The most powerful way to sustain in global competition is still unlocked by many companies (Prahalad and Hamel, 1990). As the Managing directors face a dynamic, complex and unpredictable environment, they are driving towards seeking new ways of conducting business to create wealth. This is where the strategic approach plays the lead role (Asch and Salaman, 2002; Hitt et al., 2001; Scott, 2000; Stopford, 2001). The top executives are being judged on their ability to identify, cultivate and exploit the core competences which is what makes growth possibleF (Prahalad and Hamel, 1990).
Strategy research aims to find out why firms differ in their overall performance where some firms are more successful and achieve sustainable competitive advantage over the others ( Barnett and Burgelman, 1996; Schendel, 1996). In order to provide the competitive edge, the most critical task of the management is to create an organisation which is capable of infusing products with irresistible functionality or better yet, creating the products that the customer needs but have not yet even imagined (Prahalad and Hamel, 1990).
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In this report, I aim to concentrate on an organisation which is the current market leader and the first in its industry to understand its own resources and capabilities; and implement it. This has apparently resulted in its success.
NIKE was founded by Bill Bowerman, the legendary University of Oregon track & field coach and Phil Knight, a University of Oregon Business student and middle- distance runner under Bowerman. This business partnership began in January 1964 as Blue Ribbon Sports (BRS). In 1972, BRS introduced a new brand of athletic footwear called Nike, named after the Greek winged goddess of victory. (Datamonitor, 2009)
NIKE, Inc. was incorporated in 1968 under the laws of the state of Oregon. The Company's main business activity is the design, development and worldwide marketing of high quality footwear, apparel, equipment, and accessory products. NIKE is the largest seller of athletic footwear and athletic apparel in the world. It sells its products to retail accounts, through NIKE-owned retail including stores and internet sales, and through a mix of independent distributors and licensees, in over 170 countries around the world. (Market Watch, 2009)
Virtually all of their products are manufactured by independent contractors. Footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad. (Nike Annual Report 2009)Role of Resources and Capabilities in the Strategic Approach
Strategy is concerned with matching the firm's resource and capabilities with the opportunities that arise in the external environment which is why they are so important to a company's strategy. Different bundles of resources and capabilities are associated with different levels of efficiency in serving customer needs, therefore some bundles yield economic rent whereas some just allow firm to break-even.
The two main factors of their role in this approach are
- As the industry environments have become very unstable, the firm's internal resources and capabilities are being viewed as a more secure base for formulating strategies rather than the external market;
- Competitive advantage is being considered a primary source of superior profitability rather than industry attractiveness.
Therefore, the greater the rate of change in the firm's external environment, the more the internal resources and the capabilities will provide a secure foundation for long term strategy. (reading)
Organisational Capabilities - The Basis for Competitive Advantage: Resource Based Approach
This approach emphasises the uniqueness of each company and suggests that the key to profitability is not by doing the same thing as the others but by exploiting the difference. (reading).
Resource based condition for obtaining and sustaining competitive advantage. Resources and capabilities yield rent if they are - rare, valuable, imperfectly imitable, non - substitutable, imperfect competition in acquisition has to obtain. (network)
It was stated in a journal that competition for competence is neither product versus product nor business versus business. It is corporation versus corporation. Core competencies include capabilities such as collective learning in the organization, coordinating diverse production skills (the quality of relationship across functions and relationships) and integrating multiple streams of technologies (Prahalad and Hamel, 1990).
Nike's ResourcesTangible Resources:
Always on Time
Marked to Standard
Headquarters: Nike's Headquarters is located in Beaverton, Oregon. The 16 buildings at the world headquarters are a soft-spoken testimony to the beauty of sports. Nike employees are typically active people who take full advantage of the fields, trails and gyms that dot the 178-acre spread. Each building is named after an athlete who is key to Nike's growth over the years. (datamonitor)
Other locations include Cole Haan, Maine, USA; Converse, Massachusetts, USA; Hurley International USA, California, USA; Nike EMEA, Hilversum, Netherlands; and Nike UK, Sunderland, UK.
