Business Overview of Nike Inc - Case Study Example

? Nike Inc. Nike Inc Determine the impact of the company’s mission, vision, and primary stakeholders on its overall success. “To bring innovation and inspiration to every athlete* in the world”. (Nike, official website). This is the mission of Nike. Over the years Nike has structured its production and market strategy to promote this very fact. The brand’s well known and iconic slogan “Just Do It!” also works to further this view and perception of the brand. Nike promotes the fact that skill is better than inherent strength. When promoting their products, they make extensive use of celebrities as product ambassadors, which lends to their products and hence their consumers a sense of glamour and makes the consumer’s feel like some part of the celebrity’s skills rub off on them with the product usage. Nike target’s the common man who is interested in sports and fitness and banks on his skills and has a winning attitude. The brand also promotes hard work and competition and this is reflected through their promotional advertisements. Nike’s vision is “to carry on the legacy of innovative thinking, whether to develop products that help athletes of every level of ability reach their potential, or to create business opportunities that set Nike apart from the competition and provide value for our shareholders”. According to Nike’s vision for the future, they keep introducing innovative products in the market. Like, recently, they are going to launch the Nike “Studio Wrap” in 2013, which are fashionable ‘barely there’ shoes, designed for people who are more into modern studio workouts like dance, Pilates and yoga. These shoes are the picture perfect mix of innovation, style and athletic requirements. Products like these by Nike help everyday and professional athletes the support and motivation to stick to a healthy lifestyle and to excel in their chosen field of sports. Nike products create additional value for its customers by adding style to the equation; all Nike products are aesthetically pleasing, yet high quality, innovative sportswear. 2. Analyze the five (5) forces of competition to determine how they impact the company. A big job to be done by the company’s strategists is to deal with its competitors; however that’s not all that their duties encompass. According to Porters’s theory there are four other forces that need to be taken into consideration. Following is a diagram outlining the relationship between these five forces of competition. (Harvard Business Review Magazine, 2008) Originally published in 1979, Porter’s article talks about external forces that a company has to consider when planning competitive strategy. Namely, these include the bargaining power of producers, the bargaining power of consumers, indirect competition by substitute products, threat of new entrants due to barriers of entry and the rivalry between the existing players in the market in the specified category. (Harvard Business Review, Magazine, 2008). In Nike’s specific case, the business is lucrative and highly profitable and thus new entrants are common. This would reduce market share and profit levels but Nike stays on top of its game due to its immense goodwill in the market, its reputation, product quality and innovative techniques. However strategists have to remain on their toes to make sure that the company’s strategy doesn’t lag and allow new entrants to gain on Nike’s expense. This requires them to continually innovate product design, establish strong customer relationships and loyalty, invest in research and development, invest in employee training, improve distribution and most importantly patent their designs and products to protect them from competitors. Using these precautions will mostly eliminate the threat of new market entrants. Threat from substitutes is low, because Nike provides essential gear for athletes and sports men and women which cannot really be substituted by other product, especially in the shoe category. Other sports gear like shirts and shorts etc, may be substituted by unbranded shirts and shorts not designed specifically for sports use. However, threat is low because Nike products like “Dry-Fit” sports gear have added benefits that other products don’t and thus customers will not easily switch to substitutes. Bargaining power at the supply end is higher than bargaining power at the demand end, and thus Nike is pretty much autonomous with regards to pricing strategy, product line etc. this power is afforded to Nike due to its loyal customer base, strong distribution network and economies of scale as they expand production. With regards to competition with direct competitors like Adidas, Reebok and Puma, Nike stays competitive by employing funds in advertisements, research and development and by product and service customization. 3. Create a SWOT analysis for the company to determine its major strengths, weaknesses, opportunities, and threats. Some of Nike’s strengths are that it is very competitive; it always stays in the limelight with its high profile celebrity advertisements and by sponsoring these celebrity athletes when they compete in high profile sports events. This allows them to always stay in the news and be promoted whenever the athlete ambassadors of Nike wear their sports gear. Furthermore, Nike has not tied down its funds in making capital investments in factories it owns; instead it remains cost efficient by outsourcing production to countries with cheaper labor and instead spends those funds on critical research and development which helps it stay ahead of its direct competitors. Nike also has stellar reputation and strong goodwill in the global market which acts as an additional strength for the company. On the other hand, Nike also has some weaknesses. Most of its sales come from shoes and thus it is vulnerable in its other product categories. Moreover, they are held responsible for the working conditions of the factories they outsource to and if they are not up to the standards the company takes a huge hit to its sales volumes. They have thus had a history of such violations which are counterproductive to its worldwide image. Another weakness would be that their products are very high priced with some footwear being priced up to $150, so even if they are targeted at the common man, the common man may not be able to afford any Nike product. Moving to the external environment, we look at the opportunities and threats facing Nike. Firstly, Nike encourages recycling and thus it promotes the agenda of a sustainable world which is a hot topic in the global arena. This garners it more goodwill and support from environmental organizations. Secondly, it has continued expanding its product line from just footwear to shirts, shorts, footballs, sunglasses etc which diversifies and spreads out risk. Nike has also increased its global presence and thus, successfully entered several new markets which have heavily boosted sales. In the same vein, Nike’s brand recognition across the world ensures it additional opportunity. Lastly, using celebrity athletes to promote their brand as well as designing aesthetically pleasing products has ensured Nike to be viewed as