Nike – Managerial Case Study

In 1962, Blue Ribbon Sports was founded by Philip Knight and his coach Bill Bowerman as an importer of Japanese shoes. Primarily, the company operated as a distributor for Japanese shoe maker Onitsuka Tiger, now ASICS. The founder, Philip knight, believed that high tech shoes for runners could be manufactured at competitive prices if imported from abroad. Philip H.

Knight was a Stanford University business graduate and he was a member of the track team as an undergraduate at the University of Oregon.After he finished up his bachelor degree in business, he travelled to Japan, and he got in touch with the Onitsuka Tiger Co, a Japanese firm that made athletic shoes, and arranged to import some of its products to the United States on a small scale. Knight was convinced that Japanese running shoes could become significant competitors for the German products that they were dominant in the American market. In order to set his agreement with Onitsuka Tiger, Knight invented the “Blue Ribbon Sports” to satisfy his Japanese partner's expectations that he represented an actual company, and this hypothetical firm eventually grew to become Nike, Inc.The company's profits grew quickly, and in 1966, BRS opened its first retail store in California. The relationship between BRS and Onitsuka Tiger was reaching an end by 1971.

Then BRS prepared to launch its own line of footwear, which would bear the newly designed Swoosh by Carolyn Davidson. The Swoosh was first used by Nike in June 1971, and was registered with the U. S. Patent and Trademark Office on January 22, 1974. In 1972, BRS changed its name to Nike Inc. which was derived from the Greek goddess of victory.

By 1980, Nike became number one athletic shoe company by reaching a 50% market share in the U. S. athletic shoe market; the company went public in December of that year. Its growth was due largely to 'word-of-foot' advertising. Throughout the 1980s, Nike expanded its product line to include many other sports and regions throughout the world. From the start, Nike’s marketing campaigns featured winning athletes as spokespeople.

The company signed on its first spokesperson, runner Steve Perfontaine, in 1973. The use of professional athletes in its advertising campaigns was both effective and efficient for Nike.In 1985, Nike signed up then-rookle guard Michael Jordan as a spokesperson. In 1988, Nike declared its first ads in “the just do it” campaign.

Later and after entering the European market, Nike became actively involved as a sponsor of soccer youth leagues, local clubs, and national teams. The big break came in 1994, when the Brazilian team, the national team for which Nike had real sponsorship, won the World Cup. The victory led overseas revenues to surpass U. S revenues for the first time. Today Nike dominates the athletic footwear market.

Nine of the 10 top selling basketball shoes, for example, are Nikes. Nike introduces hundreds of shoes each year for 30 sports, averaging one new shoe style every day of the year. Swooshes abound on everything from wristwatches to golf clubs to swimming caps. In the light of management theory, the founder had played the role of the entrepreneur who committed organizational resources to develop innovative goods and services. He decided to expand internationally to open new markets for the company’s products. Nike’s management is in accordance with the administrative management theory.

They focus on identifying the principles that will lead to the creation of the most efficient system of the organization and management. Their theory evolved to organizational environment theory with an open system that takes in resources from its external global environment and converts them into goods and services that are sent back to the environment for purchase by customers. Nike enjoys high synergy between its individuals and departments which led to the current success of this firm. Nike’s internal environment Management philosophy Nike products are sold in about 180 countries worldwide.

The three main product lines of Nike's brand - footwear, apparel and equipment - are made by approximately 600 contract factories that employ more than 33,000 workers in 46 countries around the world. The manufacturing process of Nike is done by independent contractors, primarily located overseas. However, Nike is involved in the design, development and marketing processes. In addition to its wide range of core athletic shoes and clothing, the company also sells Nike and Bauer brand athletic equipment, Cole Haan brand dress and casual footwear, and the Sports Specialties line of headwear featuring licensing team logos.The company has relied on constant innovation in the design of its products and heavy promotion to build its growth in both U. S.

and foreign markets. Nike's deliberate approach to lean manufacturing includes worker empowerment - giving factory workers the skills and abilities needed to manage production and immediately address issues as they arise, such as quality or process improvements. These changes put decisions closer to the worker, and require a high level of support to ensure all workers have the skills and confidence to consistently produce quality products.We believe our lean manufacturing approach holds great promise for worker empowerment and for building a more skilled and equitable work force. Nike’s approach is in harmony with Theory Y which set positive assumptions about workers that lead managers to create a work setting that encourages commitment to organizational goals and provides opportunities for workers to be innovative and to exercise initiative and self-direction.

