Nike's open innovation strategy and competitive advantage

Nike's Open Innovation Strategy

Nike Innovation Strategy

The following pages focus on presenting the open innovation strategy developed by Nike. The introduction describes the point-of-view that is used in this case. The Open Innovation Strategy section presents important facts about open innovation. The Company Presentation section presents important facts about Nike. The Nike's Open Innovation Strategy section describes Nike's innovation strategy, its advantages and disadvantages. The Conclusions section presents some of the most important issues addressed by the paper.

The requirements of the business environment characterized by increased levels of competition determine companies to develop innovative strategies that can help them create competitive advantage. It has been observed that the most successful companies rely on investments in their research and development process that can help them improve their products and services. In other words, they invest in innovation.

Some of these companies prefer to be the leaders in this process and develop innovative products and services that can ensure the leadership position in their business sector. This allows them to have an important advantage in comparison with their competitors. The strategy based on developing innovative products helps these companies establish the rules in their business activity. This refers to influencing the price levels in the case of those products and services. As a consequence, competitors must establish their prices in accordance with the prices of innovators. Such companies also have the ability to establish the quality standards in their industries. This situation determines competitors to invest in developing products that can reach these quality standards. Therefore, these companies invest in innovation because it helps them develop a leadership position.

There are also companies that prefer to address the technological developments made by other companies instead of producing innovation. This is because this strategy requires smaller costs. These reduced production costs allow these companies to establish smaller prices in the case of their products and services. However, the advantages of this strategy are smaller in comparison with those determined by the strategy based on innovation.

Open Innovation Strategy

There are different types of innovation. Open innovation refers to the fact that companies can collaborate with their competitors in their attempt to innovate. This means that they share the risks determined by the innovation process, the investments in it, but also the benefits of innovation (Chesbrough, 2006). The system based on open innovation is favored by the relationships between companies and their business environment that allow them to easier transfer information.

Strategies based on open innovation rely on the fact that the business environment, the necessities determined by customers' needs and preferences require that companies do not focus only on the internal research and development process, but they also use processes, inventions, and patents developed by other companies. This means that companies that do not use their inventions should sell them to companies that require such innovations. This refers to distributing information within the business environment.

It is important to understand the necessity of innovation, and what factors determined companies to invest in this process (Chesbrough, 2006). It seems that the reason behind the process on innovation relies on the fact that the conditions of the business environment did not allow companies to benefit from the research studies developed by universities because of their reduced applicability. Therefore, these companies had to develop their research and development departments that allowed them to develop the products and services needed by customers.

Open innovation is influenced by a series of factors. Such a factor is represented by the increased availability and mobility of skilled workforce. This helps companies benefit from cheaper workforce that they can use in order to reduce their production costs and their prices. Another factor is represented by the increased capital market. Because of increased capital levels, companies can make important investments in their research and development process.

The process of open innovation is also determined by the possibility of purchasing innovation. Companies that have the financial resources that are necessary in such cases can purchase patents and inventions developed by other companies, which they can use in order to improve their products. In addition to this, the open innovation process is influenced by the increasing capability of company that usually produce patents. Such companies sell their inventions and patents to other companies.

Company Presentation

Nike is one of the most important producers of clothing, footwear, sportswear, and equipment in the U.S. The company was established in 1964. The company's success on the market can be attributed to the strategy developed by Nike. It seems that this strategy is based on innovation. This refers to the company's marketing strategy, but also to the production activity. Therefore, the company has identified the advantages of sponsorship in sports and has benefitted from endorsing important players in most sports (Nike, 2012). The production activity benefits from innovation of the improved materials used by the company in the production of its sports equipment. This helps the company improve the working conditions in its plants. This situation also improves the image that Nike has on international level, and reveals its interest in corporate social responsibility.

Nike's Open Innovation Strategy

Nike is one of the most important companies that have developed strategies based on open innovation. The success of this type of strategy reveals its importance to companies that want to create competitive advantage. Therefore, the strategy of Nike must be applied by other companies that have similar objectives.

The company uses numerous types of materials in its production process. Nike found out that some of the solvents used in the production of the company's shoes are toxic. This required that workers involved in the production process had to wear equipment that protected them from these solvents. Therefore, Nike developed the protection equipment and requested workers to use it. But not all workers did this. Some of them preferred not to wear this equipment.

In order to ensure the protection and safety of its workers, there were several strategies that Nike could follow. The company could increase the monitoring of the production process in order to observe workers that do not wear the protection equipment and to determine them to wear. Another strategy was to produce a harmless solvent. Therefore, the company's managers decided that making harmless solvents was the most suitable strategy in this case. The company developed this type of solvent and allowed its competitors to have access to the recipe.

The company's orientation towards open innovation is revealed by the GreenXchange program (the GreenXchange, 2012). This program refers to companies sharing intellectual property for green product design. Nike and Best Buy are some of the most important companies in this program (Lau, 2009). The objective of GreenXchange is for companies to share their progress regarding research, innovation, and design with other members of the program. In addition to this, the program ensures that certain patents are available to the public (Tapscott, 2010).

Some might consider that such a strategy based on sharing important information on product innovation can lead to helping competitors improve their position, becoming a threat to companies like Nike. In order to clarify the fact that open innovation does not determine such threats from competition, GreenXchange considers that green innovations can be shared with companies from different industries and with different purposes than those of Nike.

Open Innovation Disadvantages

The strategy based on open innovation presents numerous advantages. However, there are also certain disadvantages that must be taken into consideration. Such a disadvantage is represented by the fact that open innovation is not suitable for all companies. Smaller companies seem to be favored by open innovation because they can benefit from important inventions and pattern developed by other companies. The fact that they invest less in their research and development process because they purchase patents from other companies makes them important competitors of larger companies like Nike.

This means that Nike is somewhat threatened by smaller companies that benefit from the same innovation that Nike uses. Therefore, it is important that Nike carefully selects the innovation process that wants to be used in its open innovation strategy (Schroll, 2009). The company's objective is not represented by helping other companies, but by improving its innovation processes in order to improve its business (QuickMBA, 2010).

The fact that Nike uses open innovation can help competitors improve their production process, which leads to reduced prices of their products and services. This increases competition in this business sector. Therefore, it is recommended that Nike reduces the open innovation issues that are communicated with its competitors.

Conclusions

It is important that companies understand what innovation is, how it can be used, and how competitors must be viewed from this point-of-view. Some companies focus on open innovation, while others prefer closed innovation. It is important that companies establish which type of innovation works best in their case. There are numerous advantages associated with open innovation. There is an important relationship between open innovation and corporate social responsibility.

Open innovation helps reduce the risks of the research and development process. The costs associated with this process are reduced in the case of companies that prefer open innovation. Nike is one of the companies that have developed an open innovation strategy and that are successful at it. This strategy leads to establishing high quality standards in this industry. This favors the company, its employees, and its customers. Therefore, it is important that the company develops an open innovation strategy that can improve its efficiency and productivity.

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