COMPANY ANALYSIS - NIKE paprint by MyraDiaz


									Strategic Managers                                                                                 Strategy Implementation
Board of Directors - Strength                                                                      Corporate Culture - Strength
Nike’s board of directors consists of both management directors and independent directors.         Nike has created a corporate culture rich with employee loyalty and team spirit. Red
The combination of these two types of directors benefits Nike in that there is a presence of       "Swooshes" float across everything from screen savers to coffee cups at the company's
those directly involved with Nike as well as others indirectly involved who bring outside          headquarters in Beaverton, Oregon. The company chooses to call its headquarters a
experience, provide another frame of reference and can assist the overall board in thinking        "campus" instead of an office. Employees are called "players," supervisors are "coaches"
"outside the box." Nike’s board would be classified as an oversight board, playing an active       and meetings are "huddles." These terms go a long way to make the daily work experience
role with regards to management’s decisions in the area of strategy formulation.                   less than dull for the lucky employees in Beaverton.
                                                                                                   In 1985, thirteen years after the company was founded, Nike was blindsided when Reebok
Board of Directors - Weakness                                                                      developed its multicolored aerobic shoes. It was then that we decided to reinvent our
The average age of Nike’s board is 62, the youngest member being 49 and oldest being 79.           business and culture, becoming highly motivated about selling sports and a "Nike way-of-
This constitutes a possible weakness in that there is a lack of younger members of the             life." With this decision the company also restructured its marketing campaign, focusing
board who could serve to bring a new perspective to the company and assist in achieving            more on an image rather than just product advertising, a strategy which led to the "Just Do
Nike’s goals.                                                                                      It" mantra.
                                                                                                   Since then, Nike has been striving towards an inner culture that reflects this mantra.
Top Management - Strength                                                                          Employees are given an hour and a half for lunch to play sports or simply workout. The new
Co-founder, Philip H. Knight, has been with Nike since its inception. As a result, he has          Nike is not just about shoes and slam-dunks, but about promoting a lifestyle. All new
much knowledge and experience about the company and the industries in which it                     employees view a video of sports highlights accompanied by a soundtrack that discusses
competes. Knight’s strategic planning managerial style serves as a strength in that his            the soul of the athlete and the competitive spirit. In addition, management sends weekly
actions are planned and calculated, allowing for both risky and conservative decisions             emails to update employees on the recent successes of Nike-sponsored athletes, and often
based on careful thought and analysis. His participative decision-making style can also be         hosts spokespeople to motivate and thank its staff for contributions to the sports world. It is
viewed as a strength such that Knight is willing to listen to others to generate ideas. He does    not surprising that an athletic background helps a prospective employee. In keeping with its
not limit the company’s options to one-sided ideas and decisions.                                  sports approach Nike asks its players to work by two principals above all others -- "Honesty
                                                                                                   first, and competition second. Compete with yourself not your colleagues."
Environmental Analysis                                                                             Nelson Ferris, a 47 year-old head of its corporate education department states that, "The
Internal – Strength                                                                                Swoosh represents something other than just a company. It represents a whole value
Nike’s management analyzes its internal environment and makes decisions based on that              system."2 Ferris, a longtime employee, even has a Swoosh tattooed above his ankle. "It
analysis. Because of Nike’s marketing research, the company has decided to revamp its              stops being a job and starts to become a way that your are defining the way your are living
apparel division to be more fashion savvy. As a result of product and pricing research, Nike       on earth."2
has decided to continue to focus on the high end market while increasing its market share in
the middle and low price ranges in an attempt to broaden Nike’s product spectrum.                  Communication - Strength
External - Weakness                                                                                In late spring of 1999, Nike Retail, Nike's subsidiary consisting of the Nike Town shops and
Nike’s failure to foresee problems in relation to labor and factory conditions at production       employee stores around the world, upgraded their hardware and software. Our former
locations has resulted in bad publicity and declining sales as society and consumers call for      technology offerings consisted of IBM 4690-series point-of-sale cash registers running on
more "socially responsible" companies.                                                             the OS/2 operating system. We have upgraded to PC-based systems running the more
                                                                                                   sophisticated Windows NT operating system. The software we have been using for the past
Strategy Formulation                                                                               few years called, Connect: Remote, made by Sterling Commerce Inc., is also being
Mission - Weakness                                                                                 upgraded to the new operating platform. Corporate office communications capabilities with
Nike's Corporate Mission Statement:                                                                these branch locations will be improved dramatically. Sales and inventory data can be
"To be the world's leading sports and fitness company."                                            monitored in real-time. Electronic journaling, credit authorization, and sales reconciliation
Nike’s mission statement resembles a vision statement and is therefore a weakness. While           processing-efficiency will increase due to the addition of in-store databases. Modems
the mission does broadly identify the business we are in, namely the sports and fitness            transmitting data at 56K BPS, or even with digital technology, will replace the 9600 BPS
industry, it is not specific as to what products and services we provide. The mission              modems and provide for quicker processing times. All of these innovations will allow
statement also omits any mention of distribution channels and customers. It does, however,         executives at the corporate office and in other branches to better manage operations.
