Blue Ribbon Sports (BRS) was founded in 1964 by Phil Knight and Bill Bowerman as a corporate name, founders, and creation date. Phil Knight was a Portland-born athlete who specialized in middle-distance races, and Bill Bowerman was his field and track coach. Bill Bowerman was always looking for methods to improve his students' performances and spent his spare time trying to improve their running shoes. He tried many combinations but was unable to create a breakthrough. Phil Knight, his student, on the other hand, went on to earn an MBA in finance from Stanford University. While at Stanford, he wrote a paper proposing the production of shoes in Japan which will aid retailers to compete with brands of the Germany origin.
However, his call from the Japanese companies was not answered, and so he took a step and decided to import shoes from Japan and trade them in his native home. He attempted to sell his first stock to his former coach, Bill Bowerman but his interest was for the two to form a partnership. The business picked up slowly, but by 1965, the company recorded impressive sales worth $20,000.
Critical incidents and events in the company’s history
The birth of the Nike brand and company: as the business was stabilizing, the duo tried to launch their brand of footwear. After many years of struggle, they designed a lighter fashion of training shoes with an outsole and waffle-like nubs for grip; the milestone achieved in 1971. Their shoes entered the marketed when athletes used then in Field and Track trials in 1972 which took place in Ore in the United States.
Nike’s first footwear: the company’s first brand ambassador was Steve Prefontaine, who set seven American track records during his days in college between 1969 and 1972, from 2,000m to 10,000. In 1979, the two entrepreneurs inaugurated the Nike Air technology; this provided substantial competition to the already established players. Nike experienced tremendous growth during this time which prompted it to go public by the close of 1980. After a short period, the brand grew in popularity amongst fitness enthusiasts. In 1982, the Nike brand reached another milestone; it became the leading seller of training and athletic shoes in the U.S
Creation of the Nike logo: Carolyn Davidson, a graphic design student at the Portland state university, developed the brand logo which is also popularly known as Swoosh on the international scale; the Logo and tag, “Just Do It” become a household name in the United States.
Evolution of Nike’s Products: in 1985, the company was privileged to manufacture signature shoes for the NBA legend Michael Jordan and his fame raised Nike’s sales to establish new records. Nike went forth to designing close training and apparel accessories. They created outfits for several international teams like Brazil National soccer team, U.S men and women football teams, etc. In 1996, Nike signed a contract with the respected golf player, Tiger Woods for $5 million annually to market the brand.
The company launched an aggressive marketing movement with the objective of regaining the industry leadership which it had lost in the mid-1980s and differentiate the Nike products from those of competitors. The differentiating feature was the air max, the only footwear with visible airbags. An excellent TV advert with soundtrack footage of ‘Revolution’ boosted the marketing campaign. In 1989, the close-training of Nike’s business tremendously grew because of the famous “Bo Knows” promotion advert. At the end of the 1980-1989 period, the firm regained the industry leadership again, the maiden and the only instance, a company in the athletic apparel achieved such a milestone, and it has maintained the position till date.
Leading a new generation in the 21st century: the company entered the 21st century with a new design of shoes mitigating system, Nike Shox which was used first during 2000 Sydney games. The invention of Nike Shox ended nearly 15 years of resilience and dedication as Nike designers held fast into their ideas until technology knocked doors. The outcome was a protective and stable system commendable to join Nike air as the market’s best. The 2002 world cup dubbed “Secret Tournament” was the epitome of unified global promotion efforts. These marketing efforts involved the internet, advertisements, public relations, consumer and retail events to create amusement for Nike’s goods and athletes in a way no one advert could realize. This integrated marketing strategy has become the foundation for Nike’s communications and promotion. Currently, the firm continues searching for new creative ways of producing high-quality sporting products and innovative ways of communicating directly with its clients. The company keeps growing, including its strong presence in China plus its efforts to become the official benefactor of the National Football Benefactor (NFL) as from 2012.
