Nike's founding vision, strategic innovation, and global growth

Nike's Strategic And Financial Position Analysis

Nike is a globally recognized multinational corporation founded by the Stanford Graduate School of Business graduate, Phil Knight, and Bill Bowerman who was the track and field coach at the University of Oregon. The two appear to be a natural fit as each hailed from a background that would appreciate the underlying design that goes into creating a quality running shoe.

Nike's global operations in aggregate employ a number greater than 30,000 employees throughout a range of services and job functions. A fraction of that aggregate is employed at the company headquarters in Beaverton, Oregon. According to www.nikebiz.com, "Nike employes more than 36,000 people globally. Our Nike World Headquarters located in Beaverton, Oregon is home to more than 7,000 employees. For the fiscal year ending May 31, 2010, we reported revenues of $19.0 billion." (www.nikebiz.com/company_overview/facts.html)

The Nike Mission Statement

"To bring inspiration and innovation to ever athlete in the world. If you have a body, you are an athlete." -- Bill Bowerman

According to www.nikebiz.com, "Bill Bowerman was a nationally respected track and field coach at the University of Oregon, who was constantly seeking ways to give his athletes a competitive advantage. He experimented with different track surfaces, re-hydration drinks and most importantly -- innovations in running shoes. But the established footwear manufacturers of the 1950s ignored the ideas he tried to offer them, so Bowerman began cobbling shoes for his runners." (www.nikebiz.com/company_overview/history/1950s.html)

The mission statement is clearly reflective of Bowerman's past as a track & field coach. This innate ability to see the athlete in all humans is what came naturally to Bowerman. To see an ability where others would consider no ability exists, or perhaps not as much as what Bowerman sees. Tiger Woods is an example of the talent Bowerman saw in an unproven individual prior to Tiger's opportunity to 'wow' the world in his first Masters Tournament.

Additionally, according to www.nikebiz.com, "Phil Knight was a talented middle-distance runner from Portland, who enrolled at Oregon in the fall of 1955 and competed for Bowerman's track program. Upon graduating from Oregon, Knight earned his MBA in finance from Stanford University, where he wrote a paper that proposed quality running shoes could be manufactured in Japan that would compete with more established German brands." (www.nikebiz.com/company_overview/history/1950s.html)

In accordance to the mission statement, the background of Knight and Bowerman would be critical to the emergence and subsequent dominance of the Nike brand in the running shoe industry. The sneaker design set Nike apart early on to the point where a brilliant marketing scheme would catapult the brand beyond the popular Converse and Puma brands.

The strategy of Nike ostensibly may be summed up on one word, innovation. Nike's inherent success is attributable to its ability to innovate at every corner to create a strategic advantage between its operations and that of the competition. Although some of its innovative ideas and advertising promotions did not work to the successes of previous ideas, the Nike strategy remained geared toward innovation.

According to www.nikebiz.com, "Innovation is at the heart of NIKE, Inc.'s business growth strategy. Our relentless focus to be better helps us create the world's most innovative products for consumers across the globe. This same philosophy and determination is driving change in how we approach corporate responsibility in today's marketplace. Years ago, when we started working to improve the labor, environmental and social impacts of our business model, we were largely driven by a need to manage risk. Today, our corporate responsibility approach has evolved from focusing on risk management, philanthropy and compliance to one that utilizes our natural focus on innovation to transition NIKE, Inc. into a business that is more sustainable, by which we mean that it brings people, planet and profits into balance for lasting success." (www.nikebiz.com/crreport/content/strategy/2-1-1-corporate-responsibility-strategy-overview.php?cat=cr-strategy)

Additionally, according to www.nikebiz.com, "To fulfill these demands, we must succeed in a world where natural and human resources are constrained. In the future, issues ranging from peaking oil prices, climate change mitigation and population growth to the decreasing availability of natural resources could impact our consumers and our business. As the world moves to a low-carbon economy, we see potential impact to labor forces, working conditions, communities, development, youth, sport, supply chains, products and more." (www.nikebiz.com/crreport/content/strategy/2-1-1corporate-responsibility-strategy-overview.php?cat=cr-strategy)

Nike has "defined three core strategic questions." (www.nikebiz.com/crreport/content/strategy/2-1-2-changing-world-urgent-challenges.php?cat=cr-strategy These three questions are provided below.

