SWOT Analysis of Nike Inc - Literature review Example

The Leader as a Strategist Report The Leader as a Strategist Report Introduction Founded in 1964, Nike Inc. (Nike) has grown intoa successful, multibillion brand that designs, manufactures (by outsourcing) and develops sports apparel, equipment and accessories. As a multinational corporation, it has representation on all the continents and is headquartered in Oregon in the US. The company realizes annual revenues that exceed $25 billion from its worldwide operations run by a workforce of approximately 48,000 employees (Kataveli, 2010). As an organization, Nike does not have an explicitly stated mission statement but its management is driven by one objective mission statement, four core values and 11 maxims. However, positioned as a premium brand, the organization also faces stiff competition from other manufacturers and it is imperative to develop strategies that will enable it retain its position. This must be done while considering that the organization is obligated to corporate social responsibility, its first objective like any other publicly traded company is to make profits for its shareholders. By first highlighting the current position, this report will assess the organization’s overall alignment between its vision, mission, values, and strategy by analyzing its strategic cascade. The analysis will consider company culture, organizational behavior, leadership and perform a SWOT analysis. Before preparing the report, it is imperative that the mission, values and maxims are briefly described. Nike’s mission and values have guided its management since the company was formed. The mission statement reads “To bring inspiration and innovation to every athlete* in the world. *If you have a body, you are an athlete”, and the core values are “lead, coach, manage, inspire”. The 11 maxims are it is our nature to innovate; Nike is a company; Nike is a brand; simplify and go; the consumer decides; be a sponge; evolve immediately; do the right thing; master the fundamentals; we are on the offense – always; and remember the man. Although these may appear as a simple collection of encouraging words, executives at Nike consider them to be a representation of what the brand stands for and leaders are encouraged to interpret for themselves what they mean. Current Organizational Strategy and Market Position Nike’s present organizational strategy is centered on sustainability. In view of this and with the objective of facilitating the transition into sustainable operational models, the corporate responsibility function has been transformed into what is known as SB&I (Sustainable Business and Innovation). The teams formerly known Lean, Energy and Compliance as well as Corporate Responsibility were brought together to focus on a sustainable market place, sustainable manufacturing and sustainable products (Kataveli, 2010). The SB&I team is charged with the responsibility of ensuring both the company and the consumers prosper in a sustainable economy. In the context of this vision, a sustainable economy is one that balances profits, people and the environment. The organizational strategy put in place to achieve this balance is split into three approaches. The first entails innovating to deliver sustainability solutions at the enterprise level. The second entails integrating sustainability into the company’s core business model. The third is mobilizing the industry, government, consumers, the civil society and employees to come together in scaling solutions. As a brand, Nike has developed a strong market position with a promise to enhance the athletic lifestyle and is currently the leading sports brand in many territories, most notably the US (Gallo, 2013). Recent research from the marketing team has shown that consumers’ buying decisions are still highly being influenced by their perception of brand and that the company is well positioned to meet their expectations. This is because the company has avoided concentrating exclusively on fashionable outfitters but instead focused on cultural phenomenon and more importantly, its athletic products (Kataveli, 2010). Because of this, the company is known for its high quality products and even though they cost more than the competition, consumers have grown accustomed to perceiving them as high-end products. For that reason, the company’s products target professional sports personnel, who make up its key market, because of their demand for high-performance gear. The high-performance gear is the company’s assurance to consumers of delivering value that satisfies their needs. The company is sustainably unique from competitors in its approach towards improving environmental and social conditions throughout its global supply chain. The SB&I team has considerably contributed towards this uniqueness that has integrated the management of innovation and sustainability. Analysis of the Strategic Cascade According to Porter (1996), a company will only perform better that the competition if it establishes a difference it can sustain. From this perspective, Nike has built a reputation by remaining innovative and developing unique high-performance products through which it delivers value. This strategy has enabled the company to continue charging a premium for its products but still retain its market share and remain profitable. Therefore, the company has used the SB&I team to differentiate itself in the way its products are created, produced, sold and delivered to consumers. Prior to the SB&I team being formed, the company had its focus on operational effectiveness. Although necessary, operational effectiveness is not sufficient because it simply means doing activities as the competitors but only in a different way (Porter, 1996). With the current strategic positioning driven by the SB&I team, the company has managed to stay ahead of competitors by using different ways to carry out similar activities. The company has been able to realize more outputs from inputs by implementing advanced technology, eliminating waste and more importantly, motivating its employees in line with the 11 maxims and company values. The strategic positioning developed by the SB&I team has ensured the company has aligned itself with its vision, mission, values and strategy. That is how it has avoided becoming a giant but slow company that is contended with its success. This is an indication of the possibility of outperforming competitors by using different ways to carry out similar activities. On the contrary, the company risks failure when its business model and organizational strategies become so successful that they suppress innovative thinking that poses challenges to it. Nike’s work in innovation and sustainable business is geared towards shaping the company’s legacy. To realize this, the management is emphasizing on focusing on previously learnt lessons such they must be the catalysts for real change and view every risk and challenge from the perspective of an opportunity. Equally important, the management believes that systematic change is enabled by collaboration and the transparency of the collaboration is more of an asset than a risk. SWOT Analysis Strengths A notable strength at Nike is its strong cash flow (Jos, 2009). A considerable amount of free cash flow is generated by the company, which is used to fund modest dividend payouts to enhance value for shareholders. More importantly, the company funds a buyback program from this free cash flow, which effectively supports the share net while leaving a sufficient budget that that supports research and development initiatives. With this cash flow, the company can effectively stay ahead of both old and new competitors. Another aspect of strength at Nike is product innovation and it is directly related to the strong cash flow that funds research and development (Jos, 2009). The company has a traditional reputation of always keeping ahead of technological trends. This has made it the sports company that has attracted the highest number of influential endorsements and loyal followers from elite sports professionals. For instance, the future-oriented company has not relaxed due to its current success and recently introduced the Nike Flyknit. No competitor has matched this innovative, featherweight footwear that targets the running and basketball categories, and it is a credible indication of the company’s capacity to maintain the momentum for securing market share in future (Jos, 2009). The company’s commitment to innovation grants it another aspect of strength because it can then afford to maintain its current pricing power for the foreseeable future. Effectively, this will enable the company to offset any margin pressures related to commodities. Weaknesses The larger portion of the company’s income is from footwear, on which the company is highly reliant. The rest of its branded products are not marketed as vigorously as footwear. Then there was the ruined publicity surrounding poor working conditions and an exploited workforce in developing countries. However, the key weakness at the company is in the form of its high advertising costs mainly through sponsorship agreements with professional teams, celebrity athletes and education institutions. This basically entails locking up the sports teams, athletes and institutions in extended endorsement contracts that, agreeably, have largely been successful. However, these contracts are also quite expensive for the company. Financial reports have shown that for the financial year ending 31 May 2013, at $2.6 billion, endorsements alone consumed 11% of the sales generated (Jos, 2009). An analysis of the industry shows that new participants are building up formidable competitive strategies, which can possibly force the company to spend even more on endorsements to overcome competition. The most apparent outcome of this will be a strain on the margins. Opportunities The industry trends provide the company with favorable opportunities, the most notable being the worldwide popularity running is increasingly getting and is further matched by the demand minimalist footwear is getting. In this scenario, the company can take advantage of the growing casual use of their products rather than strictly within professional sporting spheres. Then, some territories such as Asia, and specifically China and India, might be experiencing slight financial slowdowns but an emergent market growth lays in their large populations (Jos, 2009). The growing middle-class among these populations presents the company with potential long-range opportunities. The online commerce infrastructure that the company has developed is well placed to grasp these opportunities. Threats The global nature of trade exposes the company to different currencies with the effects reflecting on the unstable margins and costs over several financial periods. Like most other global brands, this exposure implies that the company may be selling or manufacturing at a loss, given the competitive garments and sports shoes market in which the retail sector is increasingly getting price-competitive (Jos, 2009). Essentially, consumers are driven to shop around for better deals, making consumer price sensitivity a threat to the company. The heightened competition implies that the company must target competing with the emerging edgier companies. Examples include Under Armour, V.F. Corporation and Sketchers USA. The rising costs of raw materials are also viewed as a long-term threat and