The desire of Coach Bill Bowerman to find practical solutions and Phil Knight’s creativity created one of the biggest business institutions around the globe. In 2012, the company’s revenue was up to a tune of $24 billion. Riding on its success, Nike acquired some firms, and sold some in the way; Umbro is an example of such an entity. Currently, Hurley International and Converse Inc. are subsidiaries of Nike. The company employs around 44,000 employees, and its brand alone is worth around $10 billion. Constant innovation and calculated investments characterize Nike’s success witnessed by annual average profits of more than hundred million dollars.
Nike’s Industry Competitors. Adidas and Reebok are the fiercest and most established competitors of Nike in the world. However, there are many small players in the industry. Many leading rivals in the industry have diversified into other products apart from shoes like sports accessories, perfumes, deodorants, apparels, etc. Some of these other small competitors include Puma, New Balance, Fila, Under Armour, and much more.
Statement of the Problem
For many years, consumers and analysts have always perceived Nike as an invulnerable to problems. However, after the company’s recent income reports, analysts, consumers, and investors are worried about the prospects of one of the global leaders in retail business. Irrespective of the fact that revenue grew by 6%, the report of income for the last quarter of the fiscal year 2016 illustrates that challenges are increasing. The company dropped below the expectations and the price of shares dropped after the release of the financial report. Things may not get smooth any sooner, even though the face value looks promising. Further, financial analysts have warned against investing in Nike stocks.
The economic fall of the company relates to increasing competition from some leading competitors including Under Armour and Adidas. Though Nike is robust and larger than the two firms, the two businesses can cut down and reduce the market share of Nike, thus hampering the growth rate of Nike.
In Response to this challenge, this study looks forth to research the reasons for the decline of Nike in the retail business and ways of propelling the company to its former glory. The study will involve extensive research alternatives and point out the causes of the income decline and strategies for reviving the company. The survey will also take into consideration the options of making Nike products more competitive and further review whether the genesis of the problem stems from internal forces like leadership issues or external factors like market forces.
Research question
From the current fierce competition in the market, is Nike able to successfully overcome inherent limitations and management challenges to rise back to global dominance?
Hypothesis
Nike Company is undergoing business challenges that might be drawn to flaws in strategic management
Significance of the study
Provision of valuable information for the company which will aid in identifying operational areas with weaknesses and hence finds out the best way of bridging these limitations. Further, the recommendations from the study will offer management the best practice options of reinvigorating the company into competitiveness. Besides, after realizing the origin of the control limitations, the firm leadership will have options of redeploying the affected persons, retraining them or assigning them duties congruent to their skills.
Purpose of the research
The purpose of the investigation is to unearth the impending reasons for the decline of the performance of Nike as evidenced in recent income report. To point out areas of weaknesses in the company, look at and reinforce the business strengths and reveal the available opportunities the company can take advantage of to gain competitive advantage again. Besides, the research intends to inform the chief executive officer of the threats to the business and therefore make necessary responses to mitigate the possible effects of the risks.
Research methods
The research will employ both qualitative and quantitative research methods to gather relevant data for this study. These methods include the review of journal articles, literature review, study the of data from government websites, and analysis of online materials. The qualitative research method will be employed to gain an in-depth understanding of Nike and how it has been fairing on in the market.
Summary
Phil Knight Bill Bowerman launched Nike Inc. in 1964. The company’s initial name was Blue Ribbon Sports (BRS). The duo first started by importing sports shoes which they sold in America before the thought of starting their firm. Within a short period, Nike rapidly grew, and around the 1980s, it was the leading manufacturer and seller of athletic wear. Later, the company diversified sports apparel and equipment. The main competitors of Nike are Adidas and Under Armour. This study seeks to answer the underlying questions for the decline in performance of the company’s retail business and find ways of propelling it to its former standards. The research question for this study is: From the current fierce competition in the market, is Nike able to successfully overcome inherent limitations and management challenges to rise back to global dominance? The hypothesis of the study is: Nike Company is undergoing business problems that might be drawn to flaws in strategic management. Further, the survey captured the importance of the study, purpose of the research, and applicable research methods.
