Strategic Analysis of Nike, Inc

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Strategic Analysis of
Nike, Inc.
Submitted to:
A.J. Almaney, Ph.D.
ISS 395
DePaul University
Chicago, IL 60604
March 14, 2000
Submitted by:
Group 1
Kim Enderle
Dan Hirsch
Lisa Micka
Brian Saving
Sheetal Shah
Tatiana Szerwinski
TABLE OF CONTENTS
Executive Summary…………………………………………………………………….…………p.4
History…………………………..…………………………………………………………………..p.6
Profile of CEO………………….…………………………………………………………………..p.7
Competitor’s Profile………….…………………………………………………………………….p.7
Industry Profile……………………………………………………………………………………..p.8
Company Analysis…………………………………………………………………………………p.9
Industry Analysis………………………………………………………………………………......p.24
Top Competitor Analysis………………………………………………………………………….p.25
Other External Forces…………………………………………………………………………….p.26
Key Opportunity……………………………………………………………………………..….…p.27
Key Threat…………………………………………………………………………………………p.27
Major and Subordinate Problems………………………………………………………….……p.28
Strategic Match…………………………………………………………………………………...p.29
Primary Strategic Match Position……………………………………………………………….p.30
Strategic Plan……………………………………………………………………………………..p.33
Conclusion………………………………………………………………………………………...p.38
LIST OF EXHIBITS
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Sales Trends Graph……………………………………………………………………………p.5
Net Income Trends Graph…………………………………………………………………….p.5
Nike Board of Directors Table………………………………………………………………...p.11
Table of Key Financial Ratios………………………………………………………………...p.22
Net Income Trend Graph………………………………………………………………….…..p.24
Primary Strategic Match Position Chart……………………………………………………..p.30
Industry Attractiveness Matrix………………………………………………………………..p.31
Business Strength/Competitive Position Chart……………………………………………..p.32
Grand Strategy Chart………………………………………………………………………… p.34
Marketing Short-term Strategy Chart………………………………………………………..p.35
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Production Short-term Strategy Chart……………………………………………………….p.36
Research and Development Short-term Strategy Chart…………………………………..p.37
Human Resources Short-term Strategy Chart……………………………………………...p.37
Finance Short-term Strategy Chart.………………………………………………………….p.38
EXECUTIVE SUMMARY
Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership under the name, Blue Ribbon Sports.
Our modest goal then was to distribute low-cost, high-quality Japanese athletic shoes to American consumers in an
attempt to break Germany's domination of the domestic industry. Today in 2000, Nike Inc. not only manufactures and
distributes athletic shoes at every marketable price point to a global market, but over 40% of our sales come from athletic
apparel, sports equipment, and subsidiary ventures. Nike maintains traditional and non-traditional distribution channels in
more than 100 countries targeting its primary market regions: United States, Europe, Asia Pacific, and the Americas (not
including the United States). We utilize over 20,000 retailers, Nike factory stores, Nike stores, NikeTowns, Cole Haan
stores, and internet-based Web sites to sell our sports and leisure products. We dominate sales in the athletic footwear
industry with a 33% global market share. Nike Inc. has been able to attain this premier position through "quality
production, innovative products, and aggressive marketing." As a result, for the fiscal year end 1999, Nike's 20,700
employees generated almost $8.8 billion in revenue.1
Products
Our primary product focus is athletic footwear designed for specific-sport and/or leisure use(s). We also sell athletic
apparel carrying the same trademarks and brand names as many of our footwear lines. Among our newer product
offerings, we sell a line of performance equipment under the Nike brand name that includes sport balls, timepieces,
eyewear, skates, bats, and other equipment designed for sports activities. In addition, we utilize the following whollyowned subsidiaries to sell additional sports-related merchandise and raw materials: Cole Haan Holdings Inc., Nike Team
Sports, Inc., Nike IHM, Inc., and Bauer Nike Hockey Inc. Our most popular product categories include the following:
Running
Basketball
Cross-Training
Outdoor Activities
Tennis
Golf
Soccer
Baseball
Football
Bicycling
Volleyball
Wrestling
Cheerleading
Aquatic Activities
Auto Racing
Other athletic and recreational uses
Sales and Income Trends
Revenues in the fiscal year ended May 31, 1999, declined by 8% over the prior year to $8.777 billion. As illustrated in the
graph below, this marked the first time since 1994 that revenues have declined. Regardless of this year's decline, Nike
Inc. achieved 300% revenue growth over a 10-year period, rising from 1990 sales of $2.235 billion.
Exhibit 1
* Obtained from Nike, Inc. 1999 Annual Report
Although revenues declined in 1999, net income increased by 13% over the prior year. As the graph below illustrates, net
income has been volatile in the latter half of the 90's. Sharp decreases in 1998 and 1999 net income were due to
restructuring charges. If these charges had not been incurred, income would have been flat for both years. Efficiency in
cost control and inventory management has allowed net income to increase while revenues decreased in 1999. Note that
the largest growth rate was 43% in 1997 over the prior year with net income of $795.8 million.
Exhibit 2
* Obtained from Nike, Inc. 1999 Annual Report
Challenges
Our greatest challenge in 2000 will be to maintain the operational and financial initiatives we worked so hard to
implement in 1998 and 1999. We must maintain our inventory levels low enough that will allow us to adapt to quickly
changing market trends. Financially, we must remain conservative in our cost structure. Cuts to operating expenses of
almost $200 million this past year demonstrated that we are in a position to be nimble in light of our industry-dominating
size. With the gradual economic recovery in the Asia Pacific region, we can capitalize on customers who are financially
stronger. Our sponsorship of the 2000 Olympic Games in Sydney, Australia, and the 2002 World Cup in Japan and Korea
will be the start of many opportunities to bring sports events into the mainstream for regional and global markets. With
added exposure, we are challenged to respond to a market demand for fashionable athletic footwear and apparel. In this
quest, we will succeed if we keep quality and performance at the core of our business.
The Internet is a rapidly changing medium. As the first company in our industry to offer e-commerce capabilities, we must
proceed with caution and stealth in order to select an enduring strategy that will complement our existing distribution
channels.
HISTORY
Bill Bowerman and Phil Knight founded Nike Inc. as Blue Ribbon Sports in 1962. The partners began their relationship at
the University of Oregon where Bowerman was Knight’s track and field coach. While attending Stanford University,
Knight wrote a paper about breaking the German dominance of the U.S. athletic shoe industry with low-priced Japanese
shoes. In an attempt to realize his theory, Knight visited Japan and engineered an agreement with the Onitsuka Tiger
company, a manufacturer of quality athletic shoes, to be their sole distributor in the United States.
In 1962, Knight received the first shipment of 200 pairs of Tiger shoes to his parent’s garage in Oregon. The shoes were
bought by Blue Ribbon Sports (BRS), the name of the partnership between Knight and Bowerman that they formed with
only $1,000 in capital. Knight peddled Tiger’s shoes at local track meets grossing $8,000 of sales in their first year. In
1966, Bowerman, who had previously designed shoes for his university athletes, worked with Tiger to design the Cortez
running shoe. The shoe was a worldwide success for the Onitsuka Tiger Company and was sold at the first BRS store. In
1971, BRS, with creditor support, started manufacturing their own line of shoes. Later that year, the first BRS shoe was
introduced. The shoe was a soccer shoe that bore the Nike brand name, referring to the Greek Goddess of Victory, and
the Swoosh trademark. A student designed the Swoosh trademark for a paltry fee of $35. The Swoosh was meant to
symbolize a wing of the Greek Goddess.
