Critically examine the main drivers of Nike’s growth. Critically appraise the strategic approach, and propose strategic options to sustain their growth.
Analyse their strategic choices with their options- why they made the choices that they did and recommendations. Has their strategic focus changed?
Look for critical success factors, matches and mismatches. Identify any key areas that have affected Nike.
Look at tools of analysis e.g. swot analysis, pestle, value chain, porter’s 5 forces, shareholder matrix, resource view, 4 p’s, BCG matrix.etc and others to come to your answer.
Introduction
Nike operates within the sports footwear and apparel market. Originally designing and producing running shoes, their portfolio has broadened to include a wide range of sports and leisure wear. This is all endorsed by top sporting personalities.
This environment is fairly stable although terrorism and Sars has affected consumer confidence and supply networks.
Mission Statement
In its mission statement Nike expresses that it requires doing business in a responsible way, leading to sustainable financial growth. With the advances in technology, HR practices, the well informed and trained work force, there is very little left to differentiate organisations. Being seen to go further than the minimum required on social issues can attract and retain customers. This green cleansing attracts attention to the organisation; they are viewed as caring and social responsible (Mullins, L. 2005).
A report, on the business practices of Nike through its supply chain accused the organisation of being involved in poor working conditions, violations of labour rights, low wages and harassment of its workforce. Nike takes these reports seriously. On the basis of the research findings the company has intensified the monitoring of its suppliers (Hummels, H and Timmer, D.2004)
| Past options | To build its business with all of its partners based on trust, teamwork, honesty and mutual respect; this is expected to be returned, expecting business partners to operate on the same principles. |
| Rationale | Nike does not want to only do what is required by law, but also do what is expected of a leader |
| Future Options | Review and monitor closer the actions of business partners |
| Rationale | To prevent bad publicity, which can damage the organisation |
| Critical Success Factor | To demonstrate to consumers the high value within the organisation to CSR. |
| Change of Focus | |
| Theorist | Hummels, H and Timmer, D.2004 agreed that these reports were needed, Although Mullin, L. 2005 stated that it could be just green washing |
Nikes Function
| Past options | the company focus on design and development |
| Rationale | This reduces long term debt has the benefit of not tying capital up in plant and equipment |
| Future Options | |
| Rationale | |
| Critical Success Factor | Reduced size of premises therefore reduced costs. Vital to have innovative employees. Products are viewed as innovative |
| Change of Focus | |
| Theorist | Johnson, G & Scholes J 2004 agreed that this was a cost effective method of production |
Production Within several of these countries there have been problems with production, distribution and political problems. With the change in relationship between the USA and Vietnam and China, these are new production venues that Nike could explore.
| Past options | Produce goods in the Far east |
| Rationale | Keeps costs down |
| Future Options | Vietnam and China |
| Rationale | New trade agreements, present sites are switching manufacturing to electrical goods |
| Critical Success Factor | Maintaining current standards, closer working relationships, retaining customer loyalty by guaranteed standard of product |
| Change of Focus | A shift to a more managed production |
| Theorist | All organisation need to watch changes in political and economical factors in their outsourcing. Johnson, G & Scholes J 2004, |
Shareholder matrix
Surrounding all organisations are stakeholders, all with varied levels of authority, power and interest towards the organisation Mendelow (1991) considered a matrix that classifies the level of power and interest a stakeholder has in an organisation. Although once each group of stakeholders is recognised, it cannot be assumed that their level of interest will remain the same (Mendelow (1991) cited in Scholes, K. & Johnson, J 1997:198). Jones (1995) argue that the stakeholder framework is practical for considering business and society issues, because it identifies the sources of a corporation’s social obligations and its set of stakeholders (Jones (1995) cited in Rowley, T. 1998:28).
Therefore by Nike concentrating on their stakeholders it has placed Corporate Social responsibility high on their agenda. The organisation has to demonstrate transparency in all actions and reporting. This can cause conflict with the shareholders. Common in stakeholder theory is compromises on both sides that can obviously haze over differences; this primary characteristic is accepted as contra-distinctiveness from the shareholder value. This was discussed by Friedman, (1993) that the ultimate purpose of a company should be serving the interests of its shareholders (Friedman, (1993)
Value chain
Nike’s supply chain provides a clear view of the extent of the global nature of the company. Nike’s headquarters are in America; however, virtually all of its production takes place outside of the United States.