Manufacturing: Nike's wholly owned subsidiaries - Nike IHM, Inc. and Nike (Suzhou) Sports Company Ltd. manufacture the principal materials used in the footwear products. The Nike Sports Research Laboratory (NSRL) is located on the Nike campus in Portland, Oregon in the United States of America. To research and develop products, the scientists have an incredible array of measurement and analysis tools.
In 2005, Nike was the first company in its industry to disclose its factory list. It has more than 700 contract factories worldwide producing Nike branded product. There are three significant distribution and customer service facilities in Memphis, Tennessee. They lease 600 retail stores worldwide. (Nike) Human Resources: (92, 93)
Phil Knight, Co-founder of Nike, said, it's not a single product model, nor a single manager, nor one ad, nor a single celebrity, not even a single innovation that is key to Nike. It is the people of Nike, and their unique and creative way of working together (Nike).
Over 30,000 are working at the top of their game for Nike to reach its highest potential. It has been voted in the "100 Best Companies to work for" in the Fortune 500 for three consecutive years (2006, 2007 & 2008). (CNN Money).
NIKE's utilizes specialists in the areas of biomechanics, chemistry, exercise physiology, engineering, industrial design and related fields. In addition to this, research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopaedists, podiatrists and other experts consult with uthem and review designs, materials and concepts for product improvement. This definitely is a core competence for Nike as they rely on these people to test and develop cutting edge performance products.
Nike has mentioned that its global responsibility as a global company is to play a role in bringing about the positive systematic change for workers within its own supply chain, and in the industry.Financial Resources:
Mark Parker, President and CEO of Nike Inc., said that fiscal 2009 was a year that challenged companies to leverage core strengths and adapt quickly to a changing landscape. Nike's strong results demonstrate that they are meeting these challenges and seizing the opportunity to optimize our position as the industry leader.
In 2009, Nike's revenues grew 3 percent to $19.2 billion, compared to $18.6 billion last year. Fiscal 2009 net income decreased 21 percent to $1.5 billion and diluted earnings per share decreased 19 percent to $3.03.
Balance Sheet Review - At the end of the fiscal year, global inventories stood at $2.4 billion, down 3 percent from May 31, 2008. Cash and short-term investments at year-end were $3.5 billion, 24 percent higher than $2.8 billion last year.Intangible Resource:
Technology: Some of Nike' technology are the Air cushioning which is a core competence, Shox, Fly wire and Air Zoom.
Trademarks: Nike considers its NIKE® and Swoosh Design® trademarks to be among their most valuable assets and they have registered these trademarks in over 150 countries.
Patents: NIKE has an exclusive, worldwide license to make and sell footwear using patented "Air" technology. (Nike) According to Nike owns over 3000 patents with the US Patents & Trademark Organisation.
Copyrights: According to the United States Copyrights office, there are 834 Copyright numbers with Nike, Inc.
