m4_group assignment final draft

Module M4: Group Assignment Transformational Corporate Strategy Professor: Erik SchmiklDECLARATION We, hereby declare that this assignment is entirely our own work, and that it has not previously been submitted to any other Higher Education Institution. We also declare that all published and unpublished sources have been fully acknowledged and properly referenced. This includes figures, tables and exhibits. Where modified by us, this has also been indicated. We also declare that the following members have participated in the group sessions.

Name Dube Sunney Makapela Mpho Marnewick Carol-Ann Matamela Portia Mngeni Amanda Moatlhodi Modise Sisinyi Daphnie Tshishonga Lebohang

Student Number 760706 5108 081 700813 5824 080 690502 0043 083 760216 0352 080 741227 0026 081 790406 5351 088 760823 0875 083 760612 0366 080

Signature

Submission Date: 15 June 2011 Compiled by: Midrand Syndicate

Table of Contents

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EXECUTIVE SUMMARY........................................................................................................................ 3 CASE ANALYSIS ................................................................................................................................... 5 2.1 2.2 2.3 2.4 SITUATIONAL ANALYSIS ............................................................................................................................. 5 NIKE S CORPORATE STRATEGY ..................................................................................................................... 5 SWOT ANALYSIS OF NIKE .......................................................................................................................... 6 PROBLEM IDENTIFICATION .......................................................................................................................... 7

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QUESTIONS AND ANSWERS.............................................................................................................. 8 QUESTION 1: WHAT KNOWLEDGE HAS NIKE ACQUIRED OVER THE YEARS?.............................................................. 8 QUESTION 2: WHAT OTHER RESOURCES BEYOND KNOWLEDGE DOES THE COMPANY POSSESS THAT OFFER CLEAR SUSTAINABLE COMPETITIVE ADVANTAGE? ............................................................................................................... 10 3.3 QUESTION 3: FROM A CONSIDERATION OF THIS CASE, WHAT CONCLUSIONS CAN YOU DRAW ON THE EMERGENT PURPOSE OF NIKE IN RELATION TO ITS KNOWLEDGE? .................................................................................................................. 14 3.1 3.2

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ALTERNATIVE SOLUTIONS .............................................................................................................. 15 4.1 4.2 BASED ON CURRENT WEAKNESSES .............................................................................................................. 15 BASED ON CURRENT THREATS ................................................................................................................... 16

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RECOMMENDATIONS ........................................................................................................................ 17 5.1 5.1.1 5.1.2 5.1.3 5.2 IMPLEMENT THE INNOVATION AND KNOWLEDGE-BASED THEORIES OF STRATEGY ................................................... 17 ANALYSE THE ENVIRONMENT LYNCH (2009:78) : ....................................................................................... 17 ANALYSE RESOURCE BY IMPLEMENT THE 7 ELEMENTS OF RESOURCE-BASED SUSTAINABLE COMPETITIVE ADVANTAGE. ...... 17 DEVELOP STRATEGY ................................................................................................................................ 17 IMPLEMENT BALANCED SCORECARD PROGRAMME MANAGEMENT (BSPM) ........................................................ 18

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BIBLIOGRAPHY ................................................................................................................................... 19

APPENDIX A ................................................................................................................................................ 20 APPENDIX B ................................................................................................................................................ 21 APPENDIX C ................................................................................................................................................ 22 APPENDIX D ................................................................................................................................................ 23

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1 Executive SummaryThe purpose of this assignment is to highlight, analyse and prioritise the problems within Nike. It also outlines recommendations regarding Strategic Management to ensure effective and efficient functioning of the organisation

The knowledge of the organisation can be used to deliver and maintain sustainable competitive advantage. Knowledge is hard to define precisely but can be considered as a constantly changing mixture of experience, values, contextual information and expert insight. Lynch (2009:292). Nikes use effective use of knowledge as a resource in realising their emergent strategy has been instrumental in them becoming the biggest sports company in the world. The authors analysis of the case started off by doing a case analysis which outlines Nikes corporate strategy thereafter; a SWOT analysis which identifies the companys strengths, weaknesses, opportunities and threats. The SWOT Analysis illustrates the companys strengths such as strong corporate and marketing strategies with an emphasis on branding and innovation. The analysis also point out weaknesses such as non compliance with international labour laws due to the use of cheap labour, the companys reliance on foreign overseas countries for their manufacturing needs and the fact that they do not own any retail stores. These weaknesses have had to, some extent, consequences towards the companys reputation and financial bottom line. The authors went further on by answering questions relating to Nikes acquired knowledge over the years, the companys resources that enabled them to have a sustainable competitive advantage and the relation between the companys emergent purpose and their acquired knowledge. The authors discovered that Nike used tacit knowledge, which is fuzzy and difficult to set out, and it also provides a competitive advantage that cannot be easily copied by competition. The use of explicit knowledge which is structured and recorded also provided a fundamental basis for strategy development. The company used a combination of tangible, intangible resources together with organisational capabilities to further provide value and a real benefit to the organisation. These resources

CASE: Developing new knowledge at Nike

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consist of; several acquisitions of sports companies, financial resources, leading sports personalities and teams sponsorship partnerships; attractive slogans, logo and message; innovation and technology. The authors also outlined the companys strong leadership, financial skills and experience, design and development, marketing as key organisational capabilities that Nike possessed. The authors concluded that Nikes emergent purpose in relation to its acquired knowledge with emphasis on innovation and ability to grow, has been a crucial combination of strategy that enabled the company to reach its status as the biggest sports company in the world.


