Innovation at Nike

Innovation at Nike

Nike was ranked the #1 most innovative company of 2013 by Fast Company. Innovation is critical to the future success and growth of Nike; they even have a Sustainable Business and Innovation department dedicated to creative development/R&D. Nike CEO Mark Parker on changing Nike for the better, "One of my fears is being this big, slow, constipated, bureaucratic company that's happy with its success [. . .] Companies fall apart when their model is so successful that it stifles thinking that challenges it." Nike has four sort of unwritten rules that guide company innovation/growth.

Rule 1 - To disrupt, you must go all in.

Nike has created a new method to create shoes, called Flyknit, that can create shoes as light as 5.6 ounces. The product has gone through 195 major changes since its first design, which started with a ballerina slipper. Nike remained committed to getting the product right, and has now created a revolutionary method to manufacture shoes.

Rule 2 - Anticipate a product's evolution.

Nike's FuelBand was created after the Livestrong bracelet. Nike officials had already been working on a personal fitness tracking device, but recognized the opportunity provided by the already popular Livestrong bracelet. They combined that with a social network type fitness tracking program, and the FuelBand was born.

Rule 3 - Direct your partners.

The FuelBand required collaboration with an industrial design firm, engineering firms, digital marketing agencies, etc. and produced hundreds of different design ideas. They had to perfect the calorie tracking software and create a curved battery. Innovation requires a great idea, but then collaboration with many different partners to develop the final product.

Rule 4 - Feed company culture.

Nike has a $750 Winnebago parked in its "Innovation Kitchen." Team members meet in the RV because Phil Knight sold shoes out of an RV when Nike was just a startup. Nike understands that the history of the company lends a lot to the future, and keeps many reminders of the company's past. They have worked hard to build a certain culture at Nike, and this is important for the development of new products that fit this innovative company.

Nike's Strategic Leadership

Nike's Strategic Leadership

Nike created a strategic leadership team, headed by CEO Mark Parker, in 2010 to "continue to drive growth and reinforce its commitment to developing management talent around the world."Nike has 11 independent directors on its Board of Directors. Nike encourages outsiders to be part of the board to ensure a constant flow of new ideas. They want to try to avoid "corporate conformism," or the similarity of ideas as a result of working with the same company for an extended period of time.

Nike has also created a code of ethics, referred to as its "Inside the Lines" program. Employees are required to read/understand/follow its standards as explained in ITL. Nike has encountered its share of ethical violations. This program is an effort made by Nike to work to reduce/eliminate these issues from occurring in the future. In 2010, Nike was named one of the Top 100 Most Ethical companies by the Ethisphere Institute, and was only one of two apparel companies to make the list (Patagonia being the other).

Nike's Corporate Structure

Nike's Corporate Structure

Nike follows a relatively flat corporate structure. Each business line is broken out, and at the top is an executive for that particular business group. Aside from that however, managers are empowered to perform their jobs without a lot of administrative hierarchy. This is important as Nike operates in an industry that can change rapidly, so this allows changes to product lines/mixes to happen quickly. Nike tries to be innovative. I think giving managers the discretion to make changes among products allows for new ideas to surface quicker than if they had to go through certain channels.

Nike's International Strategy

Nike's International Strategy

Nike has developed from producing running shoes on a waffle iron in a garage into the most recognizable sports brand in the world. The following commercial illustrates just how far they've come. While the commercial is already 8 years old, it shows uses all-star soccer European soccer players in an effort to appeal to an international audience (soccer is the most popular sport in the world).

While I don't know any of the soccer players in the ad, I am not Nike's target audience. They are looking to expand their brand reputation in Europe, and presumably Latin America where soccer is also extremely popular. Nike has the potential to significantly increase its market size by expanding not only its product lines, but also by selling them across the globe. Nike also uses its ability to sponsor athletes as one of its principle ways of putting the Nike "swoosh" in front of consumers. Some of the world's most recognizable athletes are proud Nike endorsers, including Tiger Woods, LeBron James, Rafael Nadal, Serena Williams, Derek Jeter, and Ronaldinho. Nike has developed an impressive international marketing campaign around these famous individuals.

Business Level Strategy

Nike's Business Level Strategy

Nike utilizes a differentiation strategy to separate themselves from their competitors. Their apparel and equipment is not the cheapest in their industry, but is of the highest quality. Nike spends millions of dollars on R&D every year to maintain their edge on the market. Through their NikeID feature, customers can create their own cleats and clothes using whatever colors they want. They can even add their names or logos to their creations. Nike has the best athletes in the world. The reputation they have developed is critical to the success of their company. People buy Nike products because Nike is Nike. You hear Nike and you picture Michael Jordan, Derek Jeter, Tiger Woods, etc. Not even the Tiger Woods scandal or Lance Armstrong's doping situation was enough to really affect their brand loyalty in the long run. Because so much of Nike's future success is dependent on the reputation they have developed, Nike must maintain its image as the best sporting goods apparel/equipment in the the world. Nike is in in the maturity stage of the company life cycle. They have expanded into many global markets and must focus on R&D to maintain their advantage.

Nike has developed many different technologies and designs they have patented. Their original "waffle" shoe, their sporting good equipment technologies are covered by utility patets. Most of their apparel is covered by design patents. Also, their extensive marketing campaigns have resulting in many trademarks. The most famous being their swoosh, along with the "Just Do It" slogan."

