Nike: Case Study

The following case study analysis of the company involves a detailed strategic plan, which will be in its use for the next three to five years. Discussing the company’s background and its past success and failure will set the base for the discussion of its strategic plan. The mission and vision of the company will define how things will be done. Further building on the plan, a thorough SWOT analysis will also be conducted and the critical success factors, as well as other miscellaneous factors, will be evaluated.

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Company Background

The organization chosen is Nike, the shoes, clothing, and sports apparel company. The brand name Nike and the logo of “Swoosh” are some of the most recognized in the world. Nike is into footwear, especially for sports (basketball, football, soccer), eyewear, watches, skateboarding gear, snowboarding gear, swimming gear, tennis gear, clothing, etc. The customers of Nike are those who need utmost convenience in terms of all the accessories that they are adorning while they are playing any particular sport. Nike is a brand for adventurous and sporty people. It’s a fast and ambitious brand, which has cleared this factor in its slogan “Just Do It!” The brand name is very strong, giving value to all the products of the company. The logo of Swoosh is simple, fluid, and fast. The evolution of the Nike logo very clearly depicts the slow and steady capture it did in the footwear market. First, the logo contained the brand name as well as the symbol. But now only the symbol Swoosh is necessary to distinguish a Nike product. It is a rare brand name and symbol. Nike has created this tough brand name after years of innovation, therefore; the chances that it gets imitated are also very low of this resource. Nike continues to envision a better and more successful future than its current state and therefore will exploit the full competitive potential of its brand name and symbol.

Nike does not spend on manufacturing its products and therefore saves costs there. It uses those saved costs for Research & Development. Nike has always wanted to provide a competitive edge, to help athletes perform better. Its R & D is committed to designing footwear and apparel of every make, model, and body style which makes it the very best performance product. Nike Sports Research Laboratory (NSRL) was designed just to do that. Then there is the Advanced Product Engineering (APE) group which is involved in long-term product development. The R&D resource gives Nike the rareness that is needed to differentiate its products from competitors. Moreover, the resulting innovation of R & D adds value to the brand name and its products. Such high class and dedicated R&D is hard to imitate and the organization is focusing and relying on its R & D resource to exploit further opportunities in the market.

As Nike does not produce shoes, the main focus of the company is to create and market the products. It spends a great deal on marketing and advertising and has contracts with most celebrities like Michael Jordan, Andre Agassi, Charles Barkley, and Troy Aikman to name a few. Moreover, the concept of the ads is also very different and tries to focus on a different target audience every time. The ambassadors help in increasing the value of the brand as all the fans of the ambassador will feel good about Nike once the ambassador is associated with it. Furthermore, ambassadors who sign a contract with Nike are restricted to endorse only Nike and no other company and therefore, it gives the ambassador resource rareness. Nike spends a lot in paying these ambassadors and so the firms without this resource will face a cost disadvantage in obtaining it.

In the past, in around 2000, Nike had a supply chain disaster, which was a software problem, due to which Nike had to suffer from around $100 million in sales which did not happen eventually, its stock price saw a decline of a hefty 20% and even started a chain of lawsuits. But the lesson that was learned from this whole disaster was that if there will be involvement from all levels of the company into the plan, then there are high chances that the plan will get through. And even if it backfires, the consequences are not that bad.

Mission Statement & Vision Statement

Vision

Vision is a phrase or sentence that tells where the company wants to be in the future. It is a dream that the founders of the organization want to realize. It is what an organization strives to materialize. (Scott, 1993) In the case of Nike, its vision is to become a truly global company with international sales and a diverse and united workforce as well as to have dedicated retailers around the globe who work for the betterment of the organization. In the words of Philip Knight, the CEO of Nike Inc., the vision can be stated as:

“If we do become truly global, we’ll be a much better company and have a serious advantage over the competition. When that day comes, we will have an educated, integrated workforce on the ground in every country, sharing a clear and current understanding with other Nike sites worldwide. A retailer in Singapore or Shanghai will be as important as one in New York.”

