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. Finance/Accounting (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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