1972 marked the breakup of the BRS/Tiger relationship. BRS soon changed its name to Nike, Inc. and debuted itself at
the 1972 Olympic trials. In 1973, Steve Prefontaine was the first prominent track star to wear Nike shoes. The late 70’s
and early 80’s also saw John McEnroe, Carl Lewis, and Joan Benoit sporting Nike shoes. Nike popularity grew so much
that in 1979 they claimed 50% of the U.S. running market. A year later with 2,700 employees, Nike went public selling 2
million shares on the New York Stock Exchange.
The 1980’s were marked by the signing of Michael Jordan as a product spokesperson, revenues in excess of $1 billion,
the formation of Nike International Ltd., and the "Just Do It" campaign. Nike also expanded its product line to include
specialty apparel for a variety of sports. In 1990, Nike surpassed the $2 billion mark in consolidated revenue with 5,300
employees worldwide. In addition, we opened the Nike World Campus in Beaverton, Oregon.
In 1991, Nike pushed revenues to $3 billion, up from $2 billion the prior year. This mark would continue to grow
throughout the 90’s, with revenues in 1999 reaching $8.8 billion. These revenues grew based on improvements in shoe
technology and successful marketing campaigns. International revenues fueled a great portion of this growth with an 80%
increase in 1991 from the prior year. In 1992 international revenues topped $1 billion for the first time and accounted for
over one-third of our total revenues. Such growth continued throughout the 1990's as we continued to focus our
marketing efforts on major sporting events like the World Cup, and the next generation of celebrity endorsers, such as
Tiger Woods, Lance Armstrong, and the players of women's professional basketball (WNBA). At the end of the 90’s,
Nike’s goal, as stated in our company web site, is to become a truly global brand.
PROFILE OF THE CEO
Phillip H. Knight, Chairman and Chief Executive Officer, is the co-founder of Nike, Inc. He has been the driving force
behind our company's success since its inception in 1964 under the name Blue Ribbon Sports. Knight is 61 years of age
and holds an undergraduate degree from the University of Oregon and an MBA from Stanford University. Knight practiced
as a CPA and taught at Portland State University prior to founding the company known today as Nike. He has been an
innovative visionary in the industry of athletic footwear and apparel. His efforts have helped to establish Nike as an
industry leader in both national and international markets. Knight's managerial mode is one that is characterized by
strategic planning. This mode is representative of an open-minded CEO, one willing to take calculated risks and make
conservative decisions based on careful analysis of external and internal environments. Knight's decision-making style
favors the participative approach. He is not hesitant to make unilateral decisions, but prefers to look to his trusted
management team for their insight and ideas before choosing a course of action.
PROFILE OF THE COMPETITOR
Reebok, in terms of their products, is not entirely different from Nike. Reebok is involved in the design and marketing of
both athletic and non-athletic footwear and apparel, as well as other various fitness projects. Reebok’s market share is a
distant third in the footwear industry at 11.2% (compared to 30.4% and 15.5% for Nike and Adidas respectively).
Reebok’s financial position has been gradually slipping for a number of years. This is evident in their declining stock
price, which has fallen by over 80 percent in the last four years. Reebok’s financial woes are illustrated in their declining
net sales. Reebok’s net sales declined 9% during the first three-quarters of fiscal year 1999. During that same period, net
income declined 17%. Taking these and other factors into account leaves Reebok’s current financial position, as a whole,
looking bleak.
PROFILE OF THE INDUSTRY
Industry Size
In 1998, Americans spent approximately $38 billion to purchase more than 1.1 billion pairs of shoes. The wholesale value
of athletic shoes for the US market totaled $8.7 billion in 1998 down 8.5% from the year before. According to the Sporting
Goods Manufacturers Association, athletic footwear accounts for almost 35% of all footwear purchases.
In general, consumers are spending less worldwide for athletic footwear. The current domestic industry focus is on casual
and comfortable shoes. Although athletic footwear sales appear to be recovering, demand is still leaning toward the
"brown shoe" casual footwear with a comfortable and rugged design. This switch is due to the increasing number of
workplaces adopting casual dress codes.
Industry Profitability
The athletic footwear industry is a challenging and saturated market. Intense competition, fashion trends, and price
conscious consumers have slowed growth in this industry. Manufacturers are combating sluggish sales with radical new
styles, along with offering more styles at lower price points. Companies are looking for new ways to boost sales by
capitalizing on direct Internet sales to consumers. Many companies are also increasing profitability by transferring
production to cheaper offshore facilities.
This segment has reached a point of maturity in the domestic market and can look forward to only modest sales growth
for the long term. However, sales are improving slightly, especially in the areas of running shoes, cross-trainers and
basketball shoes. Therefore, companies with strong brands will increasingly turn to international markets for growth.
Industry Seasonality
Overall, sales in the athletic footwear industry remain stable throughout the year. The global variance in our market
balances the seasonal fluctuations. Typical trends in seasonality appear for spring apparel, the back-to-school season,
and the Christmas holiday season.
Industry Cyclicality
In fiscal year 1999, the economy was relatively favorable for footwear manufacturers. The footwear industry and its
profitability are closely tied to economic cycles. Modest inflation, low unemployment, and a booming stock market will all
contribute to healthy consumer spending.
The theory behind the slowdown in sales is that growth in athletic footwear and apparel is cyclically sensitive to the
Olympics. Historically, years of the Olympic Games have demonstrated surges in growth followed by difficult sales
periods. The outlook for increased sales trends is optimistic due to the upcoming Olympic Games slated for this year.
Nike can also look forward to a boost in demand from the World Cup events.
Industry Entry and Exit Barriers
Entry Barriers
The athletic footwear industry is a very competitive and mature market. The leaders of this industry are very well
established. Leaders like Nike and Reebok have made the industry what it is today. Consequently, long-time competitors
like Saucony and K-Swiss have been struggling for years just to keep their brands alive. This cutthroat environment has
hindered the entry of new competitors.
Economies of scale also contribute to the lack of newcomers into this market. In order to have an edge over the leaders,
companies must be able to compete at all levels such as reasonable pricing, efficient production, and high product
quality. These things are difficult to achieve without the resources of an established manufacturer.
Another key barrier to entry is the access of traditional distribution channels. When combing the shelves at stores like
Sports Authority and FootLocker, it is evident that the leaders dominate the shelves. Lesser-known brands are viewed by
retailers as being too risky to replace an established brand name like Nike or Reebok on the shelf.
These walls seem to be breaking down with the help of the Internet. The costs of overhead that come along with
traditional brick and mortar retail distributors are being significantly diminished. New entrants are now able to slide into
markets without these high startup costs, making it more profitable to begin production.
Exit Barriers
When a company decides to exit from this industry it must be aware of things such as indebtedness and its ability to meet
those obligations. A company must also be cognizant of lawsuits filed by its stakeholders and claims made on any
residual assets.
