Human Resources Management Practices at Nike - Case Study Example

HRM practices at Nike-A case Study Contents Introduction 3 Evaluation of Nike’s business practices 3 Changes in recent history of Nike 4 Outsourcing 4 Cost Cutting 4 Two critical aspects of HRM involved 5 1.Employee/Talent management 5 2.Labour Laws compliance 5 The “Crisis” caused by Nike’s Outsourcing of its Factories and their later effect 6 1.Wage issues 7 2.Human rights issue (Child Labour) 7 Implications of wider HRM practice in Nike 7 Nike’s code of ethics and conduct 8 Limitations of Nike’s Code of ethics and conduct 9 Conclusion 10 References 10 Introduction Nike is one of the world’s leading and biggest footwear and apparel companies which is well known for its innovative and highly efficient products and builds up traffic to the store through its excellent advertising and marketing program (Locke, Kochan, Romis, & Qin, 2007). The core business activities of Nike are to make sports apparels and footwear for various sports such as Football, basketball, Tennis, golf etc. Nike has performed extremely well in the sports equipment industry and has been performed well in parallel competition towards its rivals and has been ranked as one of the most valuable brands in the world and is worth more than $10 billion.Over the years, its operations have gone from strength to strength and it has made its presence felt in every corner of this globe (Nike, 2005). This study will focus on the HR practices of Nike and how the company’s HR practices have been affected by various factors in the past few years. Evaluation of Nike’s business practices According to Locke (2003), Nike has been able to develop long and healthy business relationships with its customers, fellow business rivals and with some of the major business suppliers. The designers at Nike are able to create and rely on suppliers who are able to produce a replica of the product and production of the desired set of products take place when the specifications of the product have been distributed to the rest of the suppliers operating around the world (Locke, Kochan, Romis, & Qin, 2007). This mode of production could be valid for shoe making but for apparels, it is quite different. One reason is that there is constant change in the style and choice of dress design and the other reason is that most of apparel suppliers of Nike work for very short-term contracts and for very limited orders. This does disturb the relation between Nike and its business suppliers and reduces Nike’s ability to monitor its production process and working conditions of its factories on a regular basis. Changes in recent history of Nike For the achievement of high growth and profitability, Nike has undergone some crucial changes in the last 20 years of its production and on top of the agenda has been “low cost of production”, which was only possible due to “outsourcing”. These crucial aspects can be analyzed in further detail: Outsourcing As Nike is a global company, Nike’s global chain consists of a complicated network which interlinks its consumers, suppliers and workers directly and it may have a huge impact on their life. From the very beginning of its business operations, Nike had chosen its business suppliers from countries like China, Indonesia and Taiwan where labour was cheap and the production was high quality (Nadvi, 2004). Due to the reason, Nike has been involved in huge outsourcing contracts around the world because it reduces the costs of labour, capital and technology(Locke, Kochan, Romis, & Qin, 2007). However, this has also created major human resources problems such as poor working conditions and child labour. In addition, most of the labour of Nike is based in countries, which are underdeveloped, and the labour is cheap. Cost Cutting Romis, M. (2007) has stated that due to the fact that Nike does not need to make any products in house and can manufacture and outsource all its products, there would not be any need for in-house production for Nike. In this manner, almost all of Nike’s products are made through independent contracting factories and this saves Nike a huge production and labour cost. In this manner, Nike invests all the saved money into marketing by endorsing celebrities and sports superstars and ignites its brand name across the globe. Two critical aspects of HRM involved Nike has built an effective and efficient HR strategy that focuses on employee development and growth. Such plans have resulted in improved employee performance and have resulted in growth and development of a company at a higher level. It has also resulted in the following benefits for Nike: 1. Employee/Talent management The value of an effective HRM practice and process management can never be denied and it is directly interlinked with the psychological aspect for an organization and also with the level of commitment, which is required for the implementation of such plan. Nike understands the fact that organizations not only depend on technical systems but they are comprised of human beings. It is this important fact, which integrates the human resource practices at Nike along with its organizational goals and focuses on improving human communication and enhancing the level of commitment. It is difficult for an organization like Nike, who has outsourced all of its business functions, to constantly monitor the performance of its employees on a consistent basis. However, it is evident that by efficient management this crucial aspect can be handled with perfection. 