can it stay in front? What Do You Call a Company of Thinkers? Robert Haldinger/Anzenberger/Redux Pictures It's not a joke or a Buddhist riddle. Rather, it's a conundrum about one of the most successful companies in the United States company known worldwide for its products, none of which it actu- But Nike has taken outsourcing to a new level, barely produc- ally makes. This begs two questions: If you don't make anything, ing any of its products in its own factories. All of its shoes, for what do you actually do? If you outsource everything, what's left? instance, are made by subcontractors. Although this allocation of A whole lot of brand recognition, for starters, Nike, famous for its production hasn't hurt the quality of the shoes at all, it has chal- trademark Swoosh, is still among the most recognized brands in lenged Nike's reputation among fair-trade critics. the world and is an industry leader in the $74.2 billion U.S. sports After initial allegations of sweatshop labor surfaced at Nike- footwear and apparel market.' And its 33% market share domi- sponsored factories, the company tried to reach out and reason nates the global athletic shoe market. with its more moderate critics. But this approach failed, and Nike Since captivating the shoe-buying public in the early 1980s found itself in the unenviable position of trying to defend its out- with legendary spokesperson Michael Jordan, Nike continues sourcing practices while withholding the location of its favored to outpace the athletic shoe competition while spreading its production shops from the competition brand through an ever-widening universe of sports equipment, Boldly, in a move designed to turn critics into converts, apparel, and paraphernalia. The ever-present Swoosh graces Nike posted information on its Web site detailing every one of the more than 700 factories it uses to make shoes, apparel everything from bumper stickers to sunglasses to high school and other sporting goods. It released the data in conjunction sports uniforms. with a comprehensive new corporate responsibility report sum- Not long after Nike's introduction of Air Jordans, the first marizing the environmental and labor situations of its contract strains of the "Just Do It" ad campaign sealed the company's factories." reputation as a megabrand. When Nike made the strategic im According to a 2011 Associated Press report, two-thirds of age shift from simply selling products to embodying a love of Nike's Converse factories still fail to meet Nike's own standards sport, discipline, ambition, practice, and all other desirable traits for contract manufacturers. Hannah Jones, a Nike exec oversee- of athleticism, it became among the first in a long line of brands ing efforts to improve factory working conditions, acknowledged to represent itself as aiding customers in their self-expression as that workers in two Indonesian plants were subjected to serious part of its marketing strategy and egregious" physical and verbal abuse. We have been work- Advertising has played a large part in Nike's continued suc. cess. The largest seller of athletic footwear and apparel in the world, Nike recently spent nearly $2.5 billion annually on ad- vertising. Portland ad agency Wieden & Kennedy has been instrumen- tal in creating and perpetuating Nike's image-so much so that the agency has a large division in-house at Nike headquarters. This intimate relationship between the two companies allows the agency's creative designers to focus solely on Nike work and ing every time we can [...] to influence the licensee and their subcontractors much more directly," she said. Nike's critics find the company's claims that it can't controlla- bor conditions in contract plants far-fetched. "I simply find it im- possible that a company of the size and market power of Nike is impotent in persuading a local factory in Indonesia or anywhere else in meeting its code of conduct, counters Prakash Sethi, a corporate strategy professor at Baruch College CUNY! - mers to focus solely on Nike work and lardan Isn't Forever ] gives them unparalleled access to executives, researchers, and anyone else who might provide advertisers with their next inspira- tion for marketing greatness. Knowing that shoe sales alone wouldn't be enough to sustain continued growth, Nike decided, in a lateral move to learn has cleverly kept its ad agency nestled close to more about its customers interests and involvement in sports identifying what needs it might be able to needs it might be able to fill Nike's success on outsourcing many nonexecutive response in the running category, for example, was largely driven by the a. It can be argued that Nike Apple iPod-linked Nike Plus, which now ranks as the world's Apple iPod-link 5 core competency lies in the design--not areast running club. The technology not only motivates run the manufacturing of shoes, was wise to transfer production ners y was wise to transfer production ners with music and tracking their pace, but it also uploads their times and distances into a global community of runners online, What's Left, Then? Although Nike has cleverly kept its ad agency nestle home, it has relied on outsourcing many nonexec bilities in order to reduce overhead. It can be argued that Nike, recognizing that its core competency lies in th 1 overseas. focused on our strategies and our consumers. And from that per- spective nothing has changed." ating a social networking innovation that lets runners race in different countries