portray management’s beliefs and values of our desire to be number one and maintain the
leading position in the sports and fitness shoe and apparel industry.                              Leadership - Strength
                                                                                                   Nike’s top management’s leadership style can be characterized by the team management
Corporate Objectives – Weakness                                                                    approach. Top management consists of a committed group of executives all bringing
Nike has no published corporate objectives in relation to the overall company. This lack of        together vast experience and knowledge. The group is team oriented, but is capable and
corporate objectives represents a weakness. Stakeholders should be well aware and                  does work independently recognizing the common stake that each places in Nike. This style
informed of a company’s corporate objectives to better understand the nature of the                of leadership leads to relationships of trust and respect. The company culture lends a hand
company and its direction.                                                                         to the fact that top management’s teamwork style has spread throughout the organization.
Nike has established corporate objectives in relation to our perceived corporate
responsibility. Our objective is to "lead in corporate citizenship through programs that reflect   Motivation - Weakness
caring for the world family of Nike, our teammates, our consumers, and those who provide           While Nike employees have been loyal and committed workers, after the cost-reductions
services to Nike." This corporate objective represents a weakness as it does not meet the          that took place in the fourth quarter of 1998 resulting in a reduction of the number of
two requirements of being measurable and having a time frame in which to complete or               employees, we have had to place greater emphasis on motivation among the retained
accomplish said objective. Nike’s objective is immeasurable and broad lacking any time             employees. Morale also fell as a result of bad media coverage over reports of substandard
specifications for implementation of programs to meet this objective.                              working conditions for our Asian factory workers. While initiatives have been set to increase
                                                                                                   overall employee morale, this area remains a challenge to the company.
Grand Strategies - Strength
For our grand strategy, Nike utilizes innovation to produce top quality athletic footwear and      Strategy Control
apparel. As a result of devoting vast resources to the research and development of its             Establishment of Standards - Strength
products, Nike has captured the largest market share in the athletic footwear and apparel          A comprehensive establishment of profitability standards has assisted Nike in our evaluation
industry and continues to be the leader of quality products.                                       of individual performance as well as a comparison to other competitors. Nike utilizes
                                                                                                   standards such as net profit, earnings per share, return on investment, return on equity,
Competitive Strategies - Strength                                                                  sales growth and asset growth. Performance standards are also established and checked
The competitive strategy that Nike introduced at the end of the 1990's concentrates on             regularly. Some of the areas in which our company has established standards are
honing the focus of our marketing strategies and product offerings through product                 productivity of productions sites, competitive position in the United States relative to the
differentiation. We realize that the team-mentality that captured the spirit of athletics in the   global market, technological leadership in comparison to competitors and overall social
late 1980's and early 1990's has been replaced by a sense of individualism. Younger                responsibility and the public’s perception.
consumers especially, look to extreme sports and retail outlets such as Ambercrombie &
Fitch and Old Navy to find a sense of individual style. We are responding to this movement         Evaluation of Performance - Strength
in a number of ways. While retaining our company's long-standing tradition of placing              Nike thoroughly examines and compares the aforementioned performance standards to the
performance through new-product development as a top priority, a never-before seen                 actual results that have occurred as a result of implementing strategies to meet or exceed
element of fashion will receive a second-place priority built into our products and image. For     performance standards. These standards are important to Nike as a comparison of past
the 1999 back-to-school season, we conducted fashion shows in twelve U.S. cities. In               performance to present performance as well as in our attempt to forecast future results in
addition, an element of individualism is most obvious in our Web site. Customers can select        these areas.
the color and design a monogrammed heel-insignia for our made-to-order athletic shoes.
                                                                                                   Correction of Deviation - Strength
                                                                                                   Though Nike has established profitability and performance standards, correction of
                                                                                                   discovered deviations has been a slower and less timely process. Management’s slow
response time can be attributed to the careful analysis that is performed prior to making any       to build strengths at each of these levels. We see much potential in the lower price points
decisions. While in general this is a good policy to abide by, at times Nike would be better        and plan to meet the needs of those markets.
served by a management team that can react more quickly to given information.

