The Analysis of Nikes Strategic Plan - Case Study Example

? Business Capstone Project Business Capstone Project The company chosen for this research paper is Nike Company. Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight. Nike Inc. also fits the criteria of the company required for this research as it is a publicly traded company and opened its shares for public trade in 1980. Nike at first was known as Ribbon Sports. During its establishment The Company’s main goal was to distribute low-cost and high quality athletic shoes to consumers in America. Now, Nike not only manufactures and distributes athletic shoes, it also produces sports equipments. As far as its footwear market is concerned, the company consists of 33% of global market share. Its distribution channels include both traditional and nontraditional channels in more than 100 countries in the whole world (Armstrong & Kotler, 2009).   The mission of Nike stated in their mission statement is to surpass all other similar and competition companies in the industry. Nike plans to achieve this by maintaining its position in market through providing quality footwear, equipment and apparels for consumers of all ages and lifestyles and also for different institutions. Through proper utilization of retail outlets, company’s websites as well as mail order company pledges to make its products available globally. As far as execution of this mission is concerned the company and its management believes that for the effective operations of the company, the success lies in collective responsibilities of all employees, team mates, customers, communities and all the stakeholders for the company. (Kotler & Keller, 2009). Nike’s vision is to remain a global leader in the industry and for this the company intends to continue producing high quality products. This challenges the company to continue to constantly meet through innovation and creativity, the ever changing trends and needs of their customers and the company is dedicated to achieve these in both short and long term. (Kotler & Keller, 2009). The analysis of Nike’s strategic plan along with its performance over the years shows that the company has been able to perform with regard to its vision and financial statements, which is a part of its strategic plan. The company, since the year 2000, was able to achieve a net income of more than $550 million at the end of every financial year which helps the company to achieve its long-term objective of improvement on equity, and a higher EPS. Nike focuses on improving on stockholders returns on equity to achieve a percentage of 20 and this can be estimated to roughly 6% from its previous trading periods. Nike has been previously able to recover market price of its stock from a low of $26.5, per share to $50 and above, per share. Nike works on strategies through which it can increase its earnings per share to an estimated $2.70, a figure that can be one of the highest (Armstrong & Kotler, 2009). Under the company analysis, the strengths and weaknesses of Nike will be reviewed. One of the major strengths’ of Nike includes its board of director consisting of both independent directors and management directors. They play a vital role in the decision making of the company especially the decisions related to strategy formulation of the company. These diversified directors help the company by not only providing an outside experience but also a frame of reference improving an overall thinking of the board, hence their decisions include rich experience and eliminates any disagreements and contradictions. Another major strength is the strong internal environment of the company as Nike conducts an internal analysis, which helps making decisions (Nike, 2012). The weaknesses that the company has experienced so far are related to the company’s inability to cope up with the issues regarding to labor. There also have been complains regarding the company’s working conditions. This was even highlighted as a major issue in the global media and led Nike to a bad reputation, turning into a major crisis by shunning away not only investors but also customers, and hence affecting company’s sales. (Chapman, 1995-2011). It is possible that the company is yet to benefit from the current economic strength that is being experienced in America. The spending at the moment is high, a factor that is yet to increase the sales of the products. It is also important to note that the price cut will also give companies an opportunity to price their products competitively. Another opportunity for the company is that by increasing the financial recovery in oversees, the markets provide proves to be an area of great expansion for the apparel industry and athletic industry as well. Increasing trends in technology are also an advantage to the company in the sense that the company can use this to facilitate its activities in regard to advertising, and other aspects of marketing. This means that the company can be able to save a lot and also reach out to a wider group, therefore expanding its sales. One of the major threats the company faces is the inflation that the country is experiencing making the company to lose profits as there major customers are likely to cut down on their spending. Consumers in this crisis, tend to save and look for discounted items. Another threat is the market saturation, as many competitors are entering the market. There is a tight competition in the market that is a factor threatening