COMPANY ANALYSIS
Strengths and Weaknesses of the Corporate/Business Level
Strategic Managers
Board of Directors - Strength
Nike’s board of directors consists of both management directors and independent directors. The combination of these
two types of directors benefits Nike in that there is a presence of those directly involved with Nike as well as others
indirectly involved who bring outside experience, provide another frame of reference and can assist the overall board in
thinking "outside the box." Nike’s board would be classified as an oversight board, playing an active role with regards to
management’s decisions in the area of strategy formulation.
Board of Directors - Weakness
The average age of Nike’s board is 62, the youngest member being 49 and oldest being 79. This constitutes a possible
weakness in that there is a lack of younger members of the board who could serve to bring a new perspective to the
company and assist in achieving Nike’s goals.
Exhibit 3 Nike, Inc. 1999 Board of Directors*
Thomas E. Clarke
President and Chief Operating Officer, Nike, Inc., Beaverton, OR
Jill K. Conway
Visiting Scholar, Massachusetts Institute of Technology, Boston, MA
Ralph D. DeNunzio
President, Harbor Point Associates, Inc., New York City, NY
Richard K. Donahue
Vice Chairman of the Board, Lowell, Massachusetts Delbert J.
Hayes, Newberg, OR
Douglas G. Houser
Assistant Secretary, Nike, Inc., Partner – Bullivant, Houser, Bailey,
Pendergrass & Hoffman Attorneys, Portland, OR
John E. Jaqua
Secretary, Nike, Inc., Partner – Jaqua & Wheatley, P.C. Attorneys,
Eugene, OR
Philip H. Knight
Chairman of the Board and Chief Executive Officer, Nike, Inc.,
Beaverton, OR
Charles W. Robinson
President, Robinson & Associates, Santa Fe, NM
A. Michael Spence
John R. Thompson, Jr.
Dean, Graduate School of Business, Stanford University, Palo Alto,
CA
Former Head Coach, Georgetown University, Washington, D.C.
William J. Bowerman
Director Emeritus
* Nike, Inc. 1999 Annual Report
Top Management - Strength
Co-founder, Philip H. Knight, has been with Nike since its inception. As a result, he has much knowledge and experience
about the company and the industries in which it competes. Knight’s strategic planning managerial style serves as a
strength in that his actions are planned and calculated, allowing for both risky and conservative decisions based on
careful thought and analysis. His participative decision-making style can also be viewed as a strength such that Knight is
willing to listen to others to generate ideas. He does not limit the company’s options to one-sided ideas and decisions.
Environmental Analysis
Internal – Strength
Nike’s management analyzes its internal environment and makes decisions based on that analysis. Because of Nike’s
marketing research, the company has decided to revamp its apparel division to be more fashion savvy. As a result of
product and pricing research, Nike 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.
External - Weakness
Nike’s failure to foresee problems in relation to labor and factory conditions at production locations has resulted in bad
publicity and declining sales as society and consumers call for more "socially responsible" companies.
Strategy Formulation
Mission - Weakness
Nike's Corporate Mission Statement:
"To be the world's leading sports and fitness company."
Nike’s mission statement resembles a vision statement and is therefore a weakness. While the mission does broadly
identify the business we are in, namely the sports and fitness industry, it is not specific as to what products and services
we provide. The mission statement also omits any mention of distribution channels and customers. It does, however,
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.
Corporate Objectives – Weakness
Nike has no published corporate objectives in relation to the overall company. This lack of corporate objectives
represents a weakness. Stakeholders should be well aware and informed of a company’s corporate objectives to better
understand the nature of the company and its direction.
Nike has established corporate objectives in relation to our perceived corporate responsibility. Our objective is to "lead in
corporate citizenship through programs that reflect caring for the world family of Nike, our teammates, our consumers,
and those who provide services to Nike." This corporate objective represents a weakness as it does not meet the two
requirements of being measurable and having a time frame in which to complete or accomplish said objective. Nike’s
objective is immeasurable and broad lacking any time specifications for implementation of programs to meet this
objective.
Grand Strategies - Strength
For our grand strategy, Nike utilizes innovation to produce top quality athletic footwear and apparel. As a result of
devoting vast resources to the research and development of its products, Nike has captured the largest market share in
the athletic footwear and apparel industry and continues to be the leader of quality products.
Competitive Strategies - Strength
The competitive strategy that Nike introduced at the end of the 1990's concentrates on honing the focus of our marketing
strategies and product offerings through product differentiation. We realize that the team-mentality that captured the spirit
of athletics in the late 1980's and early 1990's has been replaced by a sense of individualism. Younger 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 in a number of ways. While retaining our company's long-standing
tradition of placing performance through new-product development as a top priority, a never-before seen element of
fashion will receive a second-place priority built into our products and image. For the 1999 back-to-school season, we
conducted fashion shows in twelve U.S. cities. In addition, an element of individualism is most obvious in our Web site.
Customers can select the color and design a monogrammed heel-insignia for our made-to-order athletic shoes.
Strategy Implementation
Corporate Culture - Strength
Nike has created a corporate culture rich with employee loyalty and team spirit. Red "Swooshes" float across everything
from screen savers to coffee cups at the company's headquarters in Beaverton, Oregon. The company chooses to call its
headquarters a "campus" instead of an office. Employees are called "players," supervisors are "coaches" and meetings
are "huddles." These terms go a long way to make the daily work experience less than dull for the lucky employees in
Beaverton.
In 1985, thirteen years after the company was founded, Nike was blindsided when Reebok developed its multicolored
aerobic shoes. It was then that we decided to reinvent our business and culture, becoming highly motivated about selling
sports and a "Nike way-of-life." With this decision the company also restructured its marketing campaign, focusing more
on an image rather than just product advertising, a strategy which led to the "Just Do It" mantra.
Since then, Nike has been striving towards an inner culture that reflects this mantra. Employees are given an hour and a
half for lunch to play sports or simply workout. The new Nike is not just about shoes and slam-dunks, but about
promoting a lifestyle. All new employees view a video of sports highlights accompanied by a soundtrack that discusses
the soul of the athlete and the competitive spirit. In addition, management sends weekly emails to update employees on
the recent successes of Nike-sponsored athletes, and often hosts spokespeople to motivate and thank its staff for
contributions to the sports world. It is not surprising that an athletic background helps a prospective employee. In keeping
with its 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."
Nelson Ferris, a 47 year-old head of its corporate education department states that, "The Swoosh represents something
other than just a company. It represents a whole value system."2 Ferris, a longtime employee, even has a Swoosh
tattooed above his ankle. "It stops being a job and starts to become a way that your are defining the way your are living
on earth."2
Communication - Strength
In late spring of 1999, Nike Retail, Nike's subsidiary consisting of the Nike Town shops and employee stores around the
world, upgraded their hardware and software. Our former technology offerings consisted of IBM 4690-series point-of-sale
cash registers running on 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 few years called, Connect:
Remote, made by Sterling Commerce Inc., is also being upgraded to the new operating platform. Corporate office
communications capabilities with these branch locations will be improved dramatically. Sales and inventory data can be
monitored in real-time. Electronic journaling, credit authorization, and sales reconciliation processing-efficiency will
increase due to the addition of in-store databases. Modems transmitting data at 56K BPS, or even with digital technology,
will replace the 9600 BPS modems and provide for quicker processing times. All of these innovations will allow
executives at the corporate office and in other branches to better manage operations.