Strengths and Weaknesses of the Functional Level
Marketing                                                                                           Marketing Research - Strength
Market Share - Strength                                                                             Nike primarily conducts marketing research on a continual basis to assist in maintaining our
Nike’s global market share was an impressive 30.4% in 1998. Despite a slight decline from           company’s position as the leader in the athletic footwear and apparel industry. Because of
prior years, Nike continues to have the greatest market share in the U.S. branded athletic          such research, we have decided to revamp our apparel division, an area in which we can
footwear market. In 1998, the closest competitor, Adidas, held 15.5% of the market share            still greatly improve. Nike will be organizing the internal business by gender as opposed to
while Reebok held 11.2%. The remaining competitors, including Fila, Timberland, Asics,              sport category and conducting increasing amounts of research addressing the buying habits
Converse, and New Balance, among others, each hold approximately 3-5% of the remaining              of men, who tend to be item-driven, and women, who tend to be collection-driven, with
market share. While Nike’s market share is still in the lead, it is expected to increase with       specifically targeted product lines.
new products. Nike’s market share is expected to do especially well as a result of
sponsoring the summer Olympics in 2000 in Sydney, Australia, the 2002 World Cup in                  Production
Japan and Korea, and the U.S. Speedskating team in the 2002 Winter Olympics in Salt                 Location of Facilities - Strength
Lake City, Utah.                                                                                    Nike’s facilities are located throughout Asia and South America. The locations are
                                                                                                    geographically dispersed which works well in our mission to be a truly global company. The
Distribution through E-commerce - Strength                                                          production facilities are located close to raw materials and cheap labor sources. They have
Nike has taken the lead in e-commerce by being the first to market with its e-commerce              been strategically placed in their locations for just this purpose. In general, the facilities are
web-site. Nike launched its e-commerce site in April 1999 by offering 65 styles of shoes to         located further from most customers, resulting in higher distribution costs. However, the cost
the U.S. market for purchase. Nike increased its e-commerce presence by launching                   savings due to the placement of our production facilities allows for cheaper production of our
NIKEiD in November 1999. NIKEiD enables online consumers to design key elements of the              products despite the higher costs of transporting our products. As Nike continues to expand
shoes they purchase. The program represents the first time a company has offered mass               in the global economy and increase its market throughout the world, these dispersed
customization of footwear. Nike’s future plans include opening an online shop for the               facilities will prove to be beneficial.
Japanese market next year followed by global rollout. By being the first to market, Nike
enables itself to become established while competitors rush to join us.                             Newness of Facilities - Weakness
                                                                                                    Our facilities abroad have attracted bad publicity in recent years. Though our facilities
Advertising and Promotion - Strength                                                                comply with local labor standards, generally, they have not met U.S. standards. We want to
Nike’s brand images, including the Nike name and the trademark Swoosh, are considered to            be a leader and set a responsible corporate example for other businesses to follow. As part
represent one of the most recognizable brands in the world. This brand power translates             of Nike’s new labor initiative, we commit to:
into bottom-line revenues. The Nike name and associated trademarks have appeared                                        o Expanding our current independent monitoring programs to include
everywhere from players' shirts, pants, and hats to stadium banners and walls. Aggressive                                      non-governmental organizations, foundations and educational
advertising campaigns, celebrity endorsements, and quality products enhance the brand.                                         institutions. We want to make summaries of their findings public;
Nike demonstrated an example of Nike’s brand presence at the 1999 NCAA Basketball                                       o Adopting U.S. Occupational Safety and Health Administration
tournament when 42 of the 64 teams participating wore shoes provided. Nike's most recent                                       (OSHA) indoor air quality standards for all footwear factories;
brand-building endeavors are focused on strengthening our association with women’s                                      o Funding university research and open forums to explore issues
sports. Some examples are our sponsorship of the 1999 Women's World Cup Soccer                                                 related to global manufacturing and responsible business practices
Tournament and our sponsorship of the U.S. Speedskating team in the upcoming 2002                                              such as independent monitoring and air quality standards.
Winter Olympics.                                                                                    While establishing these policies is a step in the right direction for Nike, the difficult task at
                                                                                                    hand will be the implementation of the aforementioned goals to ensure the success of the
Products - Strength                                                                                 program.
