Nike: Strategic Management - Essay Example

NIKE: STRATEGIC MANAGEMENT Nike: Strategic Management Introduction Nike is a publicly traded apparel company that makes sportswear and sports equipment. The company’s headquarters is in Portland, in the United States. Nike is the primary manufacturer of sportswear and sports equipment with reported revenues in excess of 19 billion dollars (Nike 2008). In 2008, Nike had employed over 34, 400 workers in its facilities across the world. Furthermore, its affiliated companies and contractors are estimated to employ 650, 000 people in various contracted facilities across the world. Of these workers, over 75% are employed in Asian factories including countries such as Thailand, Korea, China, Malaysia, Indonesia, and Vietnam (Nike 2008). The company’s mission statement claims, “To bring inspiration and innovation to every athlete in the world.” In a statement, Bill Bowerman, who is among the founders of the company, states, "if you have a body, you are an athlete” (Nike 2014). Nike integrates Bowerman’s statement as part of the company’s mission statement. Among the key values of the company is its aspiration “to deliver growth in the right way” through the development of sustainable strategies that are capital-efficient, profitable, and enhance the company’s brands(Nike 2014). These are among the company’s core values of developing brand-enhancing initiatives. Despite Nike’s stand on brand-enhancing initiatives, its production and growth strategies were harming the company’s image. The labor crisis in Indonesia almost destroyed Nike’s corporate image (Braddock 2011) The company’s use of contracted sweatshops was among the issues that contributed towards the development of a negative image towards the company. Nike took measures aimed at enhancing the company’s brands and its market sustainability including aiding the creation of the Fair Labor Association (Nike 2008). Consequently, the emergence of issues concerning practices in its affiliates factories led to comprehensive audits of its factories across the world. Though various issues emerged after the audit, Nike has since taken measures to prevent the recurrence of such issues in the future. Change in Culture Rindova & Kotha (2001) contend that firms co-evolve their organizational form and function to maintain a competitive edge in a dynamic environment.Nike’s competitive strategy is the unique differentiation of its products and focuses on sustaining the brand to grow its operations across the world markets. The organization’s growth depends on strategies that focus on enhancing the core competencies in technological innovations and effective marketing strategies. Furthermore, the company has incorporated this objective into the company’s strategy and mission. The firm has succeeded in attaining sustainability through the implementation of initiatives that reduce the amounts of waste in the production processes; hence, promoting recycling and development of green products (Enderle 2000). For instance, Nike uses recycled bottles to create jerseys for various teams and nationally recognized sports events. The integration of green technology in its production process is partly a quest that gives Nike a better competitive edge through innovation. In addition, Nike has developed integrated materials sustainability index that seeks to aid workers in reducing environmental issues that arise in the processes creating a social relationship with its market (Dunphy & Stace 1993). Nike’s strategy differentiates it from other players in the industry through its sustainability initiatives and its deep integration of culture and history in its operations (Enderle 2000). As a result, the company’s culture springs from its rich heritage and history developed by its two primary founders, Phil Knight and Bill Bowerman. Initially, the company made shoes from waffle irons while selling them to various leaders in the performance and athletic industries (Nike 2008). According to Nike’s mission statement, it is evident that Nike developed from absolute innovation; therefore, its core culture is predicated on innovation as the primary driver of growth. Nike places significant emphasis on the development of effective communication and teamwork, consequently encouraging their athletes to be more innovative and creative (Nike 2014). For instance, one of the former athletes designed an advertisement for Nike in her spare time. When team leaders saw her design they were impressed to the extent that they contacted Nike’s headquarters in Oregon, which approved the advertisement for use on billboards across the country. The partnership is among the company’s competencies found in their culture of encouraging innovation through pooling of ideas and encouraging creativity among all its employees irrespective of their position in the company (Nike 2014). In addition to the company’s position on education, the engagements create an increasingly strong organizational culture. Significantly, Nike’s attitude towards criticism and conflict within the organization is positive; as such, instead of ignoring issues, the company demonstrates a tolerance policy towards constructive criticism. Furthermore, the company has adopted organizational maxims as part of the organization’s culture that seeks to inspire employees to optimize their productivity. These include maxims, such as “The consumer decides, It is our nature to innovate, Evolve immediately, Master fundamentals; Nike is a brand and Do the right things” (Nike 2008). The company recognizes that it is through the development of a strong organizational culture that they can realize their core beliefs and values. In addition, employee engagement and motivation are among the strategies that Nike uses to enhance its organizational culture; this, in conjunction with training on work behavior and conduct, product knowledge, and brand dynamics, enhances the organizations culture. Issues that Prompted Strategic Change Nike faced a scandal in 1998 when it came under criticism as a