Leadership - Strength
Nike’s top management’s leadership style can be characterized by the team management approach. Top management
consists of a committed group of executives all bringing together vast experience and knowledge. The group is team
oriented, but is capable and does work independently recognizing the common stake that each places in Nike. This style
of leadership leads to relationships of trust and respect. The company culture lends a hand to the fact that top
management’s teamwork style has spread throughout the organization.
Motivation - Weakness
While Nike employees have been loyal and committed workers, after the cost-reductions that took place in the fourth
quarter of 1998 resulting in a reduction of the number of employees, we have had to place greater emphasis on
motivation among the retained employees. Morale also fell as a result of bad media coverage over reports of
substandard 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.
Strategy Control
Establishment of Standards - Strength
A comprehensive establishment of profitability standards has assisted Nike in our evaluation 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, sales growth and asset growth. Performance standards are also established and checked
regularly. Some of the areas in which our company has established standards are productivity of productions sites,
competitive position in the United States relative to the global market, technological leadership in comparison to
competitors and overall social responsibility and the public’s perception.
Evaluation of Performance - Strength
Nike thoroughly examines and compares the aforementioned performance standards to the actual results that have
occurred as a result of implementing strategies to meet or exceed performance standards. These standards are
important to Nike as a comparison of past performance to present performance as well as in our attempt to forecast
future results in these areas.
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 decisions. While in general this is a good policy to abide by, at times Nike would be better
served by a management team that can react more quickly to given information.
Strengths and Weaknesses of the Functional Level
Marketing
Market Share - Strength
Nike’s global market share was an impressive 30.4% in 1998. Despite a slight decline from prior years, Nike continues to
have the greatest market share in the U.S. branded athletic footwear market. In 1998, the closest competitor, Adidas,
held 15.5% of the market share while Reebok held 11.2%. The remaining competitors, including Fila, Timberland, Asics,
Converse, and New Balance, among others, each hold approximately 3-5% of the remaining market share. While Nike’s
market share is still in the lead, it is expected to increase with 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 Japan
and Korea, and the U.S. Speedskating team in the 2002 Winter Olympics in Salt Lake City, Utah.
Distribution through E-commerce - Strength
Nike has taken the lead in e-commerce by being the first to market with its e-commerce web-site. Nike launched its ecommerce site in April 1999 by offering 65 styles of shoes to the U.S. market for purchase. Nike increased its ecommerce presence by launching NIKEiD in November 1999. NIKEiD enables online consumers to design key elements
of the shoes they purchase. The program represents the first time a company has offered mass customization of
footwear. Nike’s future plans include opening an online shop for the 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.
Advertising and Promotion - Strength
Nike’s brand images, including the Nike name and the trademark Swoosh, are considered to represent one of the most
recognizable brands in the world. This brand power translates into bottom-line revenues. The Nike name and associated
trademarks have appeared everywhere from players' shirts, pants, and hats to stadium banners and walls. Aggressive
advertising campaigns, celebrity endorsements, and quality products enhance the brand. Nike demonstrated an example
of Nike’s brand presence at the 1999 NCAA Basketball tournament when 42 of the 64 teams participating wore shoes
provided. Nike's most recent brand-building endeavors are focused on strengthening our association with women’s
sports. Some examples are our sponsorship of the 1999 Women's World Cup Soccer Tournament and our sponsorship of
the U.S. Speedskating team in the upcoming 2002 Winter Olympics.
Products - Strength
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 consumers on fashion in relation to sportswear, we have
had to make strides to appeal to a fashion savvy market. Our apparel line is not only being challenged by our typical
industry competitors such as Adidas and Reebok, but also by clothing and accessories retailers such as Old Navy and
Abercrombie & Fitch. Continuous marketing research could prove to be key in assessing the market. Nike is planning on
initiating five structures within the apparel division to focus on the following areas:
Women
Men
Kids
sports graphics and caps
strategic response independently
We are also spending more time on continuing to support and develop programs to gain a better understanding what our
customers would like to see in the market.
Products - Weakness
Nike has had much success as a result of collaborating with other companies within the sports and fitness industry.
However, at times we expanded into markets for which we were not strategically suited. An example is the decrease in
brands made available due to declining sales of in-line skating and roller hockey products at Bauer Nike Hockey. As a
result, we have had to exit two manufacturing operations at our Bauer Nike subsidiary. We had to terminate 51
employees. Had we anticipated the decline sooner, perhaps gradual changes could have been made so that the end
result may not have been as finite in nature. The desire to prevent situations such as these from continuing to occur, we
have initiated a more aggressive program to review product collaborations that are outside of our core basis of products.
Pricing - Weakness
In general, Nike’s products are considered to be of higher quality and as a result have higher prices relative to our
competitors. While the prices are realistic given the nature of the products we offer to our consumers, at times our
consumers may not agree. This presents a weakness. To mitigate any future problems in our high quality/high price lines,
we are placing a renewed emphasis on emerging technology and innovation towards the development of new products,
specifically the Nike Alpha Project, a revolutionary new line of athletic shoes. Despite the fact that in the past we may
have overlooked the mid- to lower-price-point products, presenting another weakness with room for improvement, we are
dedicating our time and money to better develop our competitive position at all price points to build strengths at each of
these levels. We see much potential in the lower price points and plan to meet the needs of those markets.
Marketing Research - Strength
Nike primarily conducts marketing research on a continual basis to assist in maintaining our company’s position as the
leader in the athletic footwear and apparel industry. Because of such research, we have decided to revamp our apparel
division, an area in which we can still greatly improve. Nike will be organizing the internal business by gender as opposed
to sport category and conducting increasing amounts of research addressing the buying habits of men, who tend to be
item-driven, and women, who tend to be collection-driven, with specifically targeted product lines.
Production
Location of Facilities - Strength
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 production facilities are located close to raw materials and cheap
labor sources. They have been strategically placed in their locations for just this purpose. In general, the facilities are
located further from most customers, resulting in higher distribution costs. However, the cost savings due to the
placement of our production facilities allows for cheaper production of our products despite the higher costs of
transporting our products. As Nike continues to expand in the global economy and increase its market throughout the
world, these dispersed facilities will prove to be beneficial.
Newness of Facilities - Weakness
Our facilities abroad have attracted bad publicity in recent years. Though our facilities comply with local labor standards,
generally, they have not met U.S. standards. We want to be a leader and set a responsible corporate example for other
businesses to follow. As part of Nike’s new labor initiative, we commit to:
Expanding our current independent monitoring programs to include non-governmental organizations,
foundations and educational institutions. We want to make summaries of their findings public;
Adopting U.S. Occupational Safety and Health Administration (OSHA) indoor air quality standards for all
footwear factories;
Funding university research and open forums to explore issues related to global manufacturing and
responsible business practices such as independent monitoring and air quality standards.
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 program.
Research and Development
Focus - Strength
Although Nike conducts continuous, basic research that benefits numerous facets of the sports and fitness industry, our
primary focus is directed towards applied research. Applied research focuses on short-term initiatives such as
successfully developing new product lines. This proves to be a strength in that this method of research is less costly than
basic research, and less risky due to the short-term nature. Successful projects can realize immediate profitability while
unsuccessful projects may be discontinued without enduring materially large losses.
Focus – Weakness
Focusing on applied research can be a weakness as well. Many new, innovative ideas come into existence as a result of
basic, unspecific research. Though more risky and 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.