Intellectual Capital

Nike's Intellectual Capital

Intellectual capital is comprised of both human and social capital. Human capital is the skills and talents of the employees of a company. From Phil Knight's creation of Nike's first shoe, to the empire they have now become, Nike has built its entire brand on the human capital. Nike relies on innovation through its vast research and development operations. Nike has clothing and equipment for nearly any sport or athletic activity. They have developed new technologies for equipment, shoes, and apparel. There's a reason Nike is able to have so many professional athletes endorse their products. These athletes need the best to be the best, and are more than satisfied with Nike's efforts to provide them with state-of-the-art equipment.

This also gets into Nike's social capital. Nike has developed an extensive network of relationships throughout the sporting world. Just think of the number of professional athletes using Nike gear, the universities decked out in Nike apparel, and the number of amateur events Nike sponsors to develop their brand. Nike is able to stay at the top of its industry because its brand recognition, developed through its network throughout the sporting world.

Nike's Internal Environment

Nike's Internal Environment

Nike's Value Chain - What does Nike do that adds value to the company?

Primary Activities - 

• Inbound Logistics and Manufacturing both relate directly to the production of of Nike's various product lines. Nike is able to use its buyer power to reduce production costs.
• Operations and Outbound Logistics - With over $24 billion in revenues in 2012, managing its global operations is a difficult task. However, efficiently managing production and product distribution can save the company a significant amount of money.
• Marketing and Sales - I would argue Nike is one of the best companies as far as their marketing efforts go. They have created a brand that people will pay for. The world best athletes endorse their products, from MJ to Tiger to Derek Jeter. Creating this brand has made Nike one of the most successful companies in the world.

Secondary Activities - 

• Procurement - Nike is able to use its buyer power to reduce production costs. It is also likely that Nike sources product from various suppliers to reduce dependency on any one in particular.
• HR/General Administration - Because Nike is so large, it has its own internal administration divisions, including HR, Accounting, IT, etc.
• R&D - Nike invests a lot in its R&D, from clothing and shoe designs, to equpiment technology. They want to have the best ______ in the world, no matter the sport. It's important to them that Nike athletes (the ones they sponsor) are able to use the best equipment and wear the newest gear.

Nike's External Environment

Nike's Changing External Environment

The following are potential factors that could affect Nike's business decisions. Some have already begun to occur, while others are merely possibilities.

Demographic:

1. An aging population will result in more retirees with more free time.
2. Changing popularity of certain sports among various geographic regions will result in different sales of different product lines. While hockey will never catch on in the South, Lacrosse has spread from the East Coast and is quickly increasing in popularity.

Sociocultural:

1. General shift to a more health conscious society. 24/7 fitness centers, the increased general desire to maintain a healthy lifestyle, and the proliferation of yoga/pilates will all result in increased sales of workout apparel/equipment. 
2. Nike has faced pressure for using sweatshops in the past. There has been news recently of factories in China having to install nets outside of their dormitories to catch workers attempting to commit suicide. Not that there is any connection to Nike, but social pressure to change manufacturing locations/processes could result in some significant challenges for Nike.

Legal/Political

1. Potential legal repercussions of manufacturing facilities (sweatshops).
2. Political pressure from outsourcing jobs, there is currently a push (and always I guess?) to bring jobs back to the US. Apple has recently announced that it would begin manufacturing certain products in the United States. 
3. Changing political relations between the United States and the Far East. China has been accused of spying on the US. Doing business in a company that spies on the US could result in an interesting predicament for many companies manufacturing products in China.
4. Counterfeit products pose a different problem for Nike. Nike will have to work to ensure that fake Nike products are never sold widespread, and that when purchased, it becomes known that they aren't an authentic Nike product. Fake products can easily ruin the reputation of real Nike products.

Economic

1. Financial incentives/subsidies for manufacturing in the US could result in industry-wide changes.
2. Economic changes in the Far East could result in an increase/decrease in production costs.
3. Changing oil prices result in variable distribution costs.
4. General economic conditions will affect the sale of various product lines. While shoes/clothing are generally safer, luxury items ("wants") such as golf clubs, tennis rackets, or fitness watches are more susceptible to an economic downturn.

Technological

1. Improved manufacturing processes could result in decreased production costs.
2. Improved distribution methods could result in decreased distribution costs.
3. New or improved clothing technology/fabrics/designs could result in new product lines or divisions.
4. Innovations in sporting equipment would also result in new product lines.

Global

1. Increased globalization will likely result in decreased barriers to distribution.
2. Free trade agreements could ease/hurt international distribution or production.

Porter's Five Forces

Potential Entrants - while not a huge concern for Nike, it is a potential problem. Niche companies are able to chip away at certain product lines within Nike. Aside from the established companies (Under Armor, Adidas, Reebok, etc.), it is unlikely a new Nike will emerge. Nike should focus on market share and competitors in each.

Industry Competitors - Competition among established firms is tough. Under Armor, Adidas, Nike, Reebok, etc. all have similar products with similar features. Nike should work to continue to develop its brand and reputation.

Suppliers - Nike is Nike. Nike also manufactures in huge quantities, and therefore has significant power over its suppliers. 

Buyers - Buyers have little power over Nike's prices. Nike can set its prices because it knows people will pay extra for the swoosh, and even more for the Jumpman logo.

Substitutes - This is most prevalent during an economic downturn, when consumers are more conscious of purchases and may not be willing to pay $5 extra for a shirt just for the swoosh.