Strengths Nike’s distinctive competency is in its marketing strategy, particularity in the area of consumer brand awareness and brand power.Its famous marketing campaigns and sponsorships programs were the leading factors behind its growth and success. Nike spends a substantial amount of funds on advertising because Nike believes that trough effective promotion and advertising it can reach its customers and build interest for its products. Also, it can differentiate its position in the mind of consumers and establish brand loyalty through marketing. For example, the "Just Do It” campaign, and symbols like the Nike "Swoosh’, couple with famous sports icons, serve as instant reminders of the Nike Empire.Moreover, another key competency of Nike is that its quality products and brand image could not be easily imitated.

Nike became an icon in the footwear industry, and its brand power is very difficult to replicate. Few companies have such a recognizable brand image and the available resources to keep promoting this image. This eventually translates into added value for consumers. Also, consumers use to associate Nike image with high quality products, and this is due to the various marketing campaigns that emphasized fitness, competition, and sportsmanship in their minds.And this image cannot be easily duplicated by other competing companies by simply enhancing the physical characteristics of their products.

Besides, the key strengths of the company could be summarized as follows: * High brand awareness as a result of high and successful marketing efforts. * Nike has worldwide distribution line which helps it to be a global brand that is widely recognizable. * Nike’s high market share is major asset for the company. * Nike does not do the manufacturing process for its products, it has no factories. Thus, it does spend funds in buildings manufacturing facilities and paying wages for workers.This makes a very lean organization.

* Nike is strong at research and development, as is evidenced by its evolving and innovative product range. Nike has special laboratories and engineering teams which cooperate on developing and executing new ideas. Also, Nike does direct research to the athletes by accompanying them during their training to find the best products that suit their needs. Furthermore, Nike develops always superior technologies to compete with others. * The production facilities are located close to raw materials and cheap labor sources.They have been strategically placed in their locations for just this purpose.

In general, the facilities are located further from most customers, resulting in higher distribution costs. However, the cost savings due to the placement of production facilities allows for cheaper production of products despite the higher costs of transportations. And, as Nike continues to expand globally and enter new markets around the world, these dispersed facilities will prove to be beneficial. Weaknesses A key weakness in Nike is the previous social responsibility performance.

Nike suffered a decrease in sales and revenue due to bad publicity in 1997 as a result of its international labor policies. Since then, they had attempted to overcome the bad press by raising and enforcing minimum age requirements for employees in overseas factories. Nike attempted to regain its mid-90's momentum as shown in 1998’s recovery, but the loss of Michael Jordan as their spokesman and the Asian financial crisis put an obstacle in front of them. Besides, the key weaknesses of the company could be summarized as follows: * The organization does have a diversified range of sports products.

However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes. * The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer.

So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike. In general, Nike’s products are considered to be of higher quality and as a result have higher prices relative to our competitors.While the prices are realistic given the nature of the products we offer to our consumers, at times our consumers may not agree. * The loss of incremental spokespersons and key sports figures. This could hurt the brand image of Nike, since that image was established on the ground of these figures. Nike’s external environment The footwear industry and NIKE are both at the maturity stage in terms of life cycle.

A maturity stage, however, does not mean that NIKE’s profit growth is at a zero level.Rather, the company generates stable sales and its profits increase with new management strategies, new product lines, expansion into new markets, and continued demand for its premium footwear products. Footwear manufacturers and retailers will continue to attract customers by introducing new lines of products and brand diversification. Rivalry Rivalry in the clothing and footwear industry is very active.

Many new sports companies are attracted to this market due to high and promising profits. Nevertheless, NIKE faces only few competitors that come close to its size and product differentiation.The company’s major competitors include Adidas-Solomon, Reebok, and Fila USA, the latter of which is a privately held company. Barriers to Entry Many barriers exist in front of the new entrants, first of all Nike invested heavily in Research and Product development and succeeded to produce innovative products with high quality and superior technology.

Moreover, Nike has invested and achieved the most amongst any other sports company in developing cushioning systems that reduce shock, distribute pressure, and provide comfort for athlete’s feet. Secondly, Nike enjoys high brand equity among the world, and its brand image could not be imitated.Thirdly, patent protects Nike’s effort in developing the technology it is using in the footwear production which is the “Air” technology, and also leads to product differentiation which keeps Nike competitive in the market. Opportunities Opportunities and threats are always present in the external environment and the company needs to pay attention to them in order to response quickly and effectively. Product development offers Nike many opportunities aligned with fashion trend. Even though, Nike is defended by its owners whom truly believe that it is not a fashion brand.