stylish and fashionable and thus now it can target fashion conscious people as well as sports fanatics and health fanatics. On the downside, Nike also faces some threats. Firstly, the global sportswear market is cut throat and Nike has to work especially hard in the face of local and foreign competitors who are working to steal its market share. Another threat comes from direct competitors who are pricing their products lower than Nike prices its products; this has resulted in consumers switching from Nike to more affordable brands. Being a globally operating company, Nike is also highly price sensitive to exchange rate fluctuations where it can suffer losses of millions if a particular currency takes a dip. 4. Based on the SWOT analysis, outline a strategy for the company to capitalize on its strengths and opportunities, and minimize its weaknesses and threats. Based on the SWOT analysis described above, Nike should aim to be more competitive price wise so it doesn’t lose its customer base to competitive firms. It should also take more active initiatives to show that it is genuinely interested in the matter of appalling working conditions of the factories it outsources to by making sure the factories they use have working conditions that are legal and humane. These aspects are covered in Nike’s ‘Code of Conduct’ defined in its ‘Code of Ethics’. Furthermore, it should promote its other products a little more so they garner customer interest and the risk can be diversified from just footwear to across their complete product range. They can also invest in product development for their other product categories. 5. Discuss the various levels and types of strategies the firm may use to maximize its competitiveness and profitability. According to a research paper by Zivojinovic and Stanimirovic (2009), in order for a company to increase its competitiveness and profitability, it must focus on three things; namely knowledge, intellectual capital and quality management. Nike at this point in time is producing high quality products and incorporates in its production and design innovative technology which is reflective of its knowledge and intellectual capital. Nike works to improve its intellectual capital by investing heavily in research and development and by providing pertinent training to its employees which makes them, and in turn the company more efficient and thus competitive in the market. Furthermore, Nike could use a more competitive pricing strategy by lowering its prices so that it can beat the competitive advantage enjoyed by lower priced competitors’ at this point in time. 6. Outline a communications plan the company could use to make the strategies you recommend above known to all stakeholders. To communicate the above mentioned strategies to its stakeholders, Nike can make official information disclosures in its annual report, on its website, through pamphlets, news, print ads, TVCs and outdoor advertising. Using such a comprehensive communications plan will help it effectively reach out to all the possible company stakeholders; from shareholders to customers to retailers. 7. Select two (2) corporate governance mechanisms used by this corporation and evaluate how effective they are at controlling managerial actions. The company’s employees are bound by a ‘Code of Ethics’ which defines which actions are permissible and which aren’t and provides guidelines about required behaviors and standards. Nike employees above 30,000 employees and operates under a flexible culture where relationships with the employees are valued and nurtured. Employees are trained, empowered and motivated to be innovative. Following are two corporate governance mechanisms that Nike uses: i. Internal and external audits are used to gauge employee performance on set time intervals. ii. Tracking and assessing lost time incident rates These activities provide management with an assessment of how the employee base is performing by looking at the audit reports and tracking and assessing lost time incidents helps them pin point exactly which jobs and/or employees are lacking in the appropriate skill set. 8. Evaluate the effectiveness of leadership within this corporation and make at least one (1) recommendation for improvement. The board of directors of Nike ensures that the company is sticking to its set strategy. It is elected by the company’s shareholders and is responsible for making all major decisions. Up till now, Nike’s BoD has been exemplary judging by the decisions it has taken during its history. They have been smart about how and where the money is invested, by providing essential training programs and by handling crisis situations when they have arisen. Nike has suffered a few hiccups along the way, namely in connection with the working conditions in the factories it outsources work to in third world countries with cheap labor. One recommendation for improvement of Nike’s BoD would be to add to their duties some specific liaisons with the investors, media coverage people and customers instead of just delegating these duties to management. This will give the company’s stakeholders a feel of being more included in the affairs of the company and also they will feel like they are an important part of Nike’s agenda. 9. Assess efforts by this corporation to be a responsible (ethical) corporate citizen and determine the impact these efforts (or lack thereof) have on the company’s bottom line. Provide specific examples to support your response. In the late 1990s, Nike was accused of running sweatshops in third world countries like Pakistan where workers often under age would work in dismal conditions for meager wages. There was a lot of uproar in the global community when the West found out and Nike immediately withdrew the contract from these sweatshops and went about making amends. A code of social responsibility was put into place which had the effect for improving the working conditions of a huge chunk of these factory workers. They also developed a supplier code of conduct which specifies that suppliers to Nike must also follow their code of ethics if they want Nike to do business with them. CSR practice were also put into use worldwide in all Nike factories. (Dutton, 2008). Repairing the damage done has been a constant and uphill battle, but Nike is making steady and promising progress, both to set its image straight and to improve working conditions in factories it contracts to. 10. Use at least five (5) quality references. Dutton, G (2008). How Nike is changing the World, One Factory at a Time. Retrieved from: http://ethisphere.com/how-nike-is-changing-the-world-one-factory-at-a-time/ Porter, M (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review, The Magazine. Retrieved from: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Nike, Inc. Retrieved from: http://nikeinc.com/ Nike [official website]. Retrieved from: http://www.nike.com/us/en_us/ Zivojinovic, S and Stanimirovic, A (2009). Knowledge, intellectual capital and quality Management As well as balanced scorecard lead to improved Competitiveness and profitability. International Journal for Quality Research, Vol.3, No. 4. Retrieved from: http://www.ijqr.net/journal/v3-n4/06.pdf Read More