2. Labour Laws compliance As the study has indicated, almost all of Nike’s manufacturing operations are outsourced to underdeveloped countries and there are huge concerns of human rights and labour laws in some of these countries. Employees at Nike are aware of the responsibility they have been equipped with and they also know that have to represent one of the best as well as one of the biggest sports brand in the world. One of the reasons Nike’s performance stands out as compared to its peers because the company has been able to manage and maintain a concrete and solid working relationship with its employees. According to Menon (2001), it is very important that employees must learn from each task they perform and Nike provides a perfect platform for them to flourish and develop. It leads them to growth and advancement at different department and sectors of the company and helps them in building a strong attachment with the company. The “Crisis” caused by Nike’s Outsourcing of its Factories and their later effect Nike’s plan to outsource its production to underdeveloped countries did result in high profitability and low costs of production but they did raise a few major causes for concern. From 2000 to 2005, the management of Nike had decided to monitor the working conditions of its outsourced factories and had undergone various audits on a consistent basis. That involves environmental, health and safety and an audit, which focused on the management and the working condition of the place known as the M-Audit (Locke, Kochan, Romis, & Qin, 2007). The results of the audits provided contrasting and thought-provoking results. The outsourcing decision did result in a short term crisis for Nike, as its human resource practices came under scrutiny and practitioners of human rights came into the spotlight. Factories which were located in the region where human rights are respected (e.g. Taiwan, South Korea, China etc) indicate a positive analysis while regions where human rights have often been neglected (e.g. Indonesia, India, Mexico, Pakistan etc)indicates a negative score. The core issues in these regions have been poor wages and high labour hours. These audits have indicated that Nike needs to stress a lot on the development and amendment of its code of ethics and conduct. (Kernaghan, 2006) Some of the major highlights of the audit are as follows: 1. Wage issues One of the most important issues which have been highlighted in the HRM practices of Nike has been wage problems. Labour in developing countries has been paid wages which are very low and are lower when compared to the effort of the workers and final price of the goods produced by them. Several NGO’s and proponents of human rights have questioned this strategy of Nike and this had further ignited the ongoing crisis at Nike. The policy of Nike to cut its production cost has helped its contractors to thrive of Nike’s business policy and this in turn mistreats their workers. Though Nike has constantly focused on improving its business practices and on protecting the rights of its labour but constant corruption in underdeveloped countries has made the implementation much more difficult. 2. Human rights issue (Child Labour) Nike was heavily involved in the child labour issues of Pakistan in the 1990’s. This involvement did deteriorate the brand image of Nike, as Nike employed Underage children to reduce its cost of labour(Locke, Kochan, Romis, & Qin, 2007). Most of the footballs of Nike during the 1990’s were manufactured in Pakistan by underage children. Although Pakistan has implemented some strict laws against child labour and slavery but there has been no monitoring of such rules and regulations. Such illegal practices have been heavily criticized by proponents of human rights protection agencies and Nike has admitted that it was involved in such acts of immorality. Implications of wider HRM practice in Nike Within the stipulated business practices of Nike, the concept of HRM aims to improve the operational activities which are associated with Nike throughout the world and wants to interlink them with the group code of ethics and conduct. Accountability plays a very important role in the running and formation of a company. An improved HRM development program aims to increase the effectiveness and efficiency of monitoring and problem solving which are implicit in the business practices of Nike. It is extremely important that a business is accountable for its business operations and is open to any challenges in relation to its performance. (Marshall and Reason, 2007) Another important implication of these HRM