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The vision of the company truly reflects the objectives that it holds. Fulfilling these objectives one at a time will help the company in realizing this vision one day. For now, the objectives of making acquisitions and increasing sales fit the vision of Nike becoming a global company and having a diverse workforce.

Mission

The mission is the reason for the existence of any company. Nike’s mission is to “Bring inspiration and innovation in whatever we create, be it be footwear, apparel or equipment.”

Through the mission, the vision is better and easily realized. The objectives are that sales have to be increased to 15 billion by the year 2010, and this will only be possible if Nike has a competitive edge over other companies and when its products keep on outgrowing themselves and bring innovations within.

Values

The values of the Nike Company and its employees are that they want to deliver the best products to the athletes, who are their major target market. If using Nike wear, the athletes can succeed in their sports; there is nothing better than that for the Nike Company. Too much focus on advertising and the cosmetics of Nike wear was not an essential part for the company. All they wanted was a quality product that would fulfill what it was claiming.

The values that are of the Nike Company will greatly help the company in reaching its desired state. This is because one of the desired states is to make loads of acquisitions. If making a quality and innovative product is one of the aims of the company, then acquisitions will give the company more control over the whole supply chain management, thus lowering costs and making it easy to invest more in R&D.

Internal Analysis & External Analysis

The organization has a very rich history of making and following its strategic plans through and through. The company has come a long way, and it has always been able to succeed and surface from rough times because it always defined the goals and objectives, thus helping the employees know exactly what has to be done and achieved. (Goldman, 2000).

The company had responded well to internal and external changes as well as challenges. One of the biggest internal challenges was the failure of the i2 software unit, which caused the company losses in sales, a decrease in stock price, and all bad things possible. At such a time, keeping the employees motivated and the management intact was a Herculean task but the leaders of the company handled it pretty well. External challenges have always been the number of competitors in the footwear market. And since Nike is practicing diversification, then its competitors also lie in other markets, like the watch industry and the eyewear industry. Nike very well counters its competitors by investing heavily in R&D and relying on the Nike product to deliver innovation, creativity, comfort, and success to its target market.

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SWOT Analysis of Plan’s Focus Area

Goals for year 1:

  • Increasing the advertising, focusing on the brand and its qualities.
  • Increasing the R&D, to come out with a new type of footgear for football.

Goals for year 2:

  • Acquiring Nelson & Company, a company which produces the sole for the footgear, thus making the backward chain as part of the Nike Company.
  • Using below-the-line activities in marketing, to appeal and interact with the consumers directly.

Goals for year 3:

  • Sponsoring as many sporting events as possible, to put a maximum impact on sports players as well as those audiences who are watching these sports
  • Acquiring Croket & Company, a logistics company, does the distribution of shoes all over the country as well as exports it outside the country.

Strengths

The company’s strength lies in its powerful research and development team which spends approximately $73.2 million on design innovation and development. Nike has two research labs that work round the clock to see the present, as well as the future of the footwear market, and these researchers, make sure that the design so that Nike stays ahead of the competition. Moreover, the company’s marketing is very strong. Whether it is print media or TV, sponsoring Olympics or regular college games, Nike has always been the first to market and advertise its brand name. Nike has been successful in its attempts to build loyalty by licensing Nike gear to college sports teams. Due to intense marketing strategies, there is a strong recognition of the Nike brand even overseas. Nike is already the number one in the overall footwear market in Spain, France, Belgium, Holland, Finland, and the United Kingdom. Furthermore, the company’s finance department has become one of its biggest strengths over all these years. Every new year indicates an increase in sales, income, assets, and shareholders’ equity from the previous year. To add to the list, the distribution of Nike products is quick and efficient, allowing the smooth flow of inventory.