Reputation: Reputation is more important than ever to sales, shareholder value and attracting employees. Its reputation under social responsibility and human rights has been under attack. Phil Knight had promised to improve the wages and the working conditions of the workers in the contract factories. Since Nike spends so much on marketing and so little on the product itself, it is clear that the reputation of its brand is all-important. (Organic consumer)
Knowledge Management - Nike manages its worldwide net of suppliers. Difficult to get access Nike's knowledge of suppliers and imitate Nike's credibility with the suppliers. (1)
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Vertical Integration - Nike's operations are vertically integrated. The company has presence in every segment of the value chain from manufacturing to sales. The company operates two manufacturing facilities, one for producing footwear and another for producing apparel. The company also procures its merchandise from third-party sources. Nike procures footwear from contract suppliers located in low cost countries such as China, Vietnam, Indonesia and Thailand. Of the total Nike branded footwear; the company procured 36% from manufacturers located in China, 33% from Vietnam, 21% from Indonesia and 9% from Thailand, in FY2008. The company also has manufacturing agreements with independent factories in Argentina, Brazil, India, Italy and South Africa. Nike procures apparel for sale in the US and international market from independent contract manufacturers located in 34 countries such as China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Honduras, Mexico, Taiwan, Israel, Cambodia, India and Bangladesh.Innovative New Product Development
One of Nike's core competences is its product development. It is what that sets Nike apart in the industry .The Company's goal is to think of something that nobody has thought of before or improve something that already exists. "Innovation - It is in our DNA."(Nike)
It started in 1971 when Bill Bowerman, poured rubber into his wife's waffle iron hoping to create a new and better sole for running shoes for his track athletes. The result was a light waffle sole that transformed the running world. Next innovation came in the form of Nike Air. (Australian Business Case studies, 2009)Effective Outsourcing in Manufacturing
Outsourcing is Nike's threshold competence which is being imitated by most of its competitors in order to reduce costs and focus on the product development and marketing which impact most directly on customers. Substantial growth usually demands a significant increase in personnel, but outsourcing helped keep employee numbers only increase half the rate. (Nike outsource)
Marketing: Advertising is synonymous with Nike. In partnership with its advertising agency, Nike has created some of the world's most attention-grabbing advertising. (Australian Business Case studies, 2009)Brand Management
By 1982, every world record in men's mid- to long-distance running was set by players wearing Nike shoes. That brought tremendous publicity and brand identity (SELECT). Since then Nike had never looked back in terms of its image with comparison to its competitors like Adidas and Reebok (Interbrand, 2009). In the Best Global Brand 2009 ranking, Nike holds the 26th position with a brand value of $ 13, 179 million, whereas its competitor Adidas holds only the 62nd position (Interbrand, 2009). Some of its other brands include Converse, Chuck Taylor, All Star, One Star and Jack Purcell. (Datamonitor, 2009)Advertising
This is one of its core competencies. Nike well-known for its celebrity endorsement has huge army of sports celebrities in basketball, football, tennis, and in essentially every area of sports, constantly bombarding the customers through TV commercials and other channels (SELECT). E.g. Michael Jordan.Sales Promotion
With regards to sales, Nike had initially targeted only the US market and had been ignorant in exploring new markets. In 2003, consumer sales outside the US exceeded the sales in US with only 43% of the sales from US. (Business teacher) Selling its products globally is vitally important.Effective Distribution
Nike has a strong network of retailers in 200 countries worldwide through distributors, licensees and subsidiaries. Within the USA there are over 18000 stores that retail Nike products. But initially, Nike made itself heavily dependent on one retailer Footlocker, representing 10% of their revenue. When Footlocker reduced their purchasing form Nike, it created a reduction in turnover in the short term. (Business Teacher)
There has been an increase of 3% in the revenue from FY 2008 to FY 2009, whereas from FY 2007 to FY 2008 there has been an increase of 14%. According to the Nike Annual Report, they have mentioned that the changes in the foreign currency exchange rates reduced the revenues by 1% whereas in the previous year it contributed to 5% of the revenue growth. In the FY 2008, the other business reported revenue growth of 17% but in FY 2009 they decreased by 1%. Though there has been decrease in the revenue growth compared to the previous year the drastic difference has been drawn by the revenue by other businesses. It should also be noted that during this period acquired Umbro and; sold Exeter and Bauer Hockey.