Posture - Strength
Our posture is primarily innovative, while at times adjusting to a protective position, and other times a catch-up stance.
Nike prides itself on being a premiere provider of high quality sports footwear and apparel. Innovation has been the key
to aiding Nike in securing its position as the leader in the market. Due to the lead Nike possesses in the industry, we can
afford to look long-term and place a greater emphasis on innovation as opposed to other companies with a short-term
outlook attempting to improve upon existing products and services. At times, we need to adjust our posture in relation to
a particular product line or area of products. In these instances, Nike may choose a defensive strategy to remedy the
current situation. We may also choose a catch-up strategy and mimic what is working well for other companies in the
industry.
Human Resources
Human Capital - Weakness
No successful company can exist and succeed without utilizing its human capital. While Nike has had various policies in
place, weaknesses still exist in regards to labor policies in overseas locations. We received much bad publicity as well as
experienced a decrease in sales as a result of poor labor policies and lack of policies established abroad. Because of this
and Nike’s goal to be a responsible citizen of the corporate world, Nike has committed to goals to better the problems as
part of the aforementioned labor initiative:
Increasing the minimum age of footwear factory workers to 18, and minimum age for all other lightmanufacturing workers (apparel, accessories, equipment) to 16;
Expanding education programs, including junior and high school equivalency courses, for workers in all
Nike footwear factories;
Increasing support of its current micro-enterprise loan program to 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 hand will be the
implementation of the aforementioned goals of the new labor initiative to ensure the success of the program.
Public Affairs
Ethics – Weakness
Accusations of unethical behavior, whether or not they are true, only serve to injure Nike’s image, and, as a result,
product sales. One such example of questionable behavior relates 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.
Management of Debt - Weakness
Despite the lower percentage of assets that are borrowed to finance Nike, our times interest earned ratio is weaker than
the industry average. Our ratio of 19.43 reflects the number of times funds available from earnings can cover interest
payments. The industry average of 21.88 indicates that the industry as a whole is in a slightly better position to cover its
interest charges.
Profitability - Weakness
Nike’s profitability is wavering in comparison to the industry average. Our profit margin of 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 $100 million and terminating 7% of our employees. Our return on equity of 13.54%
in relation to the industry mean of 18.77 indicates that Nike is realizing a lower percentage of earnings on stockholders’
investment. Nike’s low ROE can be linked to the dropping stock price as a reflection of stockholder confidence in our
company.
Exhibit 4 Table of Key Financial Ratios
RATIO:
Formula:
Calculation :
NIKE:
Industry :
(in millions)
Liquidity
Current
Current
assets/current
liabilities
3264.9
1446.9
=2.26 times
=2.28 times
Activity
Leverage
Quick/acid
test
Current assetsInv./current
liabilities
3264.9-1199.3
Inventory
turnover
Sales/inventory
8776.9
Collection
period
Accounts
Rec./Average
sales per day
Total assets
turnover
Sales/total
assets
8776.9
Debt to total
assets
Total debt/total
assets
806.2
1199.3
1540.1
8776.9/360
5247.7
Times
interest
earned
Net operating
income/Interest
expense
856.8
Profit margin
Net income/net
sales
451.4
Return on
Equity
Net income/net
worth
=1.17 times
=7.32 times
=4.34 times
=63.17 days
=7.71 days
=1.67 times
=1.69 times
=15.36%
=40.69%
=19.43 times
=21.88
times
=5.14%
= 5.69%
=13.54%
=18.77 %
1446.9
5247.7
Profitability
=1.43 times
44.1
8776.9
451.4
3334.9
Distinctive Competency
Nike’s distinctive competency lies in the area of marketing, particularity in the area of consumer brand awareness and
brand power. While the reasons that Nike is successful in marketing our products are numerous, this key distinctive
competency towers over our competitors. As a result, Nike’s market share is number-one in the athletic footwear industry.
Catch phrases like, "Just Do It," and symbols like the Nike "Swoosh," couple with sports icons to serve as instant
reminders of the Nike empire.
Two key attributes of a distinctive competency are its inability to be easily replicated and the value or benefit it offers to
consumers. As Nike becomes a more integrated part of American and world culture, our brand power becomes
increasingly difficult to replicate. The premise of a trademark and a slogan is that they are a company’s fingerprints. Nike
is able to capitalize on its unique identity due to our industry-leading financial strength. Nike reaches millions of
consumers through large-scale marketing campaigns made possible by significant budgetary appropriations. Few
companies have such a recognizable image and the resources to promote it. This ultimately translates into added value
for consumers. The public benefits from the strength of Nike’s image at the point of purchase. For decades, consumers
have come to associate the Nike image with quality products. By associating star athletes and motivational slogans like,
"Just Do It," with marketing campaigns that emphasize fitness, competition, and sportsmanship, consumers identify their
purchases with the prospect of achieving greatness. Younger consumers especially benefit from this positive influence.
This image is something that competing companies can not easily duplicate by simply enhancing the physical
characteristics of their products.
Key Weakness
The key weakness of Nike, Inc. resides in our financial status. While we are not in financial trouble, we recognize that
strengthening the financial well being of the company can only assist our company in the short- and long-run. We have
many areas challenging our continued success such as increasing our profitability and bettering our management of
cash, accounts receivable, and debt. Nike suffered a blow to sales and revenue sparked by bad publicity in 1997 about
our international labor policies. Since then, we have attempted to overcome the bad press by raising and enforcing
minimum age requirements for employees in overseas factories. Nike attempted to regain its mid-90's momentum as
shown in 1998’s recovery, but the loss of Michael Jordan as our spokesman and the Asian financial crisis put a damper
on gains that year. During 1999, the company made some changes in its products and deeply cut costs. These initiatives,
in addition to the stabilization in the Asian financial picture, will combine to fuel the recovery that Nike expects in the near
future. Nike's recent alliance with Fogdog Sports, an Internet sporting goods retailer, and our presence in the 2000
Sydney Olympic games will also aid in sales growth.
Exhibit 5
* Nike, Inc. 1999 Nike Annual Report
As a result of reducing our marketing budget by $100 million and eliminating 7% of our employees, Nike’s net income has
increased for fiscal year 1999. In fiscal year 1998, the company incurred a one-time restructuring charge to better align
our overall cost structure and planned revenue levels.
Overall, Nike is recovering from a large decline in 1997’s numbers. As noted above, the labor controversy has been the
biggest factor in the changes shown.
Competitors can exploit our financial weakness by emphasizing their own individual strengths and attempting to gain
greater shares in the market while we are revamping processes from within. This could be a key time during which other
companies in sound financial condition, such as Adidas, could utilize their resources in an attempt to overshadow our
existing and new product lines.
INDUSTRY ANALYSIS
Opportunities
The athletic footwear and apparel industries will benefit from the currently strong economic backdrop in the United
States. Spending is high and is expected to result in sales growth industry-wide.
Athletic shoes and apparel have become a staple in wardrobes worldwide. This is due to both the increasing
numbers of people exercising and the trend towards casual apparel.
Competition is fierce at all levels in within the industry, especially among the leaders. This creates a sense of
security for the companies that have been able to create a niche.
Cost cutting due to restructuring of operations will give many companies the chance to price products more
competitively.
One area in the industry that is ever changing is research and development. The strong departments will surely
capitalize on the trends of tomorrow if their efforts are successful.