Banking on the star power of its Swoosh, Nike has success. fully branded apparel, sporting Goods, and even sunglasses. Putting It All Together Like many large companies who have found themselves at odds Nike has balanced its immense size and tremendous pressures to with the possible limitations of their brands, Nike realized that remain successful by leveraging a decentralized corporar seu hire Individual business centers such as research production, it would have to master the one-two punch: identifying new and marketing-are free to focus on their core competencies needs and supplying creative and desirable products to fill those needs. without worrying about the effects of corporate bloat. In fitting with the times, Nike's VP of Global Design, John R. Arocent organizational change is part of a wiowie p uring that may result in an overall reduction o Hoke III, is encouraging his designers to develop environmentally c sustainable designs like the Nike Free, a lightweight running shoe at the company's workforce. This new model sharpen that boosted sales 18% to $6.08 billion last quarter, topping ana- mer focus and will allow us to make faster decisions, with consumer focus and window last quarter topping and lysts' estimates. And Nike's Sustainable Business & Innovation Management lavers." said Charlie Denson, Presiden Lab will fund outside startups focused on alternative energies, the Nike Brand. more efficient approaches to manufacturing, and the promotion levelike his plan mav have worked: Shares of Nike jumped of healthy lifestyles." to an all-time high in 2010 and have continued to climb since Nike first stepped into sustainability in 1993 when it began than the company has found continued marketplace grinding up old shoes and donating the material and other hunositioning itself not simply as a sneaker company scraps from the manufacturing process to builders of sports brand that fulfills the evolving needs of todays athletes surfaces like tracks and basketball courts. While the original Nila continue to profit from its increasingly decentrance program continues, the company has shifted from one-of-a- nate model. or will it spread itself so thin that its compe kind initiatives to a long-term plan that will achieve zero waste will overtake it? throughout the supply chain and have products and materi- als that can be continuously reused-no pre or post consumer waste. In fact, when the world's greatest soccer players stepped on the field at the FIFA World Cup hosted by South Discussion Questions Africa in 2010, many were wearing Nike jerseys made almost 1. How does Nike's decision to retain an in-house arm of entirely from plastic bottles salvaged from landfills in Japan and Taiwan. ad agency Wieden & Kennedy exemplify the concept of organizational design? 2. Given the problems Nike has had with sweatshop labor Nipping at Nike's Heels being used by some of its foreign contractors, are there Despite Nike's success and retention of its market share, things parts of the firm that need to be run with a mechanistic haven't been a bed of roses in the past few years. Mark Parker rather than organic design? Give examples to support a 27-year Nike vet, was promoted to CEO after Phil Knight's first your answer. choice, former S.C. Johnson & Sons CEO Bill Perez, stepped down after less than a year in the job when Knight decided Perez Problem Solving couldn't get his arms around the company." Nike seems to be using some form of network structure, And pressures are mounting from outside its Beaverton, Draw a diagram that shows what you believe its present Oregon, headquarters. German rival adidas drew a few strides closer to Nike when it purchased Reebok for approximately structure looks like. Be sure to include all possible com- $3.8 billion." Joining forces will collectively help the brands ponents; make and explain your assumptions in doing so. negotiate shelf space and other sales issues in American stores Now be an organization design consultant. Look at your and will aid the adidas group in its price discussions with Asian diagram and ask: How can this network structure be manufacturers. With recent combined global sales of almost improved? How can Nike gain even more operating $15 billion, the new supergroup of shoes isn't far off from efficiencies without losing its performance edge in terms Nike's $20.3 billion, 1819 of high quality and top design shoes? Explain and defend According to Jon Hickey, senior vice president of sports and your answers to this question entertainment marketing for the ad agency Mullen, Nike has its "first real, legitimate threat since the '80s. There's no way either Further Research one would even approach Nike, much less overtake them, on their own." But now, adds Hickey, "Nike has to respond. This Gather information on Nike's recent moves and accom- new, combined entity has a chance to make a run. Now, it's plishments, and those of its rivals. Are the firms following game on,"20 the same strategies and using the same structures to sup- But when faced with a challenge, Nike simply knocks its bat port them? Or is one doing something quite different from against its cleats and steps up to the plate. "Our focus is on grow- the others? Based on what you learn, what do you predict ing our own business." said Nike spokesman Alan Marks. "Of for the future? Can Nike stay on top, or is some other firm course we're in a competitive business, but we win by staying destined to be the next industry leader? C-23