Though Nike leads the apparel division among industry competitors, Nike has not claimed to
be leading the race among the apparel industry as a whole. Due to increased emphasis by             Research and Development
consumers on fashion in relation to sportswear, we have had to make strides to appeal to a          Focus - Strength
fashion savvy market. Our apparel line is not only being challenged by our typical industry         Although Nike conducts continuous, basic research that benefits numerous facets of the
competitors such as Adidas and Reebok, but also by clothing and accessories retailers such          sports and fitness industry, our primary focus is directed towards applied research. Applied
as Old Navy and Abercrombie & Fitch. Continuous marketing research could prove to be                research focuses on short-term initiatives such as successfully developing new product
key in assessing the market. Nike is planning on initiating five structures within the apparel      lines. This proves to be a strength in that this method of research is less costly than basic
division to focus on the following areas:                                                           research, and less risky due to the short-term nature. Successful projects can realize
                    o Women                                                                         immediate profitability while unsuccessful projects may be discontinued without enduring
                    o Men                                                                           materially large losses.
                    o Kids
                    o sports graphics and caps                                                      Focus – Weakness
                    o strategic response independently                                              Focusing on applied research can be a weakness as well. Many new, innovative ideas
We are also spending more time on continuing to support and develop programs to gain a              come into existence as a result of basic, unspecific research. Though more risky and
better understanding what our customers would like to see in the market.                            expensive, Nike would benefit from increasing the amount of basic research we conduct
                                                                                                    with hopes of uncovering potential opportunities of which Nike could take advantage.
Products - Weakness
Nike has had much success as a result of collaborating with other companies within the              Posture - Strength
sports and fitness industry. However, at times we expanded into markets for which we were           Our posture is primarily innovative, while at times adjusting to a protective position, and
not strategically suited. An example is the decrease in brands made available due to                other times a catch-up stance. Nike prides itself on being a premiere provider of high quality
declining sales of in-line skating and roller hockey products at Bauer Nike Hockey. As a            sports footwear and apparel. Innovation has been the key to aiding Nike in securing its
result, we have had to exit two manufacturing operations at our Bauer Nike subsidiary. We           position as the leader in the market. Due to the lead Nike possesses in the industry, we can
had to terminate 51 employees. Had we anticipated the decline sooner, perhaps gradual               afford to look long-term and place a greater emphasis on innovation as opposed to other
changes could have been made so that the end result may not have been as finite in nature.          companies with a short-term outlook attempting to improve upon existing products and
The desire to prevent situations such as these from continuing to occur, we have initiated a        services. At times, we need to adjust our posture in relation to a particular product line or
more aggressive program to review product collaborations that are outside of our core basis         area of products. In these instances, Nike may choose a defensive strategy to remedy the
of products.                                                                                        current situation. We may also choose a catch-up strategy and mimic what is working well
                                                                                                    for other companies in the industry.
Pricing - Weakness
In general, Nike’s products are considered to be of higher quality and as a result have             Human Resources
higher prices relative to our competitors. While the prices are realistic given the nature of the   Human Capital - Weakness
products we offer to our consumers, at times our consumers may not agree. This presents a           No successful company can exist and succeed without utilizing its human capital. While
weakness. To mitigate any future problems in our high quality/high price lines, we are              Nike has had various policies in place, weaknesses still exist in regards to labor policies in
placing a renewed emphasis on emerging technology and innovation towards the                        overseas locations. We received much bad publicity as well as experienced a decrease in
development of new products, specifically the Nike Alpha Project, a revolutionary new line of       sales as a result of poor labor policies and lack of policies established abroad. Because of
athletic shoes. Despite the fact that in the past we may have overlooked the mid- to lower-         this and Nike’s goal to be a responsible citizen of the corporate world, Nike has committed
price-point products, presenting another weakness with room for improvement, we are                 to goals to better the problems as part of the aforementioned labor initiative:
dedicating our time and money to better develop our competitive position at all price points
                    o    Increasing the minimum age of footwear factory workers to 18, and            Management of Debt - Weakness
                         minimum age for all other light-manufacturing workers (apparel,              Despite the lower percentage of assets that are borrowed to finance Nike, our times interest
                         accessories, equipment) to 16;                                               earned ratio is weaker than the industry average. Our ratio of 19.43 reflects the number of
                   o Expanding education programs, including junior and high school                   times funds available from earnings can cover interest payments. The industry average of
                         equivalency courses, for workers in all Nike footwear factories;             21.88 indicates that the industry as a whole is in a slightly better position to cover its interest
                   o Increasing support of its current micro-enterprise loan program to               charges.
                         1,000 families each in Vietnam, Indonesia, Pakistan, and Thailand.