practices is monitoring the actions and behaviour of management and directors and eliminating risks that arise from the dubious deeds of the trusted officers and executives and all the interconnected authorities. It also helps to monitor compliance within corporate governance guidelines, corporate governance requirements and disclosures connected to corporate governance and the appointment process of the company. Nike’s code of ethics and conduct From 1992 onwards, Nike has implemented a code of ethics and conduct which is a non-governmental and regulatory monitoring system thatis based on voluntary systems. It specifies the norms and rules which can help to evaluate a company’s performance(Mamic, 2004). Nike’s business suppliers were instructed to measure several serious labour problems that required the suppliers to sign a contract that requires standardising some very important labour and environmental health standards. Under the stipulations of Nike’s code of ethics and conduct, it is an obvious point that monitoring can never solve serious social and ethical problems. Due to this reason, it is obligatory for Nike to segregate non-performing factories as well as factories that merely act as working to be a productive and efficient factory.Every staff at Nike is required to comply with the code of ethics and conduct and they are directly intended towards helpingNike business and moral principles into practice. Nike has merged its business principles and norms and constantly monitors its operational activities by evaluating its managerial, environmental and labour conditions. In this manner, not only the employees but almost all of thestakeholders of Nike are required to comply and strictly adhere to the code of ethics and conduct. If any of the employees feelthat the business practices are not according to the desired standards, than the employees are free to report any irregularities to the relevant authorities at Nike. The following are the code of ethics and conduct at Nike (Nike, 2005): To minimize the impact of the business operations on the environment It is obligatory for the company to respect the rights of its employees Providing a safe and healthy work-environment to employees To promote the health and security of the employees Limitations of Nike’s Code of ethics and conduct There is a still a minor indication of bifurcation or biasness among business practices of Nike. The information, which was collected through the factory audits, was done by Nike’s own employees. This reduces the level of credibility because if the audits were done by any NGO or by any other external company, than the results may have been completely different. Another major issues interlinked with the audit is the ease with which Nike’s internal auditor can amend the data. This raises the question of integrity and moral behavior within the company. An interesting point to note is that the voluntary monitoring of the firm has been done because of the pressure implemented by the NGO’s and other human rights organizations. This may indicate that the audit done by Nike was merely to improve its brand reputation and image and not to protect labor rights or any improvement in working conditions of the company. Conclusion It is a fact that the management of a particular company is responsible for controlling itsoperations, which are able to carry out a policy that is consistent with public welfare and harmony. Although there has been increasing pressure from various human and labour rights NGO’s over outsourcing of HR practices, which can motivate multinational companies to adopt a code of ethics and conduct, the ability of the company to conduct the research and analysis may vary depending on a company’s HRM system and in facilitating CSR practices by managing their human capital with effectiveness.Investors can have their say on such critical issues if they can communicate to the management of a company that they will only invest in companies that demonstrate corporate social responsibility. References Kernaghan, C. (2006). Human trafficking & involuntary servitude under the US-Jordan Free Trade Agreement, New York, NY, National Labor Committee Available at www.nlcnet.org/admin/media/document/ker061406.pdf Locke, M. (2003).The Promise and Perils of Globalization: The case of Nike.Cambridge, MA, MIT Press, pp. 39–70. Mamic, I. (2004) Implementing codes of conduct: How businesses manage social performance in global supply chains. Marshall, J. and Reason, P. (2007) “Quality in research as ‘taking an attitude of enquiry’”, Management Research News, Volume 30 Issue: 5, pp. 120-126. Menon, S. (2001) “Employee empowerment: An integrative psychological approach”, Applied psychology, Volume 50 Issue 1, pp.153-180. Nadvi, K (2004). “Making Sense of Global Standards”, Hubert Schmitz Nike. (2005). FY04 Corporate Responsibility Report Available at www.nike.com/nikebiz/gc/r/fy04/docs/FY04_Nike_CR_report_full.pdf Romis, M. (2007) “Improving work conditions in a global supply chain”, Sloan Management Review, Vol. 48, No. 2, pp. 54-62. Read More