Increasing financial recovery in overseas markets proves to be an area of expansion for the athletic footwear and
apparel industry.
E-tailing, or customer-designed internet merchandise, is threatening the traditional distribution channels, thus
eliminating the "middle-man" distributors and allowing for increasing profitability.
Threats
The industry has reached a level of maturity. While style and technology in athletic apparel and footwear has
reached a leveling-off point, the important aspect now is for companies to differentiate their lines.
Inflation is looming over the U.S. economy, which may spark a cutback in consumer spending.
Consumers are becoming savvier and may lean towards discounted items.
In terms of market saturation, many of the key manufacturers in this industry have been around for many years.
Consumers may be scanning the market for new and different footwear and apparel products.
TOP COMPETITOR ANALYSIS
Distinctive Competency - Marketing (Consumer Loyalty)
Despite the tough times Reebok has recently come upon, reasons for optimism remain. Reebok has managed to hold the
loyalty of a large portion of the industry’s female consumers market. While Reebok’s spending on advertising has
fluctuated, individual product designs have come and gone, female consumers have, as a group, remained loyal to
Reebok and their products.
Can Reebok use this distinctive competency to inflict damage on Nike?
Yes, Reebok can use their distinctive competency to wound our company. If Reebok can expand their appeal to
incorporate female consumers who are not currently Reebok customers, Reebok could expand their market share and
take customers away from Nike products.
Can Nike protect itself against this threat?
Yes, we can protect our market share among female consumers within the industry by targeting some of our promotions
to female consumers. Nike’s sponsorship of the 1999 Women’s World Cup Soccer Tournament was a great example of
how Nike is appealing to female athletes.
Competitor’s Key Weakness – Marketing – (Advertising/Promotion)
The leading cause of Reebok’s recent tumbles stemmed from problems relating to poor marketing. Reebok’s
shortcoming in the area of marketing is their key weakness. While other athletic shoe companies bombard the airwaves
with commercials pushing their product lines, Reebok remains out of sight and out of mind. While Reebok’s competitors
are known by familiar slogans like Nike's "Just Do It," Reebok’s, "Are You Feeling It," does not equate to their brand
name in the eyes of most consumers.
Can Reebok’s key weakness damage their competitive position?
Yes, Reebok’s chances of growing their market share are slim as long as their advertising endeavors remain to be so
unsuccessful. For Reebok to rebound from their current economic woes, they will have to improve the quality of their
overall marketing operations.
Can Nike take advantage of our competitor’s key weakness?
Yes, Nike can take advantage of Reebok’s marketing woes by doing one of the things we do best: marketing. Continuing
our successful marketing programs should allow Nike to court the customers Reebok fails to draw in with their weak
marketing initiatives.
OTHER EXTERNAL FORCES
Demographics
Opportunity
Nike's once loyal market is currently aging. This means that our customers are not as athletic as they may have been in
the past. However, this poses as an opportunity for Nike because they have the ability to influence the next generation of
Nike customers. The older generation of Nike brand purchasers have the power to influence their children - part of the
next generation of Nike loyalists. In addition, by marketing different types of shoes to this market, these existing
customers will continue to be loyal to Nike.
Threat
The phenomenon of the aging of our most loyal market segment questions whether there is a threat that the new
generation will not be exclusively loyal to Nike. In the current market there are a number of other competitors that are not
mainly athletically oriented. Examples include such manufacturer-retailers as The Gap and Old Navy. Their clothing and
shoes are competing with Nike's. In addition, Nike is not keeping up with the latest trends and styles like some of its
competitors have been. For that reason, the newer generation is attracted by Adidas and Tommy Hilfiger.
Pressure groups
Opportunity
An opportunity produced by pressure groups is the ability to react in a positive manner to concerns of the public as well
as customers. Consumer watch groups are paying especially close attention to Nike's use of sweatshops and child labor
to produce our products. Nike's opportunity lies in being able to show the consumer force that we are indeed taking steps
to reduce and eventually eliminate sweatshops and child labor through new policies and strict implementation
procedures. Also, by responding to such consumer activism, we are portraying a positive image in that we are promoting
ethics even while we are trying to be efficient and economical.
Threat
In the same manner, not responding to these consumer activist groups poses a threat to Nike. The negative publicity that
Nike has received thus far has lowered its image to that of being an ethical company. Such publicity has the potential to
ruin a company permanently. By disregarding the voice of concerned citizens, we are disregarding our customers, one of
our most important stakeholders.
KEY OPPORTUNITY
The key opportunity for Nike, Inc. currently is the booming economy of the United States. Currently the company has the
ability and the resources to exploit this opportunity. Nike has capitalized on the recent economic boom with higher sales
and income. However, we are not using our resources to the fullest degree. There are currently many areas in which Nike
is not paying attention. We have not catered to a large portion of the new generation that demand the latest trends and
styles. Also, Nike must take into account the changing demographics in this country. There is a much higher proportion of
Hispanics, Asians, and African Americans than there was before. These groups have somewhat different tastes that Nike
should be able to satisfy.
To exploit this opportunity, Nike needs to focus on who the next generation of loyal customers will be and cater to their
needs. In addition, the world economy is recovering currently, which allows Nike to make an impression in foreign
markets as well. Nike is strong in many foreign countries, but we need to focus on the younger market of consumers.
Nike has been doing a great deal of research and development, but if we want to keep the lead in market share, we must
look at trends while maintaining our high standards of quality.
KEY THREAT
The key threat for Nike, Inc. is market saturation. The problem is that the athletic shoe market is already full of different
brands and companies. Now, there is very little room for new companies. There is also very little room for new product
innovation and growth of market share for companies like Nike, Inc. Since Nike is currently holding the lead in the market
as far as market share, there is little room for them to expand. In fact, we must hold onto our market share because if
anything it is ours to lose. Nike, Inc. is now competing with other athletic companies as well as companies that just sell
clothing or other types of shoes. If all of these other companies merely gain a small percentage of the market, Nike will
be one of the main companies to start losing market share.
In response to this threat, we would focus on keeping our market share and making sure that competitors like Old Nay do
not steal away our market share. We will do this by focusing our efforts on a broader market. This would include the
younger generation that is interested in sports as well as extreme sports. We need to make sure that we not only stay
abreast of the athletic shoes market but also are competitive in the athletic apparel market.
MAJOR AND SUBORDINATE PROBLEMS
Major Problem: Finance
Symptom: Declining stock market price
Causes:
1.
2.
3.
4.
Declines in net income of $344M from 1997 to 1999.
Declines in sales revenues of $410M from 1997 to 199912.
Recent declines in market share in the United States.
Operating in a mature market with minimal opportunity for growth.
Subordinate Problem: Strategy Formulation, Competitive Strategies
Symptom: Loss in market share for shoes and apparel to non-traditional athletic companies (e.g. Old Navy).
Causes:
1. Poor management foresight in predicting consumer and fashion trends moving away from athletic shoes.
2. Cyclicality in footwear and apparel industries.
3. Nike’s product offerings are limited to athletic footwear and apparel.
Subordinate Problem: Marketing
Symptom: Drop in sales revenues in 1999 from 1998.
Causes:
1. An over reliance on Michael Jordan as a central marketing figure, his departure caused a decline in sales.
2. Recent marketing campaigns are vague, focusing on relating Nike to a non-related item. Poor reception of these
ads by consumers.