Weaknesses

Nike has received some criticism in the past few years over the exploitative practices of management in some Asian countries. They are concerned about the maltreatment that employees receive. They often have to work in factories where there is 100o c of temperature and empowering paint and glue smells. This was one of the initial weaknesses of the company, which were later looked after and turned into a strength. Moreover, initially, the management had also faltered in doing its job honestly. It had grown complacent and was switching from job to job, which meant poor coordination among various departments. This was ultimately also turned into a strength by giving the company a viable corporate culture, under the leadership of Philip Knight and then Tom Clark.

Opportunities

The biggest opportunity for Nike lies in the international competition that it faces. This competition will open up new markets and provide Nike with a completely new and vast target audience to cater to. This will widen the capacity in which sales can increase. Moreover, China was given the MFN (Most Favored Nation) status by President Bill Clinton in 1997. Because China is a major source of footwear production, it is important for athletic shoe companies that MFN status for China continues. Furthermore, NAFTA and GATT will allow better access to world trade for Nike. And the opportunity of the vast market, ready to be exploited for the best prices in manufacturing contracts, can be well exploited by Nike if it wants to keep its manufacturing cost low.

Threats

The biggest threat for Nike lies in the fact that there have been observations regarding the changes in consumer demand. It has been seen that the demand for branded athletic shoes is decreasing whereas people now prefer moderately priced casual shoes or sandals or work boots over what Nike sells. Nike will have to overcome this threat by arousing the feeling of desire for its products among its potential target audience. Moreover, the increase in competition can even pose a threat to Nike. This price war or market share war is not necessarily Nike’s win every time. At times it might lose and that is when international competition becomes a threat. Furthermore, many eastern companies are moving towards technological innovation in footwear. Nike has got to realize that now it has competition at home as well as abroad when it comes to innovation via technology.

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Long Term Objectives

  • Making a few acquisitions that will strengthen the company’s core business.
  • To make the company’s worth 15 billion by the year 2010.

Strategy Analysis and Choice

Generic Strategy

Michael porter in 1980 gave three various generic strategies which can be used by organizations if they want to be sustainable in capturing the market share and keeping their products at an edge over others. (David, 2005) The three various strategies are:

  1. Cost leadership
  2. Differentiation
  3. Focus or niche strategy

But when it comes to Nike, it aims to have differentiation as its generic strategy. Having the differentiation strategy is important for Nike, since it invests heavily in the Research & Development of the company, and produces innovative products for the greater convenience and comfort of its target market.

Grand strategy

Grand strategy is the plan which the company aims to generally follow to achieve its long-term goals. (Hill, 2006) Defining a grand strategy for Nike is essential since it is embarking on one of its long-term, strategic plans. There are three types of grand strategies:

  1. Growth
  2. Stability
  3. Retrenchment

Nike will be focusing on the grand strategy of Growth. It will be aiming to make more acquisitions of forwarding and backward linkages of the supply chain and it also wants to increase its sales by reaching out to more sports lovers.

Integration Strategies

  • Backward Integration: Nike pursues the backward integration strategy by trying to seek increased control over suppliers. It bought Tetra plastics who were the suppliers of the plastic films found in Nike’s air sole shoes.
  • Forward Integration: Nike has even gained ownership over its distributors. It purchased the distribution operations of many of its worldwide distributors in an attempt to control the marketing of Nike products. Nike even consolidated the operations of 31 distribution centers in the European Union into one distribution center in Belgium.

Intensive Strategies

  • Market Penetration: Nike has always tried to increase its market share for present products and services in present markets through greater marketing efforts. It has spent billions of dollars hiring celebrities to be ambassadors for its products. Moreover, unique advertising concepts and ideas are tried to be broadcasted via advertisements. For instance, it spent $30 million for advertising and sponsoring individual athletes and teams during the 1996 Olympics to gain increased market share.
  • Market Development: Nike’s vision is to become a truly global company and extend its sales internationally. It is always endeavoring to introduce its products in new geographic areas. With its sales now across 110 countries in six continents, Nike is fast becoming global. Olympics in various countries presents Nike with the opportunity to gain market share internationally.
  • Product Development: Nike has always focused attention on innovation and spending money on Research and Development, which lets it improve its present products and developing better ones. Nike spent $73.2 million on product research, development and evaluation. Groups have been created which design shoes suited for need five years in the future and a new design is launched in the market every few days.

