1. Discussion What factors drive Nike’s decision to stick with some form of netw
ID: 384129 • Letter: 1
Question
1. Discussion What factors drive Nike’s decision to stick with some form of network organizational structure rather than own its manufacturing operations?
NIKE
Spreading Out to Win the Race
Nike is indisputably a giant in the athletics industry. But the Portland, Oregon, company has reached the top by knowing how to stay small. Nike has managed to become an industry leader by focusing on core competencies—and outsourcing other tasks and functions. But can it stay out in front?
© Richard Clement/Reuters/Corbis
Where’s the Company?
If you don’t make anything, what do you actually do? It’s not a joke or a Buddhist riddle. Rather, it’s a conundrum about one of the most successful companies in the United States—Nike. The company is known worldwide for its products, none of which it actually makes. But if you outsource everything, what’s left? The answer, for starters, is a whole lot of brand recognition.
Since captivating the shoe-buying public in the early 1980s with legendary spokesperson Michael Jordan, Nike continues to outpace the athletic shoe competition while spreading its brand through an ever-widening universe of sports equipment, apparel, and paraphernalia. The ever-present Swoosh graces everything from bumper stickers to sunglasses to high school sports uniforms. Nike products embody a love of sport, disci- pline, ambition, practice, and other athletic traits.1
Outsourcing Wins the Race
Nike has cleverly kept its advertising agency nestled close to home, but has relied extensively on outsourcing many nonexec- utive and back-office responsibilities to reduce overhead. The firm is structured around its core competency in product design— not manufacturing. But Nike has taken outsourcing to a new level, with subcontractors producing all of its shoes. Although this hasn’t hurt product quality, it has challenged Nike’s reputa- tion for social responsibility.
In a move designed to turn critics into converts, Nike posts information on its Web site detailing every one of the hundreds of
factories that it uses to make shoes, apparel, and other sporting goods.2 It released the data in conjunction with a comprehensive corporate responsibility report summarizing the environmental impact and the labor situations of its contract factories.3
Jordan Isn’t Forever
Banking on the star power of its Swoosh, Nike has successfully branded apparel, sporting goods, and even sunglasses. Like many large companies who have found themselves at odds with the possible limitations of their brand, Nike realized that it would have to master the one-two punch: identifying new needs and supplying creative and desirable products to fill those needs.
In fitting with the times, Nike’s VP of Global Design, John R. Hoke III, encourages his designers to develop environmentally sustainable designs like the Nike Free, a lightweight running shoe that boosted sales dramatically.4 And Nike’s Sustainable Business & Innovation Lab funds outside startups focused on alternative energies, more efficient approaches to manufactur- ing, and the promotion of healthy lifestyles.
Staying in Front
Pressures is mounting from outside Nike’s Beaverton, Oregon, headquarters. German rival Adidas drew a few strides closer to Nike when it purchased Reebok.5 The new super group of shoes isn’t far off from Nike’s market size. But when faced with such challenges, Nike simply knocks its bat against its cleats and steps up to the plate. Says Nike spokesman Alan Marks: “Of course we’re in a competitive business, but we win by staying focused on our strategies and our consumers. And from that perspective nothing has changed.”6
Keeping It Together
Nike has so far balanced size and pressure to remain successful by leveraging a decentralized and networked organization struc- ture. Individual business centers—such as research, production, and marketing—are free to focus on their core competencies without worrying about the effects of corporate bloat. The company has found continued marketplace success by positioning itself not simply as a sneaker company but as a brand that fulfills the evolving needs of today’s athletes and athletes-at-heart. Will Nike continue to profit from its organization structure, or will it spread itself so thin that its competition will overtake it?
Case Analysis Questions
Explanation / Answer
Despite of changes in the market environments, Nike has stick to its decentralized and networked organization structure. Each business center of the company focuses on their individual operation like research, marketing, or production. The company has subcontracted its most important operation which is manufacturing itself. Besides this, it had also outsourced several back office and non-executive jobs.
The factors that drives Nike’s decision to stick with its current organizational structure includes its well established brand name in the industry. The company has successfully positioned itself as a brand serving the needs of sports enthusiasts. The organizational structure of the company allows it to focus on its core competencies. In this way, they can strengthen their core competency without worrying about other functions. The company has dedicated design team that work for designing innovative products and strives to generate more value for the customers. This helps the company in getting a sustainable competitive edge over the rivals. These are some of the factors that drive Nike to stick with its current organizational structure.
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