Chapter Two
Literature Search
Nike made a grand entry around the 1980s by the innovation and launch of the Nike Air technology in its footwear, Tailwind. However, the market response was not impressive in 1986 when the firm was compelled to retrench a number of its employees because of sales decline and fierce competition from Reebok which rose to the leading sports products producer for some time around that period (Powers & Hahn, 2004). The massive miscalculation arose due to a lack of relevant information about the market needs and a single focus on the product. The management was unable to conceptualize that it is not about the quality of the product in the market when they primarily concentrated on the manufacture of superior shoes and high production efficiency without studying the actual market needs (Powers & Hahn, 2004). Thus, it is fundamental to learn about the available opportunities in the market before making a step. This flop in business strategy was apparent when the management could not comprehend the prospects behind the aerobics market and underestimated the requirements of the actual market. This failure in planning gave an enormous chance to the competitor firm, Reebok which temporarily took the first position in the industry (Powers & Hahn, 2004).
Further, such a slip occurred again in 1998 when Nike encountered the same problems (Nickols, 2012). Again the firm was unable to determine the actual market need and current opportunities. The administration was engaged in advancing technical and functional superiority in athletics shoes in comparison to the competitors while the real demands of the consumers had immensely changed (Nickols, 2012). People were not keen on technical issues as long comfortable shoes to use were available. For the consumers, availability of various sizes and fittings was the key issues (Nickols, 2012). For the backdrop, the bulbous and soft shoes produced by rivals such as Adidas and Puma gained a huge market share while Nike lost ground on youth appeal and looked like a mainstream company unattractive to the young generation (Nickols, 2012).
Studies by Liu et al. (2007) depict that brand endorsement by celebrities is one of the powerful techniques currently used and that scientific studies have supported this claim. Further, Liu et al. (2007) argue that the relationship between the brand and the commodity has a positive effect on the buying behavior of the customers and is fostered with four key endorsers who are experts, celebrities, archetypal consumers, and CEOs. Further, superstar endorsement is not a new phenomenon; as noted by Agrawal & Kamakura (1995), this marketing method has been in operation for more than two centuries. Nevertheless, it 's hard to quantify the impact and profitability of celebrity endorsements as Agrawal & Kamakura (1995) notes. A company must recognize the contributing factors and reduce the effect of extraneous variables and then establish the direct influence of the superstar presence on the sales of a commodity. Overall, Agrawal & Kamakura concluded that celebrity promotions had a positive affirmation on consumers. On the contrary, a survey by Knittel & Stango (2009) on the impact of the scandalous Tiger Woods extramarital relationship and negative behaviors in connection with his sponsorship companies depicted a profit decline of $5-$12 billion, unlike other entities which did not utilize his endorsement.
The stakeholder theory. Stakeholders are groups of people who can influence or influenced by the achievements of an entity’s objectives (Freeman, 2010). The direction and accomplishments of a firm emanate from the stakeholder concept. Freeman (2010) postulates that a company should or, an organization is as an assembly of interested parties and the responsibility of the team is to handle their interests, viewpoints, and needs; and the stakeholder management responsibility is actualized by the manager of an institution. The management has the task of managing a business for the good of the investors to fulfill their rights and contributes to decision-making and problem-solving. Besides, the supervisor acts as a stockholder agent to meet the growth and survival of the entity to protect the long-term aspirations of the interest groups. The stakeholder theory is in tandem with the problems ailing Nike. It is clear and categorical and points out to the fact that the well-being of an organization lies in the hands of the management; and where there are problems concerning returns and poor performance in the market, the effectiveness of the control the blame and doubt.
The contingency theory. The theory posits that the management makes decisions after taking into consideration all factors of the prevailing situation and the decisions rely on the aspects fundamental to the problem at hand. From another point of view, the theory implies that the best action depends on the situation and decisions are made on what is going on in the market. In line with the theory, the consequences of the decisions made by organizational leaders after the outcomes in a company fall on managers; when a corporation fails, the management fails; when successful then the administration has succeeded. Thus, applying to the Nike Inc., it is the management which takes the blame for the recent decline in performance hence restructuring will impact the company's performance.