Nike’s supply chain upstream begins with the materials used in the production of its products. Many of these materials used in production are available in the locations which the manufacturing takes place, but some specialised materials have to be imported to the manufacturing company.
| Past options | Outsourcing of all production |
| Rationale | Reduced costs |
| Future Options | Outsource with stronger control |
| Rationale | Speed up reporting of any problems in production, the supply chain, the greater the distance the slower the reporting of problems |
| Critical Success Factor | Reduce problems associated with distance, i.e. quality, consistency and value |
| Change of Focus | Although still outsourcing, they would gain more control over production. |
| Theorist | Johnson, G & Scholes J 2004, agreed that Nike can be too far from the site of production |
| Past options | Target USA |
| Rationale | Demand and growth for footwear in the US was rapid. |
| Future Options | Future option is to enter EU markets |
| Rationale | To expand into growing markets as US is near saturation. |
| Critical Success Factor | organic growth as well as by acquisition, also brand name, goodwill- therefore there is a match is CSF to succeed |
| Change of Focus | Maybe have to target marketing in a different way |
| Theorist | When markets are reaching saturation, new markets need to be identified to prevent decline in sales. Johnson, G & Scholes J 2004, |
Distribution and Retailers
Nike has a strong network of retailers in 200 coutries world wide through distributors, licensees and sudsiduaries. Within the USA there are 18000 stores that retail nike products. These are well established channels.
Nike made itself heavily dependant on one retailer Footlocker, representing 10% of their revenue. When Footlocker reduced their purchasing form Nike, it created a reduction in turnover in the short term. Organisations that are over dependant on one retailer are open to cash flow problems, if the retailer switches suppliers, reduces purchasing or ceases trading (Johnson, G & Scholes J 2004).
| Past options | Although they have numerous retailers, they were heavily dependant on one out let chain |
| Rationale | To sell top of the range products |
| Future Options | To negotiate partnerships deals that allow for the choice of product for the retailer |
| Rationale | To prevent sudden withdrawal of products |
| Critical Success Factor | Customer being able to rely on source of product. If withdrawn they may find an alternative product |
| Change of Focus | Closer working partnerships |
| Theorist | Organisations that are over dependant on one retailer are open to cash flow problems, if the retailer switches suppliers, reduces purchasing or ceases trading. Johnson, G & Scholes J 2004 |
Nike has a futures, but can also ship overnight when needed. Although the futures method is currently working for Nike,
| Past options | Futures ordering system |
| Rationale | a 6 month lead time for product orders, always knowing what is needed in production |
| Future Options | |
| Rationale | |
| Critical Success Factor | This is responsive to the market trends, but can also help retailers plan stock. |
| Change of Focus | |
| Theorist | Any change or threats within the markets could leave them overstocked (Groucutt, J. et al 2004) |
Sales
In addition, consumer sales outside of the United States exceeded sales in the United States in 2003 with only 43% of the company’s sales coming from the US In Europe there are difficulties in entering the market, the single currency and the trade rules make entry difficult for large organisations.
| Past options | Target the US |
| Rationale | Growing market, but is now reaching saturation |
| Future Options | Target new markets, including e-commerce |
| Rationale | To avoid a reduction in sales |
| Critical Success Factor | Entry to the markets, by advertising and targeting the audience. Ensuring accurate and quick picking of the customers order |
| Change of Focus | Shift to global marketing, selling world wide from the web targeting Generation Y. |
| Theorist | By tailoring marketing to the customer needs Nike has been successful in the past and continues to be today (Johnson, G & Scholes J 2004) |
Nike Branding
| Past options | global brand |
| Rationale | Consumers are willing to pay a premium price for; as they imply credibility, high quality and up-to-date global trend. |
| Future Options | When companies are bought trade under their name |
| Rationale | Moving into a new market with a brand that is already global you can reduce cost of introductory and follow-up marketing programs. |
| Critical Success Factor | Ensures customer loyalty and to widen portfolio |
| Change of Focus | Concentrating on core products as Nike, allowing growth in new diverse markets |
| Theorist | significant scales of economy are achieved Aaker 2000, this is in terms of brand development, packaging and manufacturing |
Marketing
Sports personalities have endorsed the Nike product, although with numerous different sports and countries targeted this has been costly. The amount each personality has received is considered high. This forces the competitors to market their products in the same way. Trends within the industry have increased the number of female consumers. With advertising Nike has targeted segments of the market, this costly. Nike should review their advertising policies (Groucutt, J. et al 2004).
| Past options | Sports personalities have endorsed the Nike product, although with numerous different sports and countries targeted |
| Rationale | To target all types of sport by choosing personalities which are at the top of their sports. |
| Future Options | To chose personalities that appeal to a wider audience |
| Rationale | To reduce advertising costs |
| Critical Success Factor | |
| Change of Focus | |
| Theorist | Groucutt, J. et al 2004 |
4ps
The athletic shoe industry is highly competitive as well as a demanding market where fierce competition, price conscience consumers, and constant changing market trends and fads have all been attributing factors in how a manufacturer responds.
Highly focused brand includes Nike, Adidas, and Reebok, they target a precise market. However, there is evidence that a brand will widen its target market as it reaches a greater level of maturity. In the case of Nike, for example, there was a move into new sports areas away from the running heritage. Nike’s target audience has moved from more masculine towards female and Generation Y.