1.) What new business concepts could enable NIKE, Inc. To thrive in a sustainable economy?

2.) How do we create a road map for evolving to a future state and solve the challenges preventing us from getting there?

3.) How do we continue to evolve and improve our current model during the transition?

Ideas such as clean running and efficiently operating factories that harness renewable energy resources to generate power not only for their facility, but for the surrounding community perhaps provides the most 'bang for the buck' in terms of investment and the creation of Goodwill.

According to Sroufe, Liebowitz & Sivasubramaniam (2010), "One of the biggest blunders in leading change toward sustainability is the failure to institutionalize sustainability within the firm (Doppelt, 2003). If the internal policies and practices are inconsistent with the needed sustainability culture, "the risks are high that old thinking and behavioral patterns will eventually rise up and overwhelm efforts to adopt more environmentally and socially responsible paths" (Doppelt, 2003, p. 36). We recommend an active and early role for HR to help create the systems and processes (for example, selection, training and reward systems) to reinforce the wide range off sustainability initiatives and institutionalize the change." (Sroufe, Liebowitz, Sivasurbamaniam, 2010)

A road map for the organization to facilitate a future state for the organization is inherently challenged by its access to resources and to human capital that can propel the organization forward to achieve its goals. Nike seeks to establish a rather ubiquitous goal of inspiring and innovation to every 'athlete' around the world. Therefore, the idea is that every human on the planet must have a pair of Nikes.

During the transition to this future state of enabling the future athlete by providing free or low cost sneakers to populations that would normally not be able to afford a pair of the relatively expensive sneaker, Nike is likely to increase R&D expenditure relative to the new markets to which further sustainability and market engagement is occurring. The evolution and improvement of the current business model is a function of the inputs received from the external environment to the organization.

Nike's strategy and impact in future affairs is an indirect function of the company history as written by Knight and Bowerman. Nike was originally and officially named Blue Ribbon Sports as this was the company that originally sold the first orders of the brand of Knight and Bowerman. According to www.nikebiz.com, "They shook hands to form Blue Ribbon Sports, pledged $500 each and placed their first order of 300 pairs of shoes in January 1964. Knight sol the shoes out of the trunk of his green Plymouth Valiant, while Bowerman began ripping apart Tiger shoes to see how he could make them lighter and better, and enlisted his University of Oregon runners to wear-test his creations. In essence, the foundation for what would become Nike had been established." (www.nikebiz.com/company_overview/history/1960s.html)

The beginnings of the company essentially led to what later became known as Nike. The pair of Knight and Bowerman wanted to move beyond distributorship to create their own brand. According to www.nikebiz.com, "They selected a brand mark today known internationally as the "Swoosh," which was created by a graphic design student at Portland State University named Carolyn Davidson. The new Nike line of footwear debuted in 1972, in time for the U.S. Track & Field Trials, which were held in Eugene, Ore." (www.nikebiz.com/company_overview/history/1970s.html)

Indeed, the famed 'Swoosh' was not an original idea of the founders. This is important as many businesses whose founders profited from the venture had a direct idea with regard to a logo or a methodology of performing an operation that led to the highly profitable business model. The focus on the performance of the athletic shoe was an important innovation to the founding group that is a function of understanding the needs of various types of athletes and the type of athletic footwear the athlete do require.