Diversification Strategies

  • Concentric Diversification: Nike has been the leader of innovation for the past 30 years. Nike believes that as human potential evolves, so must our products. Therefore, it keeps on designing new shoes for all sorts of athletes engaged in all sorts of sports. This addition of new, but related products to the product catalog of Nike is concentric. Apart from its R&D in making products, Nike also acquired Canstar Sports Inc. which manufactures in-line roller skates, ice skates, and blades, etc.
  • Conglomerate Diversification: Nike takes diversity to another level by adding new, but unrelated products to its product line. This shows the vast breadth of Nike products. In an attempt to practice the conglomerate diversification strategy, Nike acquired Cole Haan Accessories Company in 1990, which is a distributor of high-quality belts, braces, and small leather goods. This is a different category of products when compared to footwear.

Plan Goals and Implementation

For a company like Nike, which has mentioned that it aims to have a diverse workforce working for it, leadership can come from any part of the organization. It believes in the fact that whenever a certain employee is given leadership of a certain task, he is being given the chance to be able to create a better and bright future. (Lamb, 1984) Leadership in a company like Nike does not lie and depends only on the senior management or the senior executives. It lies with every employee. Thus, such leadership and autonomy with every employee define the culture of Nike.

Critical Success Factors

The critical success factors in any organization are those factors whose presence is necessary within the company if it is to achieve the mission that it has. (Saloner, 2001) For now, Nike has a strategic plan of around 3 years, and thus, completing the plan would not be possible without these factors:

  • Money: the company aims to have 15 billion-dollar sales by the year 2010
  • Future: the company wants to acquire many other chains in its supply chain to have maximum flexibility in operations
  • Customer satisfaction: the company is investing heavily in R&D, so that new innovation can be brought to the customer
  • Quality: Nike aims to grow its sales based on good quality only. Advertising, sponsoring are just the peripherals to get Nike noticed. A sustained increase in sales will only be possible if the investment is made into quality.
  • Product development: Nike has come a long way. Even the logo has revolutionized over the years. Thus, Nike has developed as a product, as a company. More acquisitions and thus more sales will help the company grow further.

Controls and Evaluation

As far as controls and evaluation are concerned, the company Nike has an Audit Committee, which will be doing its job concerning the internal controls of the company. the job will also be under the Board of Directors of Nike, but since there can always be some biasness on their part, so the Audit Committee has been made which will have a non-biased approach towards the control process. (Goldman, 2000).

Evaluation of the strategic plan will be made every quarter. There are two goals for each of the three years. And on every quarter of one financial year, the evaluation will be performed on how much the goals have been achieved. This evaluation can be measured in terms of sales or the number of contracts signed with other companies for acquisitions or the number of new products which are being worked upon in the R&D Department.

Conclusion

To conclude, Nike has been a very leading company in the athletic footwear market. It has always given tough competition to its rivals Adidas and by the year 2000, Nike had almost double the market share as compared to Adidas. Such market share is non-sustainable unless heavy investment is made to satisfy the customers and keep sales stable, if not increasing. Such goals can only be fulfilled if thorough strategic plans are made and then worked upon.

References

David, F. (2005) Strategic Management: Concepts. Prentice-Hall.

Goldman, R. (2000) Nike Culture the Sign of the Swoosh. SAGE.

Hill, C. (2006) Strategic Management: An Integrated Approach. Houghton Mifflin.

Saloner, G. (2001) Strategic Management. John Wiley.

Lamb, R. (1984) Competitive Strategic Management. Prentice-Hall.

Scott, C. (1993) Organizational Vision, Values and Mission: Building the Organization of Tomorrow. Thomson Crisp Learning.

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