The systems theory. According to this theory, consultants, educators, and writers assist managers to view organizations from broad perspectives. The method offers a new approach for managers to read and interpret events and patterns in the work environment. Through this, the managers can identify the various parts of an institution, and specifically how the various departments relate. For instance, the linkage of the top management with its programs, the association between management and manufacturing, the relationship between workers and supervisors, etc. and hence making significant advancement in management approaches. In the past, managers could only pick one department and specialize in it after which they move to another unit and learn what it entails. The challenge with the traditional approach was that the top leadership could have fantastic management but with very ineffective departments. From the theory, it is clear that everything falls on the shoulders of the management. When things fail, the management takes the responsibility. Further, this approach has provided a different insight to management; that where the managers lack some information, they can hire the services of consultants. Thus they have more leverage to succeed.
Comparative Company Analysis
Adidas and Nike are the leading corporates dealing in sports equipment globally. These two firms are the largest sellers of sport shoe the world over. Nike is the dominant company and then followed by Adidas (Joachimsthaler, 2000). Nike rose to popularly faster than Adidas because of its massive celebrity sponsorship strategies, especially basket players. Thus its largest market is in the U.S, but it has an enormous global presence the world over sponsoring various games and tournaments including world cup and Olympic games. On the other hand, Adidas targets sports personalities in tennis and soccer, and it enjoys a massive dominance in Europe. Besides, Adidas has a considerate presence in the global market (Joachimsthaler, 2000).
Both companies’ products are expensive, but Nike’s offerings are much costly. Adidas employs market skimming pricing strategy. Looks and color drive Adidas products. For instance, a pair of white Adidas shoes is more expensive than another pair of the same quality but of a different color (Powers & Hahn, 2004). On the contrary, Nike utilizes price leadership and dominance based pricing techniques where quality and the valued assigned that product determines price (Joachimsthaler, 2000).
Both companies have encountered problems over time in their quest for growth and subsequently lost market leadership to the other. For instance, around 1985, Nike over-concentrated on the development of production technologies forgetting the market needs. In return, it lost its dominance to Adidas which dominated the market for some time (Nickols, 2012). Nike was able to go to the top once again, by innovative strategies like aggressive marketing, research and development, and market development into developing economies.
Further, Nike employs cost-cutting techniques like locating its manufacturing plants in developing countries where the cost of labor is cheap. On the other hand, Adidas remains competitive due to its affordable pricing and sponsorship of popular sporting events like soccer and tennis (Nickols, 2012). These philosophies have helped the two companies overcome limitations in their operations.
Summary
This section captures literature search and comparative analysis of Nike versus Adidas, its greatest rival. Besides, this part espouses problems Nike has encountered through its growth. For instance, when it concentrated on production technologies instead of keenness to market needs and subsequently surpassed by Adidas as the market leader in 1986. Further, the company fell into the same problems in 1998 when it was unable to establish the practical market needs when it was too keen on functional and technical superiority with little focus on market trends.
Chapter two also elaborates theories explaining the management problems of Nike. Some of the principles of management touched here include the following: the stakeholder theory, the systems theory, and the contingency theory all of which try to explain the origin of problems in management and measures of mitigating these limitations.
Chapter Three
Current Company Operations
Historical and financial aspects of Nike
Table 3.1 financial analysis of Nike for the period 2013-2017
Source: http://www.marketwatch.com/investing/stock/nke/financials
b. Marketing
Nike held a 30.4% of the world market share in 1998. Despite a poor performance from earlier years, Nike continues to have a giant market share for the athletics wear in the United States (Hill, 2008). In 1998, Adidas, the closest rival, had a market share of 15.5% while Reebok’s position constituted 11.2 % market proportion (Hill, 2008). Other competitors like Converse, Timberland, Asics, Fila, New balance held an average of 3-5% of the remaining market. While Nike is still leading, its market dominance is projected to broaden with new products (Hill, 2008).
Distribution through E-commerce. Nike set a pace in E-marketing being the first enterprise to market through online platforms. The company launched its electronic commerce in 1998 and contributed 65% of all types of shoes in the U.S economy (Hill, 2008). Further, it increased its online marketing presence through the inauguration of NIKEiD IN 1999 (Hill, 2008). NIKE allows clients to decide key features of the type of shoes they buy. The strategy offered the first time a firm offered extensive customization of shoes. After, NIKEiD, the company opened an online shop in Japan and other promising economies like China and India (Hill, 2008).