Nike reported that the primary factors contributing to the 10 basis points decline in the consolidated gross margin versus the prior year were lower gross pricing margins and increased discounts which, when combined, decreased consolidated gross margins by approximately 60 basis points. They stated that the gross pricing margins were lower due to higher product input costs, most notably for footwear products. Also higher levels of discounts were provided across all businesses in fiscal 2009 to manage inventory levels.Corporate Responsibility (CR) Compliance Rating in Contract Factories:
Compliance ratings helps NIKE measure how the contract manufacturers perform against key benchmarks such as their Code Leadership Standards and local labour laws. They have found that contract manufacturers often respond to their audit results and remediation plans with quick fixes that can lead to rating fluctuation. Such fluctuations have made it challenging for Nike to recommend holding, ceasing or increasing production orders.Balanced Scorecard:
Nike looks forward to learn how tools like the balanced scorecard influence the strategic direction of the company on a global scale, and affecting working conditions. Its overarching goal is to see each and every business unit incorporating corporate responsibility goals into their business scorecards.
Nike introduced the balanced scored in its supply chain operations. It has implemented this approach in the contract manufacturers to evaluate them based on health, safety, environmental and labour management standards. (http://portland.bizjournals.com/portland/stories/2004/11/15/story8.html)Value Chain Analysis:
The value chain emerged as a strategic tool analysis since Nike started outsourcing its manufacturing and assembly of athletic shoes. Nike learned that manufacturing had become a commodity which could be outsourced for less and better quality than it could achieve with its internal resources (Nike VC1). Therefore, it could concentrate its resources on activities which impact directly on consumers. Nike rightly identified that product design is its key capability as its status as a brand leader surely testifies that (Nike outsource).
Nike generates its own new product ideas and manages the design process in house. Consistent with its original strategy, NIKE outsourced virtually all of its footwear manufacturing to low-cost Asian or South American manufacturers. (Nike Value Chain)
Nike's logistics operations are quite complex as it involves three product lines - footwear, apparel and equipment - and four regions which manage the company's logistics service provider network. (2)
Managing its global supply chain is a core strategic advantage for NIKE. The company worked with hundreds of manufacturing partners in order to develop long lasting and trusting relationships. These manufacturing partners did not necessarily provide the cheapest production, but most importantly, they delivered consistent, timely shipments of goods that met NIKE's high quality standards. (Nike Value Chain)
Once the production is fully on- line, these products are then sent to the warehouses from where they are sent to the various retailers. One problem which has been identified during this process is that all the items from the warehouses are not dispatched at the same time to the retailers. At the same time if the manufacturers didn't work in integration, then it wouldn't ensure the shipment of goods to the retailers at the same time. (Harrison and Van Hoek, 2002)
Marketing is one of Nike's competitive advantages. It plays a very important role in boosting sales. Marketing is involved in demand creation and product advertisement. (Nke VC) As direct sales channels, Nike owns and operates 14 Nike Towns. (Nike Annual report) Such stores were opened to showcase Nike's innovative product lines, strengthen ties with the customers, and a brand advertising opportunity.
Apart from these, Nike also operated few outlets to liquidate overstocked inventory. Through this channel Nike disposed the excess inventory without losing control of the brand. (Nike Value Chain)
Retail Sales Channels - Despite the company's origins of selling the shoes straight to the track runners, Nike wasn't much interested in direct sales to the customers. Instead it utilised a large in house sales force to sell its product to different types of stores. Earlier the distribution process was complex - a retailer's monthly order of 300, 000 shoes would involve 50 different models shipped to 100 different locations. Later, Nike invested $1 billion in several large distribution centres rather replacing many smaller centres. (Nike Value Chain)Bibliography:
- http://books.google.co.uk/books?id=0pe7G3ztbK0C&pg=PA104&lpg=PA104&dq=nike%27s+competence&source=bl&ots=sxEUGVJKsa&sig=f5XlMtMHpb2XBHv2O11GXrrF374&hl=en&ei=sUMNS-eyN5SH4QaxlqXADw&sa=X&oi=book_result&ct=result&resnum=7&ved=0CCYQ6AEwBg#v=onepage&q=nike&f=false (1)
- http://www.inboundlogistics.com/articles/features/0704_feature01.shtml (2)