By the 1980s, the company had espoused itself as a formidable presence in the athletic shoe market. According to www.nikebiz.com, "Nike entered the 1980s on a roll, thanks to the successful launch of Nike Air technology in the Tailwind running shoe in 1979. By the end of 1980, Nike completed its IPO and became a publicly traded company. This began a period of transition, where several of Nike's early pioneers decided to move on to other pursuits. Even Phil Knight stepped down as president for more than a year in 1983-1984, although the remained the chairman of the board and CEO." (www.nikebiz.com/company_overview/history/1980s.html)

The obvious success of the Nike brand was still in a nascent phase of its eventual peak within its cycle of growth, peak, and trough. According to www.nikebiz.com, "By the mid-1980s, Nike had slipped from its position as the industry leader. In part because the company had badly miscalculated on the aerobics boom, giving upstart competitors an almost completely open field to develop the business. Fortunately, the debut of a new signature shoe for an NBA rookie by the name of Michael Jordan in 1985 helped bolster Nike's bottom line." (www.nikebiz.com/company_overview/history/1980s.html)

The decision to incorporate Michael Jordan with the branding of Nike was a brilliant multi-billion dollar move that worked out to be perhaps the biggest single signing, risk adjusted, in the history of athlete advertising. Nike also made additional moves that facilitated a rebound from a lackluster commencement to the decade.

According to www.nikebiz.com, "In, 1987, Nike readied a major product and marketing campaign designed to regain the industry lead and differentiate Nike from its competitors. The focal point was the Air Max, the first Nike footwear to feature Nike Air bags that were visible. The campaign was supported by a memorable TV ad whose soundtrack was the original Beatles' recording of 'Revolution'." (www.nikebiz.com/company_overview/history/1980s.html)

Additionally, according to www.nikebiz.com, "In 1989, Nike's cross-training business exploded, thanks in part to the incredibly popular "Bo knows" ad campaign. By the end of the decade, Nike had regained its position as the industry leader, the first and only time a company in the athletic footwear/apparel industry has accomplished such a feat. Nike has never relinquished that position again." (www.nikebiz.com/company_overview/history/1980s.html)

The 1990s ushered in a new era of promise for Nike to locate and sign the next big athlete. Bike did sign players from the Brazilian National Team however no signing within the decade would be as significant as the signing that took place in 1996. Although not yet a prominent figure, Nike was able to visualize a future with the young talent and took a risk of signing the golfer to a whopping $5 million per year.

According to www.nikebiz.com, "In 1996, Nike Golf landed a vastly talented but as-yet-unproven young golfer named Eldrick "Tiger" Woods for a reported $5 million per year. Competitors laughed and critics howled at Nike's 'folly,' until Tiger won the 1997 Masters by a record 12 strokes. No one is laughing now." (www.nikebiz.com/company_overview/history/1990s.html)

Additionally, "Nike also began investing in the sport of cycling, including a promising young cyclist who appeared to be on his way to success until he was diagnosed with cancer. He lost most of his sponsors, but Nike elected to stay with him. In 1999, Lance Armstrong's incredible comeback resulted in the first of what would be seven consecutive Tour de France titles." (www.nikebiz.com/company_overview/history/1990s.html)

The cognition and signing of Lance Armstrong was another innovative marketing move to bring in new and younger audiences to the Nike brand. The relative popularity of the brand among cyclists ostensibly was not there and therefore Lance Armstrong was a bold addition to the list of Nike athletes. Nike's fortune has mostly resided in their ability to realize the most profound and driven athletes whom are capable of withstanding tribulation to the point of accentuating the level of resolve and grit that has become synonymous with the character displayed in the Nike commercials.

Industry

Nike competes in a broad and highly varied athletic footwear and athletic clothing industry with an oligopoly of major competition. Although there are many choices in athletic equipment, Nike faces its formidable competition from brands that include, Reebok, Adidas, And1, Asics, Converse, Crocs, and Heelys

. The most competitive opponent is now the Reebok/Adidas brand as the two entities have now formed one monolith to compete against Nike. Additionally, New Balance Athletic Shoe and PUMA are the second and third largest companies in market share that compete against Nike

Nike's markets are global in reach and in diversification. The company product offerings range from athletic clothing, gear, and equipment to its hallmark line of athletic shoes and accessories. The product line has changed over the years however the popular Jordan sneaker has remained as well as many new additions has emerged as favorites among the Nike enthusiast. The graphic below shows the areas in the global market to where Nike is active with manufacturing and sales.

