Nike's Organisational Structure - Research Paper Example

Discuss in essay format Nike’s organisational structure and how Nike has affected and been affected by the external environment Introduction The organizational structure is defined as “a formal and informal framework of policies and rules, within which an organization arranges its lines of authority and communications, and allocates rights and duties” (www.businessdictionary.com). This definition adequately captures the important features of the organizational structure. Organizational design in turn consists of structure and control and the former is based on two theoretical concepts. They are differentiation and integration. The concept of differentiation refers specifically to the distribution of functions and tasks according to a hierarchical order within the organization. Nike’s organizational structure is characterized by both vertical and horizontal functional levels that are basically democratic in nature though its administrative apparatus has some elements of bureaucracy too. 1. Analysis 1.1. Internal environment With the appointment of Mark Parker as the Chief Executive Officer (CEO) of Nike, the organization has yet again proved to the rest of the world how much the top command of Nike places emphasis on its modern innovative approach to business growth and corporate success. While its current functional level structure is less vertically integrated there is a broader horizontal level integration of both managerial functions and subordinates’ tasks to achieve a broader level of integration within the defined hierarchy. Vertically the organizational structure of Nike tends to be more or less paternalistic and bureaucratic with the founder/president still having control over much of the operational structures of the organization while horizontally it’s much more democratic thus facilitating communication, delegation of power and responsibility to subordinates and above all well coordinated Human Resource Management (HRM) practices at the international level across its many production facilities in the world. Organizational structure consists of differentiation and integration within the organization hierarchy. Differentiation in turn consists of vertical and horizontal distribution of functions and tasks. Vertical differentiation basically refers to the distribution of decision making functions within the organization while horizontal differentiation refers to the distribution individual tasks such as non-decision making duties of employees (Wokutch, 2001). Nike has a flatter horizontal hierarchical distribution of functions thus effectively facilitating the democratic decision making process within the organization. Integration refers to coordination among a number of departments and employees from different divisions. Thus it’s clear that differentiation and integration effectively refer to various costs that are associated with bureaucracy. For example the amount of time spent at meetings between decision makers and subordinates can be regarded as the ultimate outcome of differentiation and integration of functions and tasks. Nike’s own decentralized organizational structure places emphasis on the efficacy of decision making. Therefore its organizational structure doesn’t necessarily hinder decision making functions at the organizational level. Similarly Nike’s organizational structure is highly characterized by delegation of powers, authority and responsibility to junior managers whose decision making capabilities are tested on a regular basis. Departmental heads have sufficiently delegated powers and authority to subordinates with a view to enlisting the support of the latter to achieve long term organizational goals (Hatch and Ann, 2006). Despite the ever growing size of the company, Nike has managed to identify issues related to motivation of employees with extraordinary success thus creating a harmonious work environment within (Frenkel, 2001). Further decentralized organizational structure has enabled Nike to introduce international HRM practices at its overseas manufacturing facilities. For example in Indonesia Nike has implemented worker participation programs in the decision making process to encourage employees involvement in the effective management of the day-to-day functions of the company. Productivity at Nike has increased roughly by three folds during the last two years alone. Its current market expansion programs in the Middle East and Asia have paid off so well due to the fact that its employees are called upon to contribute to the success of the organization through participatory programs such as quality improvement and productivity enhancement. The company has successfully implemented innovation-centric approaches to growth. In fact Nike’s many current drivers of growth, innovation and technology transformation are based on its organizational structure related cultural attributes such as empowerment of employees and performance-related pay. At the bottom level strategic initiatives include communication feedback from subordinate employees to the top management. This is more conveniently facilitated by the absence of many middle layers of authority. The shorter chain of command and wider span of control in fact facilitate this simple communication based success, because across the departments there is a higher level of employee coordination both at the functional level and the operational level. In the sphere of HRM training and development (T&D), programs have been initiated to enhance skills and absorb trainees into the permanent staff with much emphasis on multicultural work environments. Multicultural staff at Nike requires the adoption of total integration approaches to workforce management. Organizational leadership and culture have played a very significant role here. Nike has been involved in repatriation and expatriation programs by transferring its staff from one country to another within the same department. These international HRM practices have brought about a number of benefits by way of job enrichment and enlargement. In fact Nike’s pay scales on performance related work have been designed in keeping with this international strategy. Internal communication function has been well managed within the organization because the decentralized organizational structure has enabled the management to identify and address the requirements of employees in keeping with their expectations. For example Nike’s production facilities in Europe and Asia are run on the principle of product diversification so that regional sentiments about design and dimensions can be well integrated into the final product. Sneakers aren’t the same in North America and Europe. It’s the kind of communication strategy at Nike that has enabled the management to effectively integrate regional variations into its products. Thus it has become a virtual organization. 