Nike Knowledge Management: Strategy, Strengths, and Gaps

Introduction

Nike (NYSE: NKE) has successfully transformed knowledge management (KM) into a significant competitive advantage by creating an organizational culture that seeks to interpret, use, and embed intelligence quickly across every strategic area. Nike is unique in that it has created an organizational ecosystem that learns over time, comparable in scope and function to the Toyota Production System (Dyer & Nobeoka, 2000). Due to their focus on KM, Nike has been able to successfully transition away from competing purely on price or products and is now competing with knowledge.

The intent of this paper is to analyze how Nike has been able to successfully use KM to turn the company into a learning organization and to identify the company's best practices. The areas requiring process improvement are also analyzed, as is the future direction of Nike globally based on their KM expertise and ability to turn knowledge into competitive advantage. The specific strategies the company needs to pursue from a KM standpoint are examined, as is the use of KM models relative to leadership strengths. Nike's transformation into a learning organization continues to be a catalyst of innovation, market growth, and the ability to manage relationships throughout its value chains.

Assessing Knowledge Management at Nike

The transformation of knowledge from a functionally defined and often siloed resource into a strategic competitive force is a defining characteristic of Nike's organizational development. Too often, organizations allow their knowledge to remain siloed, leading to political infighting and an inability to execute strategies company-wide (Senge, Lichtenstein, Kaeufer, Bradbury, & Carroll, 2007). What emerges from a study of Nike instead is a heavy reliance on informally structured teams known for their exceptional work ethic and passion for results (Stonehouse & Minocha, 2008).

Nike's success in creating a learning organization begins with a strong foundation of trust within and between teams. Creating a high level of trust across functional teams is critically important for establishing the conditions necessary for a learning organization (Dyer & Nobeoka, 2000). In a high-trust environment, work moves faster because there is no need to double-check motivations or insist on validation of direction — cross-checking is assumed unnecessary. Trust as a mechanism for freely sharing information to enrich individuals and teams is also a key characteristic of a learning organization (Collins, 2003).

In the Toyota Production System, the use of techniques to build trust across suppliers — considered unthinkable in the American auto industry — is standard practice in the Japanese auto industry to develop lines of communication and speed of response (Dyer & Nobeoka, 2000). No learning organization is perfect, as demonstrated by Toyota's own product recalls. However, having a learning organization is a strong catalyst for overcoming major disruptions to production and quality, as Toyota's experience has shown. Without a strong learning organization, Toyota would have been even more severely impacted by the implications of its recalls.

Like Toyota, Nike has created a culture that actively rewards and encourages the sharing of information and knowledge across functional and departmental boundaries (Stonehouse & Minocha, 2008). This ethic of information sharing is itself a catalyst of trust and makes processes — from the simplest to the most complex — more scalable and responsive to market conditions. While Nike and Toyota have entirely different organizational structures, their shared insistence on trust as the primary catalyst for turning knowledge into competitive advantage is comparable, as demonstrated by studies of both organizations (Dyer & Nobeoka, 2000; Stonehouse & Minocha, 2008).

Nike's organizational structures are built specifically to enable better cross-sharing of information and knowledge over time. While Nike initially organized its KM strategies by functional area — with design and development as the primary focus (Stonehouse & Minocha, 2008) — the company quickly developed a capacity for managing customer information and insights about customer preferences that few other companies have attained (Tsai, 2006; Stonehouse & Minocha, 2008). Customer insights research, including ethnography and intensive use of demographic and psychographic data, forms part of the baseline for each new product development project and eventual product launch (Rayport, 2005).

What emerges from a study of Nike's KM strategies is that marketing, sales, design and development, and finance are all intertwined to create a knowledge ecosystem that continuously regenerates itself based on inbound knowledge and insights. This regenerative aspect of the Nike KM system (Stonehouse & Minocha, 2008) is driven by the levels of trust that individuals and teams have with each other, combined with a work ethic and passion for results grounded in the belief that Nike is the innovation leader in its chosen markets.