Subordinate Problem: Public Affairs
Symptom: Public outrage over manufacturing and labor practices.
Causes:
1. Underage employment in foreign operations discovered by consumer watch groups.
2. Poor work environments in foreign operations reported in the national media.
3. Foreign wages paid are considered unjust when compared to U.S. wages.
Why Finance?
We choose finance as our major problem because continuing success for Nike is based on our ability to generate future
cash flows by producing higher revenues and net income. Future positive cash flows are required to invest in research &
development, marketing campaigns, and capital improvements required by our production activities. This choice is also
consistent with finance being identified as our company’s key weakness (see page 23). Additionally, financial
performance effects the public perception of Nike in the marketplace. For these reasons, we chose finance as our major
problem.
STRATEGIC MATCH
Leverage
Strength: Opportunity:
➝ Effective Marketing ➝ Recovering International Economies
Constraint
Weakness: Opportunity:
➝ Declining Profitability ➝ Robust Economy
Maintenance
Strength: Threat:
➝ Largest Market Share ➝ Market Saturation
Vulnerability
Weakness: Threat:
➝ Poor Competitive Strategy ➝ Changing Demographics
PRIMARY STRATEGIC MATCH POSITION
Business Strength/Competitive Position Matrix
Exhibit 6
Success Factors
1. Market Share
Breadth of Product Line
Against Adidas
Against Reebok
Weight
Rating**
Score
Rating**
Score
.07
5
.35
4
.28
.10
5
.50
3
.30
Sales Distribution
Effectiveness
.06
4
.24
3
.18
Price Competitiveness
.10
3
.30
2
.20
Advertising Effectiveness
.14
5
.70
3
.42
Facilities location and
newness
X*
X
X
X
X
Production Capacity
.04
5
.20
4
.16
Relative Product Quality
.10
4
.40
3
.30
R & D position
.18
4
.72
3
.54
Caliber of top management
.03
5
.15
4
.12
Customer Service
X*
X
X
X
X
Experience Curve
.05
5
.25
4
.20
Corporate Culture
.05
5
.25
3
.15
Profitability Ratios
.08
5
.40
4
.32
TOTAL
1.00
4.46
3.17
* X means that the criterion is not applicable
** 1 means that the firm’s competitive position is very weak
5 means that the firm’s competitive position is very strong
Exhibit 7 Industry Attractiveness Matrix
Evaluation Criteria
Weight
Ranking
Weighted Score
.08
2
.16
Size
.06
4
.24
Profitability
.06
2
.12
Cyclicality
.03
3
.09
Seasonality
.03
3
.09
1. Industry Growth
Entry/exit barriers
.01
2
.02
Customers
.05
4
.20
Competitors
.08
2
.16
Suppliers
.06
3
.18
Government
Regulations
.02
2
.04
Labor unions
.02
4
.08
Demographics
.12
3
.36
Culture
.10
2
.20
Economy
.12
5
.60
Politics
.02
4
.08
Technology
.10
3
.30
Pressure groups
.04
2
.08
TOTAL
1.00
3.00
* X means that the evaluation criterion does not apply to the particular industry
** 1 means that the evaluation criterion (or the industry condition) is very unattractive
5 means that the evaluation criterion is very attractive
Primary Strategic Match Position
Average Business Strength/Competitive Position Index = 3.82
Industry Attractiveness Index = 3.00
Exhibit 8
Business Strength/Competitive Position
Low
High
Average
Industry
Attractiveness
High
Leverage
Constraint
Average
Maintenance
Low
Vulnerability
THE STRATEGIC PLAN
Mission Statement
Our mission at Nike is to be a company that surpasses all others in the athletic industry. We will maintain our position by
providing quality footwear, apparel and equipment to institutions and individual consumers of all ages and lifestyles. We
pledge to make our products easy available worldwide through the use of retail outlets, mail order and our company web
site. Nike’s management believes that our success lies in the hands of our teammates, customers, shareholders and the
communities in which we operate. We vow to keep this in mind with the execution of every decision within our company.
Values Statement
Nike will focus its commitment to all stakeholders by continuing to make strides towards being a company that sets the
precedents in social responsibility. Nike is continuously making efforts to ensure that all employees and members of its
surrounding communities are treated in a manner that is inline with our mission. Nike has made many alliances with
human rights organizations in an attempt to ensure labor rights for employees of the industry overseas. We are
committed to treating our employees with the utmost respect, which is reflected in our compensation and human
resource policies. We are also committed to making sound decisions in regards to our environment, resources, and the
fight against pollution.
Vision Statement
At Nike, our vision is to remain the leader in our industry. We will continue to produce the quality products that we have
provided in the past. Most importantly, we will continue to meet the ever-changing needs of our customers, through
product innovation.
Alternative Strategic Slogan
Nike…as always, a step ahead of the rest!
Alternative Marketing Slogans
Nike, try to catch us. (Lisa)
Give yourself an edge. (Brian)
For the top athlete in all of us. (Kim)
Finish First. (Sheetal)
***THE WINNER…Second Place is for Losers (Dan)
Long-Term Corporate Objectives
The following are Nike Inc.'s 5-Year long-term corporate objectives:
Continue our improvement in stockholders' return on equity to achieve a 20.0% return in 2004. This would
be an increase of almost 6.5% from 1999.
Increase earnings per share to $2.70 per diluted share by 2004 in an overall effort to bolster the long-term
resilience of our stock's value. This would surpass our 1997 record high.
Short-Term Corporate Objectives
The following are Nike Inc.'s short-term corporate objectives for fiscal year 2000:
Increase net income to $550 million by the end of fiscal year 2000 in order to reach our long-term goals of
improved return on equity and higher EPS. This 22% increase from 1999 is realistic in light of combined 1st
& 2nd Quarter income already 32% higher compared to the same time last year.
Recover the market price of our stock from its 52-week low of $26.50 per share on February 8, 2000, to a
value that approximates its 52-week average of $50 per share.
Grand Strategy
Nike Inc. can utilize the complete structured approach to select a grand strategy in carrying out the above corporate
objectives. The table below concludes that focusing on product development will allow Nike to continue to build upon our
founding tenant that has secured us a position that borders on leverage and maintenance within the athletic footwear,
apparel, and accessories markets. Because Nike has such a strong history of effective marketing in key global regions,
concentration is an alternate strategy. Market development is a third strategy for consideration due to Nike's ability to
geographically expand our product offerings. The three strategies are very closely linked. To determine which would
prevail as our overriding strategic position, four evaluation criteria were weighted according to each strategy: distinctive
competency, culture, timing, and demographics. With a total weighted score of 4.40 product development surpasses
second place, concentration, and third place, market development.
