Influence of change on business strategy of Nike PDF

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Influence of Change on Business Strategy of Nike A Company Profile Nike Corporation was started in 1955 as a shoe distributor company has grown a multi product internationally present entity in the last six decades. During these years it has faced all kind of challenges and has come to this level of existence. Nike, Inc. is the biggest manufacturer worldwide of both athletic footwear and apparel in terms of sales. It specializes in the production and sale of athletic footwear, apparel and equipment. Its internal stakeholders include its employees, directors and managers while its external stakeholders include the government (depending on the country in which the organisation is operating in), pressure groups, competitors and the customers. Many observers date the modern development of CSR to the 1990s, when consumers boycotted Nike to protest against unacceptable conditions in factories run by its subcontractors in Asia. It took almost a decade, but the company finally evolved from defending its actions to take proactive steps to improve conditions for workers making its products. It now carries out regular inspections of factories where its products are made, and reports on conditions as part of its annual Sustainable Business Reports. The change in corporate policies, adoption of strategies was explained as follows in 1998 by Phil Knight, then CEO: 'I truly believe the American consumer doesn’t want to buy products made under abusive conditions.' The effect of this strategy and change brought in a positive impact on Nike’s stakeholder groups (both internal and external) as they have gotten a motivated workforce as the organisation adopts CSR, and happy customers with a satisfaction that the products they are purchasing are ethically manufactured. Vision and Mission: Mission – To bring Inspiration and Innovation to every athlete in the world Customer Service Mission – To represent the highest service and standard within and beyond our industry, building loyal customer relationships around the world. Vision: The change in the outlook of the company can be seen from the mission it had in 1962 which said “to distribute low-cost, high-quality Japanese athletic shoes to American consumers in an attempt to break Germany’s domination of the domestic industry.

Challenges of the Changing Environment and Nike Strategy Strategy is devising plans to achieve the long-term goals of an organisation and change are the driving forces and restraining forces that create change in a business so that they can move forward and remain competitive. Nike has had adopted many changes that have influenced their business strategy. Nike’s major market has always been supportive and helped it to advance its products. The overall stability of the American economy, low interest rates, stable currency conditions and competitive tax system has also helped Nike to reach the stage it is present. Similarly the economic condition as of today is a matter of slight concern for Nike. Its biggest market the US is going through a severe financial crisis which is affecting as sales as customers are postponing their spending. This crisis is also affecting its manufacturing cost as its manufacturing base is in Asia and the cost of material and labour is on an upward trend. Its sales are not affected by only local economy but also international economy hence the lower valuation of Euro coupled with Asian financial crisis will affect the sales of Nike. Increasing social trend of fitness and people awareness of diet and health has also benefited Nike. People are joining fitness centers and looking for up to date equipments and other sports gears which is a positive sign for Nike. At the same time Nike has also got bad publicity because of ignoring the social conditions of labour in its manufacturing locations which they have taken up seriously and have come up with its responsibility agenda. Nike has also harnessed technology for its utmost utility- considering the influx of technology in the present world. It has implemented IT systems in its supply chain which has facilitated its growth in international markets. At the same time it has used technology for product development, this again has taken Nike far ahead of its competitors. It is making use of technology from all aspects of its product from development to supply chain and distribution. The challenges for Nike can also be explained in terms of Michael Porter's five forces model in which Mr. Porter explains how the five forces working in the industry affects the competitive environment of a company, in this case Nike. Threat of New entrants (Low) -

High Barriers to Entry

Capital Intensive Strong Brand Following Economies of scale High R & D Costs Industry in consolidation phase

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Internal Rivalry (High)

Fierce Competition- Adidas, Reebok Mostly Non-Price competition Differentiation strategy Industry in Consolidation phase

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Substitutes (Low)

Other types of shoes Other sport apparel

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Buyer Power (High)

Everything depends on Customer Preferences Price sensitivity issues Brand following Retail and vendor consolidations Growing power of retail chains e.g. Walmart

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Supplier Power (Low)

Raw Materials are abundantly available Cheap resources, commodity items Nike Ansoff Matrix:

Product Development: Innovation in Product Development As mentioned earlier, Nike has been at the forefront of using technology as a key component for product development. Few successful products out of its stable are Nike Air, Nike Air Max, Nike Air Zoom, and Nike Shox. In the most recent product innovation Nike has teamed up with Apple to launch Nike+: a digital sports kit comprising a sensor that attaches to your running shoe and a wireless receiver that connects to your iPod. This is leveraging the success of Nike with the meteoric success of iPod. Apart from listening to music while you jog the device will calculate your speed, distance and the calories you have burnt. You can upload this data to the website nikeplus.com. The website will provide a tracking of your progress. Market Penetration Innovation in Corporate Responsibility In order to improve its brand loyalty along with the responsibility of being an ethical business organisation, Nike has adopted the CSR. This certainly had helped it to further increase its market share by building a loyal customer base. At the outset we have mentioned the greatest impact of changing business environment is climate change, managing communities in which you have operations, eliminating toxic and wastes. The Nike Corporation has taken into consideration all these aspects to formulate a corporate responsibility target in the year 2007. The two year progress report included the corporate

responsibility goals for the next five years. In the words of CEO Mr. Mark Parker sustainability is the key to growth and Innovation in Nike. According to him the goals were not so much clear until now. The important initiative under this category for the company is: 1. Considered Design – It uses sustainability and innovative performance products for athletes by eliminating toxic products and using environmentally friendly products. 2. Green xchange (GX) – This platform is to enhance green innovation. Any intellectual property which can facilitate others to come up with newer environmentally friendly products are encouraged to be captured, licensed and shared. 3. Lean Human Resource management – Training of human resources for skill building, teamwork and other aspects to bring down waste and moreover using waste to develop new products. Sport for Social Change – Nike is using sports as a catalyst to bring about change in communities by creating awareness amongst youth to make informed choices. It has its program going in Africa with Grassroots Soccer for HIV/Aids prevention and elimination. 4. Energy and climate change strategy – To bring about change in manufacturing practices which can bring down its carbon footprint. It has launched energy efficient program with its five contract manufacturers which has been successful leading to 6% fall in carbon footprint despite an increase in production by 9%.