The supply chain presents a starkly different picture. Strong internal trust and a well-functioning learning organization internally can coexist with significant breakdown when the organization faces the challenge of recruiting suppliers who must meet progressively more aggressive pricing structures. Communication, shared learning, and trust frequently break down under such conditions. This has been the case with Nike's supply chain. Ethics violations stemming from sourcing products from unethical suppliers (Kanter, 2008) prompted Nike to place a strong emphasis on creating a more compliant and socially responsible supply chain. Ironically, the heavy costs of achieving compliance with corporate social responsibility (CSR) initiatives have helped Nike bring better KM practices into its supply chains (Tsai, 2006). Nike has since concentrated on developing supply chain audit and management systems with the specific goal of increasing knowledge transfer and developing more efficient communication and collaboration (Sridharan, Caines, & Patterson, 2005), including the creation of a closed-loop supply chain to manage the increased supplier audit and compliance processes (Kumar & Malegeant, 2006).

Cultural diversity across the supply chain has further complicated knowledge management. Nike relies on suppliers throughout the BRIC nations (Brazil, Russia, India, and China), with heavy emphasis on Brazil and China (Stonehouse & Minocha, 2008). These cultures have significantly different approaches to knowledge management compared to the United States, particularly in the areas of collaboration and transparency — two areas shown to be critically important by studies of the Toyota Production System (Dyer & Nobeoka, 2000). The resulting lack of knowledge transfer with these suppliers, compounded by intensive requirements for ethical compliance, has made supplier partnerships in these regions strained and distanced, further limiting knowledge transfer (Stonehouse & Minocha, 2008). This lack of effective knowledge transfer within the supply chain poses a long-term ethical and CSR risk to the company if left unresolved (Boje & Khan, 2009).

Distribution channels represent a fifth area where Nike both excels and struggles. On the positive side, Nike effectively captures tacit and implicit knowledge to streamline channel management strategies through experience with global distribution partners, including mass merchandisers (Stonehouse & Minocha, 2008). In contrast, Nike struggles at the retail level. Turnover rates at shoe retailers, including Nike's own channels, hover between 100% and 400%, making sales associate training a constant and difficult challenge (Sweeney, 2004). This problem is compounded by the rapid pace of Nike's product lifecycles, the customization options available through its NikeID program, and the wide breadth of sports categories for which Nike manufactures shoes and accessories (Stonehouse & Minocha, 2008).

Nike has found that insufficient training for retail salespeople can reduce revenues by 30% or more during any given new product introduction (Sweeney, 2004). In response, Nike has focused on automating knowledge management processes for retail locations through an online training portal (Sweeney, 2004). The effectiveness of this program, however, has been mixed due to the sheer volume of retail turnover. As is the case with many manufacturers relying on retail channels, achieving consistent knowledge management through those channels has proven problematic over time (Higon et al., 2010).

Defining an Enterprise Knowledge Management Framework

Developing a knowledge management framework for Nike must account for the process areas where the company already excels — innovation, new product development, advertising, branding, and marketing — while acknowledging its struggles in supply chain management and retail operations. Defining a KM model must also address the need to manage cultural change effectively (Hernandez-Mogollon, Cepeda-Carrion, Cegarra-Navarro, & Leal-Millan, 2010).

For Nike to succeed, the framework must blend content management, collaboration, navigation, and search and retrieval at the foundational level. Supporting infrastructure should include security and audit controls, records management, and Business Process Management (BPM). This sets a scalable platform in place to support learning management, collaboration suites, and expert networks across Nike. Structuring a network this way enables change management at the collaboration level — one of Nike's greatest existing cultural strengths — with the goal of propagating that strength across supply chain and retail networks.

The proposed KM framework capitalizes on the tacit knowledge generated across research and development and shows how that knowledge is shared across marketing and finance to create an expert network. Nike's emergence as a learning organization is attributable to precisely this kind of expert network at the application layer. Conversely, the areas of internal weakness require greater records management and audit controls (in the case of the supply chain) and more effective learning systems specifically aimed at retail operations and knowledge transfer to retail stores.

Nike has also invested heavily in technology to support its KM strategies. The investment in i2 Demand Planner software for supply chain management initially created even greater confusion, as the company had not sufficiently refined its supply chain KM processes before automating them (Barrett, 2003). A similar pattern emerged with knowledge transfer systems for retailer training (Sweeney, 2004). Nike has historically taken a process-driven approach heavily supported by technology, validating new technologies extensively before deployment.

Conclusion

In assessing knowledge management at Nike, the strengths inherent in their culture and the high value placed on tacit and implicit knowledge sharing are reflected in how well integrated new product development, innovation, marketing, and supply chain management are at the corporate level. Yet the company falters in supply chain knowledge management and knowledge transfer into retail channels. These two areas of greatest weakness require a redefinition of how the company's enterprise knowledge management (EKM) strategy is managed, specifically in the area of knowledge transfer.