Price is related to Product, through the characteristics of the brand, it’s packaging and overall image. People are buying into an ideal, not just the item. Consumers believe that there is a link between quality of a product and the price. Consumers question what they are getting for their money. Brand Management, customer awareness and loyalty, is directly linked to the price, therefore maintenance of the relationship between brand images; quality and price have to be consistent (Johnson, G & Scholes J 2004).
Models used in Analysis
Swot analysis
This analysis will summarise key issues from the business environment and the strategic capacity of Nike. This can be used to judge future strategic options.
- Strengths
- Product Range
- Capacity for innovation
- Distribution expertise
- Single Brand
- Stars endorsement
- Contract manufacturing
- Large portfolio of products
- Weaknesses
- Single Brand
- Too many stars endorsement
- Contract manufacturing
- Spread portfolio of products
- Reliant on retailers
- Reduction of target market
- Opportunities
- New Markets
- E commerce
- Research and development
- Increase product line
- Product diversification
- Change target market
- New manufacturing countries
- Threats
- Competition
- Fashion Trends
- Contract manufacturing and copying of product (intellectual property)
- Consumer lifestyle changes
- Competition
- Bad press associated with Nike
- Outlets cancelling orders
- Sars
Pestle
This will consider environmental influences on the organisation, both in the past and with future strategic plans.
- Political
- Striking dock workers
- Political unrest in the production countries
- Terrorism in the home country
- Economic
- Slow down in the economy
- Reduction in consumer confidence
- Barriers of entry to the EU
- Contract manufacturing
- Socio-cultural
- Brand conscious consumers
- Change in buying habits in younger people
- Generation Y prefers other types of footwear
- Increase in the female share of the market
- Corporate social responsibility
- Technological
- Speed of change of product
- Design Ability
- Speed of News reporting
- Environmental
- Re use a shoe
- Sustainability philosophy
- Climate impact
- Legal
- Threaten action by underage workforce
- Poor employment record
- Corporate social responsibility
- Contract manufacturing and copying of product (intellectual property)
- Trade agreements
Supply Chain
Like every large IT undertaking, the team responsible for the implementation of Nike Supply Chain (NSC) began with a set of specific, stated goals:
- Enhancing Nike’s ability to respond to changing conditions;
- Reducing inventory and capital investment risk;
- Improving service to meet customer/consumer needs;
- Improving process, information and product quality; and
- Providing an efficient global supply chain with local implementation
Porter’s 5 forces
This model is used to identify the sources of competition, and how to gain advantage over them.
- Potential Entrants
- Other sportswear manufacturers expanding their portfolio
- Cheap copies from the Far East
- Buyers
- The buyers of sports footwear have changed in the past decade.
- There has been and increase in women purchasing the shoes,
- Generation Y has a different tastes and purchasing methods.
- Substitutes
- When required for professional use there is no substitute goods, but as a fashion item there are many other goods that could be purchased.
- Suppliers
- Using production facilities in the Far East has give Nike economies of scale. Although there are now problems arising from these factories, they are switching to making there own goods, labour and political unrest causes delays in manufacturing and shipping of the goods,
- Competitive Rivalry
- Reebok, offering more choice of shoe, introducing endorsement by sports personalities, sponsoring sporting leagues
- Adidas have recovered from the problems that plagued them, and have a good product mix, covering a wide range of sports.
BCG matrix
- Nike is established within its markets, benefiting from economies of scale.
- This places them in the Cash Cows category on the Matrix.
- Cash cows market growth has slowed, and the products hold a fairly stable market share.
Bibliography
Books
- Aaker, D. (2000) Brand leadership Free Press, New York
- Doyle, P. (1998) Innovation in marketing
- Butterworth-Heinemann, Oxford
- Drawbaugh, K. (2001) Brands in the balance meeting the challenges to commercial identity Pearson Education, London
- Groucutt, J. et al (2004) Marketing Essential Principals and New realities
- Kogan & Page, Great Britain
- Johnson J & Scholes K (1997)(4th Edition)Exploring Corporate Strategy Prentice Hall, Hemmel Hempstead.
- Johnson, G & Scholes J (2004) (6th Edition) Exploring Corporate Strategy
- Prentice Hall, Hemmel Hempstead.
- Mullins, L. (2005) (7th Edition) Management and Organisational Behaviour
- Prentice Hall, Pearson, Harlow.
Journals
- Hummels,H and Timmer, D.(2004) Investors in Need of Social, Ethical, and Environmental Information Journal of Business Ethics Jun 2004Vol.52, Iss. 1
- Kaler, J. (2003) Differentiating Stakeholder Theories
- Journal of Business Ethics Aug 2003.Vol.46
- Rowley, T (1998) A normative justification for stakeholder theory Business and Society. Mar 1998
- Welch, J.(1997) Business ethics in theory and practice: Diagnostic notes.
- A prescription for value Journal of Business Ethics, Feb 1997.Vol.16,