Exhibit 9
Evaluating Leverage/Maintenance Strategies -- Structured Approach
Concentration
Product
Development
Market Development
Weight*
Rating**
Weighted
Score***
1. Distinctive
Competency
.35
4
1.40
5
1.75
3
1.05
2. Culture
.25
4
1.00
5
1.25
4
1.00
3. Timing
.20
4
.80
3
.60
4
.80
4. Demographics
.20
4
.80
4
.80
3
.60
Total
1.00
Evaluation Criteria
4.00
Rating**
Weighted
Score***
Rating**
Weighted
Score***
4.40
3.45
* represents the value of the criteria to Nike
** effectiveness of strategic option in terms of its ability to satisfy the criteria: 1 = undesirable 5 = desirable
*** (weight) x (criteria)
The core of our business is our products. Producing merchandise that is high in quality, technologically advanced, and
fashionable will allow us to achieve our corporate objectives of profitability and shareholder value. Utilizing this strategy
will also allow us to capitalize on our key opportunity. The global economy is becoming so strong that by improving our
products in order to extend their life cycle we will be making a long-term investment in this financial boom. Our products
will be able to better withstand the risk of passing fads. Incorporating fashion into our products is one way to achieve this
strategy. The two alternate marketing strategies will be just as necessary in order to incorporate our products into the
shopping habits of consumers.
Competitive Strategy
In the past, our company has utilized product differentiation as our competitive strategy. As our reputation dictates, we
will continue to place our emphasis in this area. Nike has built its business on providing products that rise above all
others; it has made us the success that we are today.
Nike is known for its technologically advanced products. We are the leaders in this area, which allows our products to
stand out from the rest. Our focus also allows us to maintain a somewhat narrow niche that enables us to effectively
capture the needs and wants of our consumers.
Nike will also focus on making a strong effort in price leadership. Our products in the past have been concentrated in the
higher end of the pricing category. We will now make an entrance into lower price categories with our quality products.
This will enable us to capture an even greater hold on market share.
Operational (Functional) Strategies
Marketing Objectives
Long-Term: Increase our market share in the Asia Pacific region from 26% to 30% by 2004.
Short-Term: Increase our market share in the Asia Pacific region from 26% to 27% by fiscal year end
2000.
Exhibit 10 Short-Term Strategy
Start
Date
Market Research
1. Hire a market research firm familiar
with Asia, specifically the booming
market of Japan, to study the buying
habits of Asian consumers.
Determine what factors motivate
their athletic footwear and apparel
purchases.
2. Conduct focus groups in Asia to get
feedback on our existing products,
as well as our prototypes.
Pricing
Completion
Date*
Budget
5/1
$400,000
5/1
$80,000
3/1
3/1
Savings
1. Determine price points for our Asian
product offerings that are properly
adjusted for regional buying power,
competition, and currency valuation.
4/1
3/1
Advertising and Promotion
1. Sponsor regional sporting events for
professional, amateur, and
collegiate teams. Include
sponsorship of the 2002 World Cup
in Korea and Japan.
2. Run advertisements in the most
popular forms of regional media:
television, newspaper, magazines,
billboards, and/or radio.
3. Offer rebates and discounts for
certain late-model shoes to
encourage sales and inventory
turnover.
4. Conduct fashion shows at top retail
venues to display our latest
merchandise offerings to consumers
and the media.
5/31
3/1
$5,000,000
5/31
3/1
$10,000,000
5/31
3/1
$1,000,000
5/1
3/1
Total
$100,000
3 months
$16,580,000
* completion date based on a 5/31 fiscal year end.
Production Objectives
Long-Term: Decrease our cost of sales from 62.59% of sales to 59% of sales by fiscal year end 2004.
Short-Term: Decrease our cost of sales from 62.59% to 62% in fiscal year 2000.
Exhibit 11 Short-Term Strategy
Start
Date
Location, Newness, and Layout of
Facilities
1. Hire independent industrial
engineers and analysts to work with
manufacturing facilities in order to
maximize efficiency of operations:
3/1
Completion
Date*
Budget
Savings
5/1
$10,000,000
$30,000,000
shop layout, processes, etc.
Inventory
1. Reduce inventory at all levels of
production: raw materials, work-inprocess, and finished goods.
2. Work with 3rd party shipping agents
to manage the flow of orders from
factories to distribution centers.
3. Work with suppliers to implement
the next generation of electronic
data interchange (EDI) technology
in an attempt to achieve just-in-time
inventory.
5/31
$40,000,000
5/31
$1,000,000
5/31
$20,000,000
3/1
3/1
3/1
$10,000,000
Total
3 months
$20,000,000
$91,000,000
* completion date based on a 5/31 fiscal year end.
Research & Development Objectives
Long-Term: Maintain a range of R&D expenditures that does not fluctuate more than 1.5% or less than
.75% of projected sales in the next 5 years.
Short-Term: Increase spending on R&D to 1.2% of projected revenues in fiscal year 2000 to achieve
increased market share.
Exhibit 12 Short-Term Strategy
Focus
Start
Date
Completion
Date*
3/1
5/31
3/1
4/1
Budget
1. Shift funding to applied research in
"up-and-coming" sports. Experiment
with cutting-edge fashion.
Budget
1. Infuse new funding, in addition to
shifting current budgetary
allocations, for researching sports
that could be popular in the future.
Total
$15,000,000
3 months
$15,000,000
Savings
* completion date based on a 5/31 fiscal year end.
Human Resource Objectives
Long-Term: Increase availability of educational assistance programs for world-wide manufacturing
employees from 50% of factories to 100% by 2004.
Short-Term: Increase availability of educational assistance programs for world-wide manufacturing
employees from 50% of factories to 70% by 2000.
Exhibit 13 Short-Term Strategy
Start
Date
Recruitment and Selection
1. Hire factory workers who express
an interest in educational programs.
These employees would achieve
the maximum benefit from
educational assistance programs by
being more loyal and productive.
Completion
Date*
Budget
5/31
3/1
Training and Development
1. Offer general education classes for
factory workers who want to learn
how to read, write, or fill any gaps in
their childhood education.
2. Conduct seminars and workshops
for supervisors in factories so that
they may improve their production
and management skills.
5/31
3/1
5/31
Compensation
1. Increase salaries of factory workers
who are promoted as a result of
$5,000,000
3/1
$3,000,000
Savings
completing our educational
assistance programs.
5/31
3/1
Total
$5,000,000
3 months
$13,000,000
* completion date based on a 5/31 fiscal year end.
Finance Objectives
Long-Term: Increase net income 70% to $767 million by fiscal year end 2004.
Short-Term: Increase net income 22% to $550 million in fiscal year 2000.
Exhibit 14 Short-Term Strategy
Start
Date
Management of Accounts Receivable
1. Implement stricter credit terms with
retailers to minimize bad debt
expense.
2. Hire 10 additional employees in the
corporate Accounts Receivable
Department to maintain and collect
aging accounts.
3/1
Budget
$20,000,000
4/1
$25,000,000
$400,000
5/31
1. Sell non-productive equipment or
buildings to reduce depreciation and
maintenance expenses.
Total
* completion date based on a 5/31 fiscal year end.
Savings
5/31
3/1
Management of Total Assets
CONCLUSION
Completion
Date*
3/1
$50,000,000
$300,000
3 months
$700,000
$95,000,000
Nike, Inc. is a company rooted in competition. From equipping athletes with the finest sports equipment in the world to
continuously improving our own financial performance, Nike dominates its competitors. Phil Knight and Bill Bowerman
probably could not have imagined in 1962 to what degree their $500 investments would yield in 2000. They did know that
product quality and innovation would help athletes to achieve greater goals. Nike still operates on this philosophy today. It
is one that has helped athletes and stakeholders alike to realize athletic and financial greatness. Despite a changing
marketplace for athletic footwear, we will continue to expand our product lines and marketing reach to become a more
powerful global brand.
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