Promotion and advertising: the company’s images involving the trademark Swoosh and the company tag, Nike represent one of the most popular brands globally (Hill, 2008). The brand strength means bottom-line income. Nike, the company name, its trademark appear everywhere from stadium banners, players t-shirts, hats, pants, and walls. Aggressive promotions, celebrity endorsements, and high-quality products foster Nike advancement in the market (Hill, 2008).
c. Human resources
No company has ever succeeded without the contribution of the workforce. Irrespective of the policies the entity has always put in place, the company faces some limitations regarding labor relations (Hollensen, 2007). Over its history, the company has experienced negative publicity and as a result experienced a decline in revenue because of weak labor regulations and absence of comprehensive labor laws in overseas markets (Hollensen, 2007). Due to such issues, Nike often strives to be a responsible representative of the corporate bodies. Concerning challenges the company has ever encountered, it has committed to the following rules: first, raising the minimum working age at Nike factories to 18, and 16 to all light manufacturing duties; and secondly, sponsor education services for workers for courses equivalent to junior and high school classes (Hollensen, 2007).
d. Ethical issues in the recent past
Allegations of unethical character whether true or false, injure the public image of the company, and subsequently the decline in product sales. An example of such accusation is the Vietnam case and the commercial embargo imposed on the communist state because of the U.S POWs/MIAs (Zadek, 2004). The U.S president in 1993, Bill Clinton promised to uphold the restriction until the United States got accurate information about the Vietnamese situation (Zadek, 2004). However, after two years, the president lifted the sanction to the disappointment of the POA/MIA households involved; however, it was good news to companies running operations in Vietnam (Zadek, 2004). Putting the image of profitability above the American POW/MIA, the company experienced negative publicity with the army, families and the entire country. This in addition to “sweatshop” functions in Nike enterprises in Vietnam and other nations severely damaged the company’s image (Zadek, 2004).
e. Response to labor issues
Reacting to allegations from consumer bodies over unethical labor practices, Nike formulated a corporate social responsibility policy which captures the better working conditions for international staff (Zadek, 2004). The following mission statement spearheaded the plan: to be ambassadors of corporate citizenship through functions which reflect compassion for the Nike family globally, consumers, stakeholders, and all Nike service providers (Zadek, 2004). The policy captured raising factory workers age to 18, granting independent factory inspections, active participation in environmental conservation, improving the health standards, and advancing programs which foster education. This policy illustrates Nike’s determination to the issues of consumers as well as the well-being of Nike employees globally (Zadek, 2004).
Corporate and business strategies
Mission and goals of the company
The mission: To offer inspiration and creativity to all athletes globally, and that everyone with a body is an athlete (Galpin, Whitttington & Bell, 2015). The mission statement is in line with the company’s core business of supplying all sportspersons with necessary tools like shoes and clothing. From the beginning, one can realize that Nike wants to do business with athletes, and all other people as the mission statement points out that anyone with a body is an athlete (Galpin, Whitttington & Bell, 2015). The mission is the driving force which steers the organization forward. The shareholders have the power to determine the realization of the mission, objectives and expectations and the process that can lead to an understanding of the purpose. As observed, the mission is clear and carried the single purpose of realizing the organization’s objectives (Galpin, Whitttington & Bell, 2015).
The goal of Nike: Nike Inc. believes in collaborations shaped and value the chance to work in unison with all parties in the apparel sector and to promote best practices. Nike Inc. has established a robust cooperation with the United Kingdom and the European Union, governments and other international bodies by taking into account the laws which shape the future of the clothing sector in areas like consumer awareness, environmental concerns, recycling, and sustainability (Galpin, Whitttington & Bell, 2015). Nike encourages the objective of partnerships which offer solutions and foster sustainability everywhere its supply chain reaches and ensuring that the world is a better place to live.
Nike’s Generic strategy
The generic approach involves techniques a company uses to develop and promote competitiveness in the market. Besides, the company’s growth policy highlights the firm’s emphasis on inventions to advance the business. The company employs a mixture of strategies to increase its cutting edge in the market. This plan adopts two generic tactics from Porter’s perspective which are: differentiation techniques, and cost leadership tactics (Galpin, Whitttington & Bell, 2015).