1.2. External environment As for the external environment of Nike as much as it has been affected by it, Nike itself has affected it (external environment) by being what it’s today in the international markets for sports goods. In fact the company has invariably transformed the external competitive environment for sports goods, including apparels. Its brand equity or brand value enhancement strategy has been the envy of many multinational companies (MNCs) the world over. Above all it has been affected by nothing less than the way in which competitors have been trying to differentiate their own products through much more innovative strategies (Dicken, 2007). Adidas, another sports goods manufacturer, for instance, has unsuccessfully challenged Nike’s market leadership in some niche market segments. Nike’s competitive edge in these market segments such as sneakers is a direct outcome of this strategic price and quality war in well protected market segments. China and India in Asia are two good examples. Therefore it’s feasible to consider the question “how Nike has affected the external environment?” by looking at the strategic competitive environment in particular and the operational environment in general. Its productivity growth along with innovation has affected its rivals in a way that the latter have been almost unable to compete on the pricing strategy. Though Nike has been accused of adopting degrading work practices in its factories in Asia due to lower wages, the company has been able to remain price competitive against its nearest market rival Adidas. Indeed Adidas has been cornered by Nike in its own country, Germany where Nike is likely to win a contract to sponsor the German soccer team for an annual payment of $63 million as against what Adidas pays, $14 million. Thus the national soccer team of Germany would wear Nike shoes and other sports gear. Nike has also affected the global sportswear market significantly by shifting its competitive strategy away from niche marketing to mass marketing. Its exclusive sports gear enables customers to identify themselves with brand related values. This brand value creation is far ahead of what its rivals couldn’t do. Puma and Reebok all have been affected by Nike’s market orientation strategy. Its competitive edge in mass marketing in Europe and Asia has come at a substantial marketing drive. Analysts point out that Nike’s superior marketing knowhow has been the result of its organizational structure because it’s experimenting with different advertising campaigns for different market segments headed by regional managers. On the other hand its competitors have been basically depending on a central marketing campaign to achieve organizational success. Nike’s highly decentralized region-based operational structure has put it ahead of its rivals in every sphere of competition. In fact its own directors (10 in number) head different divisions at the Head Office and make frequent visits to regional offices and facilities. On the other hand the company has been affected by this environment of intense competition in the same way. Its corporate strategy and sustainability programs have been influenced by these outcomes. Environmental organizations have been tracking its operations in different parts of the world to check its conformance with sustainability principles. Above all its European operations to a larger extent and North American operations to a lesser extent have been affected by the kind of regulatory environments. EU regulations have been refined over and over again and such regulatory regimes have such a big impact on the organizational structure as much it has an impact on the culture. Finally Nike’s operations in the external environment have been affected by the current global economic downturn. Though it’s a universal phenomenon, Nike has been subject to much pressure due to its largely diversified nature of operations. Its decentralized organizational structure has been an asset in this regard because regional heads in different regions have the power and authority to make quick decisions. Time matters in decision making when it comes to global economic problems. Currency movements across a number of countries can be so varied and complex so that quicker decisions enable the company to overcome pressure at the top. Conclusion Nike’s decentralized organizational structure has helped the organization to establish itself as the market leader in some market segments across the globe for sports goods. Nike has effectively put in place this strategy in order to achieve a set of competencies in the internal organizational aspects such as employee motivation, productivity, brand equity, communication and marketing. Outdoing its rivals in many respects Nike has affected the external competitive environment so much. Indeed it has in turn been affected by the same external environment’s regulatory and competitive pressures. REFERENCES 1. Definition of organizational structure retrieved from www.businessdictionary.com on July 16th 2009. 2. Dicken, P. (2007) Global Shift. Mapping the changing contours of the world economy (5th edition). The Guildford Press, New York. 3. Frenkel, S.J. (2001), Globalization, Athletic Footwear Commodity Chains and Employment Relations in China, Organization Studies, Vol. 22, No. 4, 531-562 (2001) 4. Hatch, M.J. and Ann, C.L. (2006), Organization Theory Modern, Symbolic, and Postmodern Perspectives, Oxford University Press, Oxford. 5. Wokutch, R.E (2001), The Nike/Iabs Debate, Organization & Environment, Vol. 14, No. 3, 364-368 (2001) Read More