Introduction
Nike is a world-famous brand of activewear and sportswear that was established in 1964 as a small company selling sports shoes. Today, the company sells clothing, accessories, and shoes for all genders and ages. Nike has an extended distribution chain with branded stores and distributors in most countries of the world. However, the market in which the company operates is highly competitive, with other famous brands like Adidas, Puma, and Reebok producing similar goods. To succeed in maintaining a high market share, it is essential for Nike to ensure that its internal operations and practices contribute to fulfilling the brand’s strategic plans. This report will analyse the internal structure, performance, and practices of Nike to identify threats and provide a list of recommendations.
Background
Nike’s history of success began over 50 years ago in the United States, where partners Bill Bowerman and Phil Knight opened their first shop. The initial name of the company was Blue Ribbon Sports, and it distributed sports footwear by Onitsuka Tiger, which is now known as Asics (‘Philip H. Knight’ 2008). The first shop was opened for only $1,200, and soon the founders earned enough profit to start making their own brand of footwear.
In 1971, the company was officially registered as Nike, Inc., a brand name suggested by one of the employees (‘Philip H. Knight’ 2008). The brand quickly gained national attention through an effective marketing campaign, which included endorsements by professional athletes. To this day, famous athletes like Michael Jordan and Serena Williams are the faces of the brand.
The brand is characterised by a strong philosophy, high-quality goods, and simple yet effective marketing. For instance, the famous logo of the brand was created by an undergraduate student for $35 (‘Philip H. Knight’ 2008). Despite the initial focus on footwear, the company now makes a wide variety of items, from outerwear to sports accessories. Nike uses the latest technologies to provide customers with comfortable and durable items at a moderate price.
As the company seeks continuous growth and development, it is also focused on innovative production technologies. Currently, Nike is looking to start mass production using 3D printing technology to expand the scale of manufacturing and promote sustainability (Team 2016). The success of internal practices and operations is critical to Nike since it would enable the brand to realise its plans for global development and earn higher profits.
Analysis
The analysis was focused on four key aspects of the company that play a crucial role in brand development. First of all, organisational culture and strategy were analysed based on the company’s mission, vision, and objectives. Second, the structure of Nike, Inc. was evaluated in order to identify any efficiency concerns. Third, the company’s financial performance was evaluated based on data for the past three years. Finally, ethical management and sustainability were considered since these aspects play an important role in large corporations today.
Mission and Corporate Culture
Organisational culture is a critical factor influencing performance and internal operations. The mission and vision of an organisation represent its attitude and goals, which can motivate employees and influence decision-making (Ebert & Griffin 2012). Nike’s mission is to “bring inspiration and innovation to every athlete in the world” (Nike Inc. 2019). The company stresses that everyone is an athlete in their own way, thus promoting a culture of inclusivity and appealing to mass audiences. Nike does not have a vision statement or a list of business objectives, which provides the brand with flexibility to take the steps needed to fulfil its mission.
Nike’s corporate culture is largely driven by individuality and innovation, which allows the brand to develop new, creative solutions and products. Some experts say that Nike has a “bro culture”, where the emphasis on hierarchy is low, and workers are encouraged to share thoughts and opinions freely (Mann 2018).
Individual performance and creative freedom are among the key organisational values at Nike, which fosters a positive environment for creating the new designs and technologies that made the brand successful in the first place. Nevertheless, as Mann (2018) notes, such an uncontrolled organisational culture allows leaders to be biased towards certain employees, and thus not everyone’s ideas may be noticed or considered. A culture of individuality can also hinder innovation due to poor cooperation among employees and teams.
Structure
Corporate structure is also an important variable that influences management practices and performance. For example, Ebert and Griffin (2012) note that a tall organisational structure means that employees receive sufficient supervision and thus internal processes are well controlled. Nike, to the contrary, has a flat organisational structure, which has both advantages and disadvantages. On the one hand, it facilitates decision-making and allows for individual freedom, which is part of Nike’s culture. On the other hand, a flat organisational structure could create confusion regarding roles and hierarchy, and it is easier for the management to lose control of employees (Ebert & Griffin 2012). Although the chosen structure suits Nike’s goals in terms of innovation and creative processes, it impairs the efficiency of management and could pose a threat to future performance.
Financial Performance
Considering financial variables is an essential part of analysing a business since low profits and other negative results are the first signs of internal barriers to success. Despite its popularity throughout the world, Nike is not a monopoly, and there is a significant number of other brands supplying similar products. The variety and quantity of supply in the sportswear market create an environment of imperfect competition, where no single brand can influence the price of a product in the market (Lipsey & Chrystal 2015). Nike’s key competitors are Adidas, Puma, Reebok, New Balance, and Under Armour. All of these brands specialise in sportswear and activewear and produce high-quality goods in a similar price range.
Despite the rigorous competition, demand in the market is very high, which means that there is an opportunity for any brand to grow. This is evident from Nike’s revenues in recent years, which increased from $27.8 billion in 2014 to $36.4 billion in 2018 (Nike Inc. 2018).
Similarly, gross profit showed a gradual growth from $12.4 billion in 2014 to $15.9 billion in 2018 (Nike Inc. 2018). For a company of its size, Nike also has a relatively small debt of $3.5 billion, which could be covered in full by its cash and cash equivalents, indicating good solvency (Nike Inc. 2018). There are, however, some issues in the company’s profitability ratios. In spite of its growth in revenues and profits, Nike saw a steep decrease in return on equity and return on assets between 2017 and 2018 (Nike Inc. 2018). This could be due to an increase in expenses, which caused a fall in net income for the year.