Source: http://www.nikebiz.com/crreport/content/workers-and-factories/3-2-1-profile-of-factories.php?cat=profiles

One can see by reviewing the chart that Nike Apparel sole in south Asia is the largest revenue generator and is important to sustain and grow the revenue base for Nike in the future. South Asia had in fact decreased notably from its preceding year and may encounter future decreases as a function of time. Should the decreases continue the level of market share is likely to decrease in south Asia as well which will negatively impact revenue.

Plan of Action

Nike has a number of viable alternatives available. When considering Nike has 15 billion in current assets, the level of opportunity to invest in new ventures creates a strategic opportunity that rival firms do not have due to the lack of size in the industry. When these factors are aggregated and analyzed based on the underlying growth rate of the competitors against the current growth rate of Nike and Nike's assets, the notion of acquisition becomes clear.

For Nike to have an opportunity to obtain the market share that companies such as K-Swiss and Crocs are aggregating, Nike is best suited to purchase these companies via acquisition rather than compete via creating and facilitating a new product line. Therefore the most profitable and sustainable business move for Nike is to purchase either Crocs, or Adidas.

The revenue growth model for Crocs is unsurpassed given its niche brand and relatively inelastic demand curve. Additionally, Crocs are relatively inexpensive to other forms of footwear on the market, such as sandals. Crocs appear to have a following with an underlying demographic and can still infiltrate the market that consistently purchase and wear sandals.

The probability for success in obtaining Crocs is high. When considering the level of growth the company has experienced over its most recent operating year, the investment opportunity in Crocs becomes evident. However if Nike wishes to spend more, the more attractive offering is in Adidas or K-Swiss. Adidas has never relented major market share and has stood the test of time. The company still has strong market share and strong financial ratios that tell a story of strong management and an innovative team of research and developers.

The probability for success in acquiring Adidas and earning revenue on the deal is estimated as a function of Nike's current stock price, the drop in stock price in acquiring Adidas, the rise in stock price for Adidas after acquisition, and the ability for Adidas to generate growth and sales revenue to offset the premium Nike had to pay to acquire Adidas.

As Nike must pay more to acquire Adidas when compared to Crocs or K-Swiss, the ability for Adidas to generate revenue to offset the purchase price is a longer time to maturity over K-Swiss and Crocs. Crocs has a very high growth rate and is trading at a high price to earnings ratio and so acquiring Crocs is relatively expensive when compared to Adidas and K-Swiss.

The risk is inherently greater in acquiring Crocs considering its narrow product line and the potential for a market competitor to enter the market and take away market share from Crocs. Additionally, Crocs may fall out of favor with the consumer similar to many fad and trendy fashion items have in the past.

The most intelligible acquisition is therefore Adidas or K-Swiss. It is recommended that Nike take a strong look at Adidas and potentially K-Swiss. K-Swiss is inherently less or a risk as this brand can overtake Adidas if properly managed with a requisite strategy. Whether K-Swiss can take over Adidas is a function of the assets behind the brand as the brand is prime for a major move in the market place.

The strategic future plan for Nike is to use its assets to purchase clothing lines that have strong financials and a well-defined target market such as FUBU. The long-term plan is to facilitate growth in assets and to create new streams of cash flow relative to expenditures to increase revenues. The FUBU brand along with Tommy Hilfiger address the apparel situation with Nike as there is some concerns with regard to growth in this area. Tommy Hilfiger does operate with large profit margins and therefore represents a tremendous opportunity for Nike to supplement its current apparel offerings.

The trend of the weightless or flat yet supportive shoe is the wave of the future. As athletes are looking to become faster and gain any advantage possibly, Nike may start designing and manufacturing sneakers that are thin in material and light yet durable. The flat shoes are being produced as running sneakers however, the market appears to have these shoes as accessories to new trendy outfits. Staying competitive is a function of being able to identify opportunities and utilize the strengths. As Nike is able to buy up the competition and create more innovative and attractive clothing/sneakers, the market share will grow as a function of new sales.