result of the deplorable conditions observed in sweatshops of its factories in third-world countries and China (Barker 2014). Investigations conducted revealed that employees were victims of sexual abuse, physical harassment, and exposure to unsafe working conditions. In addition, poor wages that barely reached the stipulated minimum wage, risks in the work environment, as a result of poorly constructed facilities, and lack of basic protective gear were among the issues that emerged in Nike’s factories in countries such as China and Vietnam (Baker 2014). Furthermore, the accusation that Nike was using child labor in countries such as Pakistan escalated the scandal. Though Nike acted in a similar manner that most companies do through outsourcing a significant part of their operations, the rationale for outsourcing to third-world countries is the minimization of production costs using cheap labor. The issue emerged from the fact that Nike neglected to take action and implement policies that ensured that its companies, affiliates, and contractors adhered to best practices in the conduct of their operations (Baker 2014). However, since the company sought cheap labor and low production costs, it did not take any measures to prevent the abuse of worker’s rights or ensure the development of safe working environments for its workers. Strategic Change The sweatshops situation in East Asia tarnished Nike’s corporate image and threatened the company’s operations in other parts of the world and the United States. Strategic changes were required to reverse the situation and restore the position of Nike brand. It has so much taken root in South Korea, Taiwan and the People’s Republic of China that it turned into what Peters and Waterman classify as ‘hard elements’ in their McKinsey’s framework. There was need for strategic, structural and systemic changes in the ranks of Nike. The needed changes were meant to ensure that Nike operations in all countries were harmonized. According to McKinsey’s 7-S model developed by Peters and Waterman, strategy, structure, systems, shared values, style, staff and skills all need to be aligned to attain the harmonization required at Nike. In this case, Nike leadership came up with a number of strategic measures, and identified the required changes in functional structure and adjustments to the system functionality. The Nike leadership, led by the CEO Phil Knight embarked on a strategy that would see the working condition improved and motivation strategies put in place as a way of addressing the needs of workplace diversity and organizational dynamicity. Quite a lot of Hamel’s (2009) moon shots for management were applied to see to it that after the management had identified courses of action, time limits were set within which they were to be executed. The sweatshop situation, the biggest challenge, for instance, was not phased out immediately. It required a lot of resources, and that meant it had to be dealt with gradually until it was all solved. Among other things, the new policies ensured that an internal market for resources, ideas and talents was created. Additionally, there changes bore democracy of information and developed holistic performance measures for Nike. It inevitably became necessary to make information more available from the top leadership of Nike to the lowest employee levels. This was chiefly due to the realization that it was a good thing to keep an informed workforce that help in initiating and being part of the changes that would see Nike remain a market beater. According to Hamel in his Moon shots of management theory (2009), it is strategic to form a coalition within a company because it makes everyone feel included in the affairs of the organization and enhances creativity. Traditionally, creativity has helped Nike improve her products and conquer new markets. Nike management integrated a metric approach that involving the use of publicity indicators that are critical measures of the company’s sustainability management strategy (Hamel 2009). The aim of this approach is to quantify the company’s success in terms of sustainability in various aspects inclusion management approach, product development, and marketing strategies. As a multi-national company with operations in different parts of the world, sustainable management is critical in ensuring that the company repairs its image in the global market while ensuring that the organization remains competitive (Enderle 2000). Strategic Leadership A strategic leader is one who motivates a culture of dynamic capabilities in an organization (Crossan & Nanjad 2008). Over the years, Phil Knight has displayed what would be termed to as visionary leadership according to Collins and Porras (1994). He had numerous policy decisions to make to attain Nike newfound harmonization vision for solving the sweatshop problem, and alter the overall work culture at Nike. New business (cult-like) cultures for Nike were also developed, while the old ones were either reinforced or discarded. The overall aim of his strategy was to protect Nike’s credibility which was at stake. Collins and Porass (1994) sought to debunk from the old management myths where it was perceived that a CEO sourced from outside the system would function better that one who assumes the position of a CEO from a lower position within the same organization. They argued that a CEO should be a person who has worked within the system for sometimes because they understand the traditional challenges and are best placed to come up with solutions. At Nike, the CEO, Phil Knight rose through the ranks of the organization to the top. The top team management established labor directions that supported an ethically and legally acceptable work culture. Overall, Nike’s vision was greatly redefined. All these and more, according to Collins and Porras (1994), are the makeup of visionary leadership and visionary company. Kotter (1988) asserts that a leader should be the initiator of the needed changes needed in an organization. Phil Knight took all the