it is caused by the demand of such materials by the developing world. Internal Environment and Organizational Architecture that influence Employee Behaviour The internal environment at Nike is characterized by its Matrix Organizational Structure. This means the existence of multiple authority lines with the possibility of some individuals reporting to more than one manager. Employees throughout the company report to team managers and in turn, their progress reports are relayed to departmental managers. With each brand having its own department and separate manager acting independently of the CEO, this is a true reflection of the maxims and values. Decisions on production, innovation and specification are made by employees and team managers while issues related to policy are handled by departmental managers although employees remain responsible entirely to the two levels of managers. However, it is worth noting that allowing employees and team leaders to make decisions on production, innovation and specification does not mean empowering the masses (Brandon, 2013). Rather, it encourages the generation of ideas, which is in line with the company’s focus on innovation and at the same time allows the employees to understand the process and its function in the business. Through this structure, the company is able to react to circumstances arising from marketplace dynamics more effectively and make decisions much faster than the average head of department. The combination of divisional and functional structures have been successful in providing endless possibilities regarding short to long term objectives of the organization. The organizational culture at Nike encourages workers to know who they are, which is similar to other successful companies such as Amazon, Google and Apple (Brandon, 2013). It has built a cult-like status that embeds strong corporate cultures that not only attract but retain qualified employees who develop a sense of belonging. For instance, the company uses the phrase “We have the best-kept secrets” as its tribal identity to foster the belief in employees that they are part of something important and valuable worth the company’s protection. In that sense, employees commit to being themselves in all aspects, which enables them to give genuine and productive opinions rather than simply agreeing to all organizational proposals. By encouraging the employees to become control freaks in the correct way, Nike displays awareness that mastering innovation beyond steadily rolling out new product means controlling the process in the same way cost and operational strategies would be controlled. An analysis of the systems shows that creative control at the company is handled by employees who understand the process and are driven by an instinct for what will work the best in the market. Synthesis of the Information Evaluating Nike’s Ability to Implement the Strategy Kouzes and Posner’s Five Practices include modeling the way, inspiring a shared vision, challenging the process, encouraging the heart and enabling others to act (Porter, 1996). These are potentially capable of working in a complementary manner with the company’s values (lead, coach, manage, inspire) to complete the complete transition into sustainability. It is evident at Nike that leaders model the way through their management style that involves employees in decision making. This means that the leaders must conduct themselves in the same way they encourage and expect employees to conduct themselves with their own values and voice if they are to come up with mutually agreeable decisions. The management at Nike has always inspires leaders and employees to share a vision, and this is a culture that Kouzes and Posner’s Five Practices show to be characteristic of successful management. When employees are let in on the company’s decision making platform, they essentially share the company’s vision and are less likely to show resistance to proposals of change (Brandon, 2013). This works in favor of Nike’s initiative of sustainabilyt. This forms a trust-based relationship that enables others to act with the company’s goals in mind. By encouraging employees to be themselves in all aspects, the company enables them to give genuine and productive opinions rather than agreeing to all proposals by the management. This is the most effective way of challenging the practice and that behavior is consistent with the company’s strategy. It is this peculiarity of management and organizational structure that has enabled the company to stay sensitive and focused on social and consumer trends. Conclusion and Recommendations To enhance seamless transition into the sustainability strategy, it is recommended that the company provides the employees with more elaborate career paths through which they can seize opportunities to expose and exploit their potentials. Although the organizational structure is elaborate and allows for effective reporting and communication flow, it does not sufficiently support employee growth. To this end, it is recommended that a team of professional career consultants be put on board. From the SWOT analysis, it is also recommended that the company considers reducing its spending on endorsements and instead increase the research and development budget and invest more in employee incentive and motivating initiatives. References Brandon, J. (2013). Leadership development professionals. New York: Wiley. Gallo, C. (2013). Leadership. Hoboken: Wiley. Jos, D. (2009). SWOT Analysis, Nike Inc. Management and Marketing, 4(3), 97-110. Kataveli, P. (2010). Nike boss outlines new ambitious financial goals. Retrieved from http://www.nikeinc.com/ Porter, M. (1996). What is strategy? Havard Business Review, 71(6), 61-78. Read More