the progress of the company as the consumers might also tend to look for newer and high quality products (Armstrong & Kotler, 2009). To maximize Nike’s profitability and return to shareholders, differentiation is an appropriate strategy for the company. This is the marketing strategy that mainly focuses in a target market with strong competition and where competitors are providing similar products. As currently there are many companies offering similar products as Nike, Nike faces a strong competition with Reebok, Umbro and Puma being its major competitors. It is a challenging task to survive and compete in a business environment in which many firms are selling similar products but even in such an environment there are some companies which enter this market and still succeed by operating product differentiation. Hence as Nike operates in such a competitive environment product differentiation is an appropriate choice. (Gaughan, 2002) By using differentiation strategy Nike can change the perception of the products of Nike, that they are different from the ones being offered by the competitors. This strategy would add value to Nikes products that is not given by the competitors. When the consumers will not be able to perceive any differences in the competing products, then the company is bound to face an alternative competition, especially related to pricing (Nike, 2012). If the company fails to differentiate its products it might end up facing a price war. In such a scenario, customers would prefer the similar products as substitutes for one another and would prefer the one with the lesser price and would use price as a differentiating factor as the customers will not be able to see any difference in the competing products. In such a scenario the company that will be charging a higher price will be forced to reduce its price to match the prices of its competitors, in order to survive in the market. As this trend will continue due to lack of differentiation in the products, the other company would now also have to reduce its prices, hence ignoring the standard price of the products. This would lead other competitors to further reduce prices, which is necessary to survive in the market and this price war continues and companies might end up not generating any profits. (Millecher, 1983) Hence companies like Nike, facing a strongly competitive market and ineffectiveness of the pricing strategy, should focus on differentiation strategy. They need to develop differentiation for their products in the minds of the consumers, in order to make substantial profits and also to gain a large market share. Nike products should be differentiated, as only then its consumers will value its products and would be willing to pay a premium for their differentiated product than preferring low cost similar products. This can be done both by physical differentiation or non-physical differentiation. Nike can for example, change the shape of the shoes or stick to a specific variety of colors and differentiate them from competitors (Nike, 2012). When companies like Nike, face a competitive market, where survival and growth are a challenge, in such a market in order to sustain viability and to grow, companies need to combine their operations with a competitive firm by a merger or through acquisition. This would serve both the challenging issues at hand, reduce the competition in the market firstly and secondly help the company grow as well. These strategies play a very important role in corporate growth in finance and have been successful strategies for some of the major companies in the world. Hence a merger with Umbro or Reebok would turn out to be very useful for the company as these are successful sports related companies in the industry. Following this strategy would serve to reduce the stiff market competition. This would also serve the company to grow which would ultimately lead to attract more skilled personnel. Nike Company’s growth may increase the value of the shareholders as once the company grows it may increase profits of the firm as well. One other reason which requires Nike to merge is the decreasing demand of the products. When the demand of these products is compared with the number of player in the market providing these products, it is observed that there is a limited market for all these players and Nike being an important player, needs to share this limited market in order to survive. Before Nike enters into a merger the company needs to come up with firstly, a strong strategy that ensures the success of the merger and secondly a strong market research to select an appropriate competitor for merger. Market research must also identify the current market trends, market future opportunities and the customers’ feedback. Then on these factors merger should be finalized and an integration strategy should be formed in order to deal with all the merger related issues. Nike needs a reward system that addresses benefits, compensation, appreciation, and recognition so that its employees stay motivated and help them in achieving the desired strategies. These are four basic elements that must be present in a reward system. In order to restructure a reward system a company needs to keep a database of the performance of its employees against the reward system in order to assess the effectiveness of the reward system. As performance has a direct relationship for the goals set for the employees of the company, it is considered a