decisive steps to ensure that the sweatshop crisis Nike is faced with in East Asia and other parts of the world, among other challenges that may have existed, were dealt with once and for all. The top management at Nike communicated the need for change to all stakeholders, thus creating a powerful coalition for change. The problem needed to be addressed urgently because it threatened to soil Nike’s global corporate image. All Nike leaders at different levels took it as a noble initiative, and wanted to use the change as a platform for creating a revamped vision for Nike. The vision would ensure that all the existing major problems were solved for posterity. Lastly, the company has adopted comprehensive changes in its operational framework that include the development of new policies that govern various operations within and outside the United States. The motivation towards this change resulted from the company’s association with child labor in its overseas operation. The association of the company with these issues made it necessary for the company to identify an effective management strategy to guard their reputation from such problems in the future. The recognition that a sustainable management approach was critical for the survival of the company has led to critical changes in the company’s overall management strategy (Bartlett and Beamish 2014). Core Competency and Resource Utilization Prahalad & Hamel (1990) define core competencies as the collective learning in an organization to coordinate the diverse production skills by integrating multiple technologies. By creating a market for talentsand skills, Nike leadership appreciated the need for having a competent workforce. Nike has progressively encouraged and rewarded innovative thinking that integrates development in technology toward the development of qualitative products. Nike’s core competencies include technological innovations and the development of sustainable, efficient marketing strategies that are capital-efficient and enhance the company’s brands; furthermore, they focus the company’s attention towards product development. Hamel & Prahalad (1994) emphasize the importance of competency and innovative/creative thinking in ensuring survival in competitive industry, such as the sportswear and sports equipment industry where Nike falls. According to Hamel and Prahalad (1994), it is very important for a company to be able to coordinate the diverse skills/competencies and technologies. In the long run, the company will be able to invent new markets, exploit emerging markets, and delight their customers. Nike competency measures have been set for the longer term rather than short term. Competencies are not beneficial to an organization if they can’t convert into tangible results. Clients are out to demand apparels and sportswear that complement the dynamic needs. Nike Corp. focuses on market trends with the aim of identifying new markets and taking control of the current markets. Technology plays a significant role in the identification of new markets or creation of a market niche (Kirby 2005). The use of technology in strategic management requires for Nike to be constantly reviewing the operations of their competitors and the new technologies available for integration. Different firms have different resources at their disposal, such as financial muscles or human capital to enhance their competitive nature (Barney, 2014). However, Nike’s innovative potential and creative designs are what differentiate it from its competitors. The innovative potential creates a Resource Based Value for the firm. The labor crisis inspired a proactive employee-focused strategy as a way to regain market dominance and reputation. The availability of an innovative workforce provides a stable competitive resource base for the firm. Over the decade, Nike allocated substantial resources in research and development to integrate innovative ideas from their workforce to their products. Nike made progress in the shoe cushioning systems that protect the feet from impact by distributing pressure. The successful launch of Nike Air Max and Nike Shox was a fascination to Nike consumers and a blow to competitors. A comprehensive understanding of competitor brands, operational strategies, and possible strategies to counter Nike’s products has enabled the company to stay ahead in the market. The resource utilization at Nike focuses towards enhancing the key product lines that are in demand. Conclusion Though Nike is one of the successful companies, it has faced significant challenges in the management of its foreign operations; moreover, it has faced the issues that relate to its management of employees in foreign countries. However, the crisis was a learning base for the firm to revisit some of their unfriendly policies that would later improve their financial performance. Goh & Ryan (2008) affirmed the existence of a positive link between learning capabilities and financial performance. The strategic management change incorporated in the company was effective in restructuring its operations. Particularly, integration of transformational management approach has enabled Nike to implement changes that prevent the occurrence of problems; hence, instead of reacting to issues, the company employees preventive measures. In addition, the company has taken an interest in what its contractors are doing to maintain the corporate image. In this respect, enforcement of business ethics, sexual harassment policy, and ethical conduct in the workplace are critical to the company’s posterity (Beer & Nohria 2000). Nike has taken control of all its overseas factories and operations in foreign countries through implementing strict ethical and labor provisions in the contract, hence, avoiding similar scandals (Ghemawat, 2001). These management strategies when integrated with a sustainability strategy ensure that the company’s operations are in line with legal and regulatory frameworks, especially in foreign operations. 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