However, consumers that wear Nike products, do not always buy it to participate in sport, some of them would argue that Nike is a fashion brand. This creates its own opportunities, since product could become unfashionable before it wears out and consumers need to replace shoes. Thus there is the need to introduce new and innovative designs to the market in order to benefits from this fashion trend. Another opportunity is the free global market. The business could also be developed internationally, building upon its strong global brand recognition.

There are many markets that have the disposable income to spend on high value sports goods.For example, emerging markets such as China and India have a new richer generation of consumers. Also, there are global marketing events that can be utilized to support the brand such as the World Cup (soccer) and The Olympics. Finally, a new market that could Nike enters is the e-market.

E-tailing, or customer-designed internet merchandise, is threatening the traditional distribution channels and providing new opportunities for reaching more costumers and increasing sales. Moreover, e-commerce eliminates the "middle-man" distributors and allows for increasing profitability and more efficient operations. ThreatsThe industry has reached a level of maturity. While style and technology in athletic apparel and footwear has reached a leveling-off point, the important aspect now is for companies to differentiate their lines. The key threat for Nike is market saturation. The problem is that the athletic shoe market is already full of different brands and companies.

Now, there is very little room for new companies. There is also very little room for new product innovation and growth of market share for companies like Nike. Since Nike is currently holding the lead in the market as far as market share, there is little room for them to expand.Nike is now competing with other athletic companies as well as companies that just sell clothing or other types of shoes.

If all of these other companies merely gain a small percentage of the market, Nike will be one of the main companies to start losing market share. Besides, Nike is exposed to the international nature of trade which makes Nike vulnerable to fluctuating foreign exchange rates. It buys and sells in different currencies and so costs and margins are not stable over long periods of time. Such an exposure could mean that Nike may be manufacturing and/or selling at a loss.

This is an issue that faces all global brands. Furthermore, the market for sports shoes and apparels is very competitive. The model developed by Phil Knight in his Stamford Business School days (high value branded product manufactured at a low cost) is now commonly used and to an extent is no longer a basis for sustainable competitive advantage. Competitors are developing alternative brands to take away Nike's market share. As discussed above in weaknesses, the retail sector is becoming price competitive. This ultimately means that consumers are shopping around for a better deal.

So if one store charges a price for a pair of sports shoes, the consumer could go to the store along the street to compare prices for the exactly the same item, and buy the cheaper of the two. Such consumer price sensitivity is a potential external threat to Nike. Finally, the current financial crisis is a major threat for all companies. Beside the financial drawbacks of the crisis, the economic situation causes possible customers to cut spending and move towards money savings. Consumers are becoming savvier and may lean towards discounted items. Conclusion of SWOT analysisNike had followed a clear functional strategy in order to get a competitive advantage over its competitors.

First of all, they worked hard to achieve superior efficiency by working on reducing costs through moving production overseas and depending on outside contractors. Second of all, Nike always strived to achieve superior quality, its products have all the attributes that customers perceive as being superior to those found in competing products such as design, styling, performance and reliability. And through providing high quality products they created a brand-name reputation which strengthens the company’s image in the industry.Third of all, the firm had always worked on achieving superior innovation, speed and flexibility. Innovation is in the core mission of Nike, they have their own laboratories and they empowered their employees to be creative and innovative.

This innovation is translated into the uniqueness of their products that rivals lack. Finally, they try to attain superior responsiveness to customers. They had always tried, and from the beginning to satisfy the needs of their customers and give them exactly what they want.They used to accompany athletes during their training to find the best products that suit their needs. Nike has much strength that helped the company to attain a competitive position in the market. This was translated by its high market share both in the U.

S market and in the global market. The marketing strategy of Nike is a key success factor for the firm, however, recently they lost some of the figures that helped them attaining their current brand image, and Nike must find new spokespeople and sponsors new winning soccer teams in order to maintain its position in the market.Nike could overcome the threats within the industry in relying on its strengths and taking advantage of the available opportunities. For example, its strong research and development policy will help the firm in introducing new fashion products with the same high quality that suit athletes and thus fight against the high competitive market and at the same time take advantage of the increasing interest in fashionable products.