Market Development: Innovation in Marketing Mix Nike has not only got a diversified product line but it is involved in continuous innovation to add to its marketing mix. This gives it a huge advantage over its competitors. The marketing mix has been developed taking into consideration a wider range of diversified market catering to various sections of people. Earlier Nike was only in athletic footwear market focusing on Soccer and Basketball but with changing times it has diversified its portfolio not only by product development, venturing into other sports as well as acquiring new companies.

Nike’s main source of revenue is athletic footwear, it accounts for 54% of its total revenues. It is designated for running, cross-training, basketball, soccer and it includes even a casual footwear line. Sales in this segment increased by 14% in 2009 from which a big portion was a result of the increase in sales in the Asia Pacific region. The second most profitable segment for Nike is apparel, such as t-shirts, shorts, sweatpants, and licensed apparel made specifically for universities with their own logos. With an increase of only 0.2%, apparel sales accounted for 27% of the company’s revenue in 2009. However, sales in this segment grew by 14% in the previous period, between 2007 and 2008, due to the growth of 25% of revenues in emerging markets, such as Russia, and other EMEA countries but also a substantial revenue growth of 50% in China. Innovation in Marketing Strategy: Nike has been market leader in marketing and advertising in the sports gear industry. Be it their iconic “swoosh” symbol or the punch line “just do it” it has created raves among the younger generation to create a brand identity in itself. This brand is the utmost strength for the Nike Corporation. This is supported by the number of celebrities and teams that the company supports in order to gain customer loyalty through their superstars and nationalistic sentiments. Nike invests annually between 11% and 13% of revenue in marketing. Advertising strategy: The Company focuses its marketing on celebrity endorsement, i.e. athletes in basketball, golf, soccer, and tennis. Lately, Nike has also begun to sponsor big sporting events so as to create huge awareness and brand following. In 2008, Nike spent significant amount on advertising in the Beijing 2008 Olympics and the Football Championship. After one of the top celebrity was caught in the scandal, Nike has been cautious about the celebrity endorsements it has been promoting. Branding Strategy: Nike’s strategy in this front is to develop a premium brand associated with high quality product that satisfies customer needs. Initially the Nike customer associated the Nike brand with being the ‘American’ way: Being individual and aggressive like Michael Jordan and John McEnroe, they have carried the same strategy across all nations and promote their products by signing international and nationally renowned players. The company has built its brand around sports, attitude and lifestyle. Nike backed this strategy with marketing campaigns like “Just do it” and with the companies front athletes like Michael Jordan and Tiger Woods. Selling Strategy: Nike’s strategy in the early 2000s was to develop, flag ship stores, NikeTown shops in bigger cities, first national, and then abroad. Nike was again an innovator in setting up first company to establish flagship stores and it turned out to be a sensation. There are independent small retail stores that sell Nike products all around the world as well. Also, on seeing the potential of the

low price market, Nike took efforts in 2005 to tap in to the low price segment by striking a deal with big retail discount stores like Walmart and rolled out starter shoes at a cheaper price, competing with private label brands. However, to avoid brand dilution, Nike did not use the swoosh logo in these shoes. Currently, Nike has a high quality website and uses it as an online selling channel- making it available for all customers around the world. NikeId, a part of the website allows a customer to customize his own shoes and buy it. The website is available in 14 languages and is different according to the country requirements. The company is aggressive in direct selling and has recently opened the world largest store in Oxford circle, London which covers 42,000 square feet of area. This shows the commitment of the company to be in touch with the customer and enhancing customer experience.

Stakeholder conflict: As mentioned in the company’s profile, there have been various stakeholder conflicts that have influenced a change in the business strategy of Nike. As how in the boycotting of Nike products by the customers case, the stakeholder conflict was internal and external and by operating in a socially responsible way and thereby changing its business processes, strategy and objectives, Nike’s management (internal stakeholders) had responded such that most of its stakeholder objectives are met. This although would depend on the leadership style too, however majorly, the organization had solved its stakeholder conflict by rightly using the stakeholder mapping tool and addressing its stakeholders objectives (to an extent).

Conclusion Though we have discussed here the strategy adopted by Nike in the last five years in this changing business environment which has seen the most dynamic changes in the past several decades. It includes the peak of American growth rates and high consumer spending in the year 2005-06 followed by the worst financial crisis in the American history. Next came the carbon emission norms of the developed and the developing economies. Though international companies like Nike are major gainers when everything is going on track but these are difficult times and the company has to watch its steps closely while it increases its stronghold on the whole industry. The company has seen backlash because of its ignorance and it has paid heavily for it. . It has plans to develop already developed markets with single digit growth whereas going aggressive in emerging markets with a low double digit growth. It plans to open approximately 250-300 new Nike retail stores in its direct selling initiative. It plans to work with retailers for enhanced consumer experience....