While establishing these policies is a step in the right direction for Nike, the difficult task at    Profitability - Weakness
hand will be the implementation of the aforementioned goals of the new labor initiative to            Nike’s profitability is wavering in comparison to the industry average. Our profit margin of
ensure the success of the program.                                                                    5.14% to the industry’s 5.69% is partially due to decreasing sales. Though net income did
                                                                                                      increase from 1998 to 1999, this was in part due to a reduction of our marketing budget by
Public Affairs                                                                                        $100 million and terminating 7% of our employees. Our return on equity of 13.54% in
Ethics – Weakness                                                                                     relation to the industry mean of 18.77 indicates that Nike is realizing a lower percentage of
Accusations of unethical behavior, whether or not they are true, only serve to injure Nike’s          earnings on stockholders’ investment. Nike’s low ROE can be linked to the dropping stock
image, and, as a result, product sales. One such example of questionable behavior relates             price as a reflection of stockholder confidence in our company.
to Vietnam and the trade embargo placed on the communist country as a result of United
States POWs/MIAs. In 1993, United States President, Bill Clinton, promised to keep the
embargo in place until the U.S. received an accurate picture of the situation. However, two
years later President Clinton normalized trade relations to the dismay of the POW/MIA
families involved, yet to the delight of the corporations operating in Vietnam. White House
documents have revealed large donations to the Democratic National Committee by
companies with an interest in seeing the embargo lifted. The author of the article, "Nike’s
Dirty Little Secret," alludes to the fact that Nike was present on this list. The image of
profitability being more important than American POW/MIAs has led to an unfavorable
image with armed forces, families and Americans as a whole. This, combined with the
"sweatshop" operations in Nike facilities in Vietnam and other countries, has negatively
impacted Nike’s image. While the worst is over, Nike is still working on initiatives to change
the current situations throughout factories. Whether true or not, the company still suffers
from this unethical image and must sway the minds of the consumer and give them a
renewed faith in the responsibility of Nike.

Social Responsibility - Strength
In response to accusations by consumer groups over unfair labor practices, Nike has
developed a Corporate Responsibility Policy that discusses how we will improve working
conditions for our international employees. The Policy outlined on our web-site has the
following mission, "To lead in corporate citizenship through operations that reflect caring for
the world family of Nike, our teammates, our consumers, and those who provide services to
Nike." The policy includes, but is not limited to, the following initiatives: raising age limits in
factories to 18 years, securing independent monitoring for our factories, extending a
commitment to the environment, improving safety and health conditions, and developing
programs to provide educational programs. The policy shows Nike’s commitment to
responding to the concerns of consumers, as well as a commitment to our employees
around the world.

(For the following, see Exhibit 4, Table of Key Financial Ratios on page 22)
Management of Cash - Weakness
Our company’s current ratio is 2.26, just slightly below the industry average of 2.28. The
current ratio, while not a major strength, shows that Nike is inline with the industry
concerning ease of converting assets to cash to cover short-term obligations. The quick
ratio of 1.43 is above the industry average of 1.17. Being slightly above the industry
indicates that we could sell less of our inventory than what other companies in the industry
would have to sell to meet current obligations. Neither the current or quick ratio exceeds the
industry average substantially enough to be considered a true strength. The fact that we are
not leaders is ultimately a weakness.

Management of Inventories - Strength
Nike’s inventory turnover of 7.32 exceeds the industry average of 4.34. Reducing inventory
levels was a key initiative for Nike in fiscal year 1999. Due to our ability to quickly turnover
inventory, Nike benefits from greater cash flows, reduced storage costs, and less spoilage.
In addition, quick turnover reduces Nike’s inventory of out-of-style shoes and clothing.
Company management stated, "We put a considerable amount of effort into improving
product buying power patterns and as a result the composition and levels of inventory
resulted in improved gross margins relative to a year ago." Inventory levels are being
reduced due to increased sales in the company's own branch retail stores.

Management of Accounts Receivable - Weakness
Nike does permit sales in cash, cash equivalents and on credit. Our collection procedures
have been lax compared to others in the industry resulting in slow payers and defaulting
customers. Our collection period calculates to 63.17 days while the industry average is only
7.71 days. Steps are being taken to alleviate the problem of collecting accounts receivable
in a more timely fashion. We have just recently changed our collection period from 90 days
to 60 days as an attempt to encourage faster payment.

Management of Debt - Strength
Our debt-to-total-assets ratio is 15.36%, which is far below the industry average of 40.69%.
Nike is not as leveraged as competitors in the industry and uses less debt financing to
finance firm operations. This can be interpreted as a strength as we do not rely as heavily
as our competitors on debt financing. However, our highly liquid position gives us the ability
to increase debt financing should we need or desire additional capital for company
operations, research and development, or other changes as top management sees fit.

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