Ethics and Sustainability
In the contemporary business environment, companies that show great corporate social responsibility and commit to promoting sustainability are becoming increasingly popular. Unethical corporate practices, such as unfair wages, can cause negative publicity and affect the reputation of a business. In line with many other famous brands, Nike demonstrates strong ethical leadership, which benefits the brand’s image. For instance, in 2018, Nike vowed to raise wages for thousands of its employees following a scandal involving Amazon and its low wages (Rossi 2018). Given that many large-scale production facilities in the clothing industry are based in countries with very low labour costs, Nike’s decision reflects ethical decision-making and supports its corporate values.
Sustainability has also become a significant concern for many industries as companies strive to reduce their environmental impact. This applies to the clothing industry since mass production of clothing and shoes contributes to ecological issues (M.S.L.J. 2017).
As part of its sustainability strategy, Nike has made an effort to decrease emissions from manufacturing and reduce waste. For example, Mainwaring (2018) reports that the company has committed itself to transforming production to the use renewable energy sources in its U.S. facilities. In addition, the products made by the company create less waste than those of other brands and are made in part from recycled materials (Doshi 2018). These internal practices reflect the company’s social responsibility and create a positive image for the brand, thus aiding its market growth efforts.
Summary of Risks
Based on the analysis of Nike, Inc., there are three main risks that could impact the organisation’s performance today and in the future. The first essential risk that should be addressed is the structure of the company.
A flat company structure was beneficial during the initial stages of development and enabled the company to build a positive organisational culture. Nevertheless, given the current size of the company and the scale of its internal operations, a flat structure poses a threat to successful management. With very few employees in high positions, it is difficult for them to control workplace conditions, product development, and other operations. Also, Nike’s corporate structure lacks a clear hierarchy, which poses a threat to professional relationships and could cause role confusion (Mann 2018). To avoid internal issues and raise productivity, it is essential for Nike to address this weakness.
Second, product development efforts at Nike lack cooperation and teamwork, which could have an adverse impact on innovation in the organisation. When employees are more focused on individual development than on achieving shared goals, they are less motivated to communicate their ideas to others or work on realising them in teams (Mann 2018). This hinders the process of idea generation within the company and could lead to poor strategic decision-making with regards to new products or technologies.
The third risk that the company faces is high operational expenses. As evident from the analysis of Nike’s financial performance, the company’s annual net income is in decline due to the increased costs of labour, production, development, and other internal processes. Since the brand is currently looking to expand the scale of production, it is likely to face an even more significant decrease in net income. This risk would affect the company’s capacity for reinvesting, thus threatening its market share.
Recommendations
The risks outlined in the previous section may have a damaging effect on business operations and thus impact the company’s performance and competitiveness. Hence, Nike, Inc. should take steps to address each of the issues identified in the report. The primary recommendation is to restructure the company to create a clear chain of command and facilitate teamwork. For instance, it would be useful to form small teams of employees based on their function and to ensure that every team has a supervisor reporting to a manager. This would help to clarify the internal hierarchy in the organisation and avoid human resources issues, such as job dissatisfaction and misconduct.
In order to foster collaboration, the company should offer training in communication, conflict resolution, and teamwork for all employees and establish rewards for team performance as opposed to individual performance. Creating a culture of open collaboration would have a positive effect on knowledge sharing and idea generation, thus contributing to innovation (Levine & Prietula 2014). Additionally, the brand should perform an internal audit of operations to determine if there are any items or functions causing excessive spending. Minimising operational expenses would help Nike to generate more net income that could be used to pay out dividends or fund research and development efforts.
Conclusion
All in all, Nike is a profitable brand that has a stable position in the market. The internal practices of the company help it to facilitate innovation and maintain a positive brand image while growing its sales and profits. However, the internal structure of the organisation and increased operational expenses pose a threat to current and future performance. Implementing the recommendations provided in this report would assist the brand in improving its corporate structure, fostering collaborative creativity, and reducing expenditures.
Reference List
Doshi, S 2018, ‘Transform your company into a leading sustainable business’, Forbes. Web.
Ebert, RJ & Griffin, RW 2012, Business essentials, 9th edn, Prentice-Hall, Boston, MA.
Levine, SS & Prietula, MJ 2013, ‘Open collaboration for innovation: principles and performance’, Organization Science, vol. 25, no. 5, pp. 1414-1433.
Lipsey, R & Chrystal, A. 2015, Economics, 15th edn, Oxford University Press, Oxford, UK.
Mainwaring, S 2018, ‘How leading brands respond to new market drivers’, Forbes. Web.
Mann, A 2018, ‘How Nike could transform its bro culture’, Forbes. Web.
M.S.L.J. 2017, ‘The environmental costs of creating clothes’, The Economist. Web.
Nike, Inc. 2019, About Nike. Web.
Nike, Inc. 2018, Form 10-K. Web.
‘Philip H. Knight’ 2008, Entrepreneur. Web.
Rossi, M 2018, ‘Nike to raise wages for thousands of employees’, Reuters. Web.
Team, T 2016, ‘Here’s how Nike is innovating to scale up its manufacturing’, Forbes. Web.