key factor in assessing the reward system. The top performances of the company can also be identified using the reward system of a company. There is another type of a reward system designed for the employees’ behavior, but rewarding behavior is comparatively challenging. For developing a behavior based reward system a company needs to identify key habits and behaviors of the employees for the company (Kothari, 2004). Nike values and continues to value and improve its customer relationship and this requires its employees to work upon their managerial skills. These are some of the important habits and behaviors for the company and a reward system must compliment and improve these behaviors. Hence in this case, a reward system only based on compensation would not help as it lacks the element of employee satisfaction so the company must come up with a reward system that optimizes the level of job satisfaction of the employees. Nike’s reward system must include employee benefits as this would motivate Nike’s employees to continue working for Nike and not to switch companies. As there is a strong competition in the market Nike’s reward system must either match or ideally should exceed the rewards offered by the competitive firms to develop a sense of motivation and loyalty in its employees and helps retaining them. Company should also come up with long term rewards targeted to a certain individual organization such as equity ownership. (Millecher, 1983) The analysis of the current code of ethics and conduct shows that Nike’s strategies are aligned with business ethics and are promoting an overall ethical behavior. Nike has formed a formal code of ethics that is called “Inside the Lines”, which has to be followed by each and every employee of the firm. The employees are expected to meet the defined standard benchmarks of conducts defined in the code of ethics. This code includes elements like ethical behavior, legal compliance, employee activity, product safety, competition, and utilization of resources. Nike has an annual checkup and confirms annually that its employees have an understanding of the code, inside the lines, and that they are following it. As Nike works globally, it operates a globally toll free alert line to report any violations of these laws in observing ethical behaviors. Nike promotes a complete ethical environment throughout its companies operations and at each and every level. The company not only requires its employees to follow these ethical standards and laws, but also expects same from its suppliers and contractors. All of them are required to bide by the code and to operate in an ethical and legal manner. Behaviors of the contractors and manufacturers of the Nike products are also reviewed to keep a check on their ethical conduct. The company provides them with a perfectly healthy and a safe working environment and supports the contractors to observe their employees rights. Nike has taken the strategy of differentiation to a whole new level. It has not only restricted itself to product differentiation but also uses this strategy to differentiate Nike, by promoting and encouraging ethical behavior. As on the contrary, there are many unfair and unlawful business practices, this helps Nike gain a competitive advantage over the other companies as Nike is promoting a strong ethical culture. Nike is fully committed in fulfilling its social responsibility goal. Not only the company ensures ethical environment restricted to its employees and workers, but even Nike’s value statement it promotes and encourages a positive and a healthy business behavior of the company, which shows how much business ethics are important for the firm. Nike has not only formulated internal strategies to support ethical environment but also ensure that the surrounding communities receive the deserved care. This is done by couple of external strategies like Nike has collaborated with other human right organizations to ensure that employees’ rights, not only in the company but also the industry in general are observed. The company has also made efforts in contributing to corporate social responsibility (CSR), by making effective decisions in environmental conservation, resource utilization, and pollution management. Although the economic conditions and the competitive market has been tough and challenging , but Nike has survived and is able to achieve a stability by continuous efforts and practices supporting and benefiting not only its related industry but industries in general. (Nike, 2012). References Armstrong, G. & Kotler, P. (2009). Marketing: An introduction (9th Ed.). Upper Saddle River, NJ: Pearson Education. Kotler, P. & Keller, K. L. (2009). Marketing management (13th Ed.). Upper Saddle River, NJ: Prentice-Hall. Nike, (2012) Nike Stoke Analysis Retrieved from: http://www.stock-analysis-on.net/NYSE/Company/Nike-Inc/Financial-Statement/Income-Statement> Chapman. A. (1995-2011). SWOT analysis. Retrieved from http://www.businessball.com/swotanalysisfreetemplate.htm Millecher, N. (1983). Corporate Restructuring and the Consolidation of US Industry, Journal of Industrial Economic, Vol. 44, pp 53-68. Gaughan, M. (2002). Mergers, acquisitions, and corporate restructurings, Third edition, John Wiley.   Kothari, M. (2004), Research Methodology. Methods and Techniques. Second Edition.  New York: New Age International Publishers                                                                                           Read More