The cost leadership general policy fosters competitive ability relying on costs. The strategy reduces production costs to increase profits or to minimise the selling price. Towards the end of the 1990s, the firm cut costs and the market price of all its products (Galpin, Whitttington & Bell, 2015). The step enabled it recaptures its attractiveness, particularly against Adidas. Further, the differentiation scheme offers unique products to the market. For instance, the company utilizes innovative designs for its footwear (Galpin, Whitttington & Bell, 2015). The combination of differentiation and cost leadership elevates the company’s performance on the global stage. The objective of the firm through these two policies is to enhance the business’s competitive advantage by adopting efficient technologies to cut down production costs. A financial aim through differentiation is to increase the profit margins (Galpin, Whitttington & Bell, 2015).
Nike’s intensive growth strategies
Product development: this is the primary policy for product development, and it involves the introduction of new products to increase sales (Miller, 1992). For instance, the mission statement of the company highlights the use of modern technologies and innovations for shoes and other product offerings. Advanced technologies promote goods and put in a competitive position than rival products. For product advancement, these Nike offerings remain appealing irrespective of the ever-changing consumer tastes and preferences (Miller, 1992). Therefore, this technique fosters Nike’s ambitious scheme through product creativity. An appropriate financial goal from this policy is massive growth to broaden Nike’s market share through superior technologies amalgamated in apparel, shoes, and other equipment (Miller, 1992).
Market penetration: this one is a secondary growth policy. Here, the company grows by expanding sales in its current market. For example, the company always opens more of its stores in the United States to make more sales to its American clients (Miller, 1992). Nevertheless, this is just a secondary growth strategy because the retailer has a massive presence in the global market. The cost leadership scheme allows the firm penetrate into the market depending on the affordability of the product (Miller, 1992).
Market development: this is one of the most significant intensive plans for Nike. The policy promotes the company’s growth by focusing on new markets and market segmentation. For instance, the company breaks into the African and Middle East to expand its shoe sale (Miller, 1992). Together with market development is the application of innovative technologies to expand into new market segments like one of the bodybuilders (Miller, 1992).
Diversification: it is not the most popular strategy for Nike. This approach entails launching new business lines to realize growth (Dess & Davis, 1984). The company used the strategy effectively during the early stages, for example when it inaugurated clothing and sporting tools into its pioneer products. In the beginning, Nike specialized on athletics shoes only (Dess & Davis, 1984).
Control strategies
The company has detailed profitability measures which assist in the evaluation of individual performance and also in comparison with rival firms. Nike uses standards like assets growth, returns on investment and equity, profit per share, net profit, etc. also, the company has regular performance checks (Dess & Davis, 1984). Some of the sections where Nike has put controls include technological dominance, competitiveness in the U.S market, performance on production sites about other players in the industry, and over public relations, and social responsibility (Dess & Davis, 1984).
Marketing as a distinctive competency
Marketing is one of the strongest points about Nike especially in brand power and consumer awareness. There are many premises behind Nike’s success, but its promotion power goes far beyond its competitors (Merchant, 2014). In effect, Nike’s market share is the largest in the athletics sector. The two features that distinctively foster competency includes difficulty to replicate and the utility consumers gain from using Nike products. Besides, Brand power makes it even harder to replicate (Merchant, 2014).
Summary
Chapter three captures two most important aspects: first, current company operations, and secondly, corporate and business strategies. The first section captures these five elements, namely: historical and current financial trends of the company and particularly in the past five years, marketing, human resources, ethical issues, and business response to labor concerns. The second part entails mission and goals of the company, Nike’s generic strategy, intensive growth policy, control approaches, and marketing as a distinctive competency.
Chapter 4
SWOT analysis
I. Internal weaknesses and strengths
i. Strengths of Nike
a. Leading
Traits, skills, and effectiveness
The board of directors: Nike’s board of management comprise of independent and management directors. The mixture of these two types of leadership benefits the entity in that there are those who are directly engaged with the firm while separate ones come with external experience, provide an alternative for consultation and can aid the entir