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2 Case Analysis2.1 Situational AnalysisThis case study will focus on the knowledge Nike gained over its lifetime and how it adapted and used this knowledge to build a successful strategy. Learning and growth which forms part of the balanced scorecard, has been a key element in Nikes overall success. There is confirmed by their continuous learning in creating range of products, to its innovative advertising campaigns and the improvements in its supply chain. Nike adapted the emergent strategy whose purpose has developed over time.

2.2 Nikes Corporate StrategyCorporate strategy is the pattern of major objectives or goals and essential policies for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be. Schmikl (2011:18). Nikes corporate strategy is defined as Building the biggest sports company in the world. Lynch (2009:268). Nikes plan is to become the biggest sports company in the world is achieved through building competitive resources, taking risks, achieving business success, employing the knowledge built up and sharing it across the company.


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2.3 SWOT Analysis of NikeSTRENGTHS y Biggest sports and fitness company in the world y Leading brand of sports trainer y Innovative ideas and products y Applying continuous improvement (learning & growth) y Understand their target market y Strong corporate strategy y Cutting production costs by switching operations y Adherence to high quality standards y Nike has a competitive advantage over their competitor Reebok y They have a strong marketing strategy sponsorship of top athletes and sports teams. y Produces high quality products y They are an international brand OPPORTUNITIES y New market areas (e.g. netball, swimming ) y Brand expansion (e.g. energy drinks) y Product development to offer other products y Competition innovative products THREATS y Competition in shoe sports manufacturing (new & existing). y Different national cultures (demographical change) y Geographical distance making it more difficult to control production and quality. y Economic downturn. WEAKNESESS y Nike does not own any retail stores. y Not adhering to international labour standards i.e. use of cheap labour. y Reliance on foreign countries for manufacturing. y Nike was too complacent.


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2.4 Problem Identification2.4.1 Not owning retail stores The manufacturing sector is very price sensitive; however most of its income is derived from selling to retailers. Retailers tend to offer a very similar experience to the consumer. So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike. As Nike didnt have its own retail stores, this made it impossible for them to deal directly with their customers in order to ensure competitive advantage. 2.4.2 Not adhering to International labour laws Lynch (2009:270) states that Nike was criticised for its use of cheaper labour in some countries and was forced to take steps to deal with this. This was a reputational damage to the Nike brand. 2.4.3 No local manufacturing plant Not owning a manufacturing plant in the US has resulted in Nike having limited control of product quality and increase of overhead costs in transporting their products to retailers. 2.4.4 Reliance on foreign countries for manufacturing y As manufacturing was outsourced to overseas suppliers, control of production and quality at Nike was difficult. y According to Lynch (2009:270), In the 1990s, the Asian economic downturn hit Nike hard. y In 2000 Nike was strike by heavy overstocking of products in the US retail. 2.4.5 Nike was too complacent The case illustrates that Nike undermined the competitions threat. This is informed by Reeboks launch of a strong and a well-design range of sports shoes with great success. By mid 1980s, Reebok had equalled Nikes annual sales in a fierce competitive battle.


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3 Questions and Answers3.1 Question 1: What Knowledge has Nike acquired over the years?

Knowledge definition: Lynch (2009: 264) definition; Knowledge is a fluid mix of framed experience, values, contextual information and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In organisations, it often becomes embedded not only in documents or repositories but also in organisational routines, processes, practices and norms. The authors are of the opinion that all organisations should possess tacit and explicit knowledge. Tacit knowledge is the one that often delivers the sustainable competitive advantage as it is difficult for the competitors to duplicate. In an attempt to answer the above question; the authors will look at Experiences, Values, Information and Expert insight gained by Nike over the years. Knowledge Designing a lighter version of running shoes Thesis on trainer manufacturers Explicit Tacit Knowledge Type y Experience y Contextual information Visit to Japan as part of the tour to search for the best manufacturer. Setting up of the importing company in the USA y Contextual information y Expert insight Tiger influenced the establishment of Nike Economic changes in Japan lead to the switching of operations to Taiwan which resulted in increase in revenue Overseas manufacturing difficult to control production and quality (learn how to handle overseas production, brief manufactures on y Experience y Contextual information y Expert insight y Experience


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Knowledge new designs and models, and how to set and maintain quality standards) Gaining International experience Making more contacts with overseas shoe manufactures

Explicit

Tacit

Knowledge Type y Values

y Experience y Contextual information y Expert insight

Learn about heat of competition Being innovative

y Experience y Contextual information

Continual R&D in the shoe designs

Sponsorship of sports teams coming up with new innovative ways of competing Marketing strategy - using sports stars to promote the Nike brand

y Experience y Contextual information y Expert insight

Not to use low-cost labour to produce products as they are watched by the market

y Values y Experience


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3.2 Question 2: What other resources beyond knowledge does the company possess that offer clear sustainable competitive advantage?

For any company to offer a clear and sustainable competitive advantage, the company needs to possess to a certain extent tangible, intangible resources and organisational capability. Tangible resources are defined as the physical resources that contribute to its value add. Schmikl et al (2009:41) Intangible resources are those resources that have no physical presence but represent real benefit to the organisation, - brand names, service levels and technology Schmikl et al (2009:41) Organisational capabilities are the skills, routines, management and leadership Schmikl et al (2009:41) The authors have identified the following resources that Nike as a company possess. 3.2.1 Nikes Tangible Resources I. Acquisitions of Sports Companies Nike acquired several sports branded clothing and goods companies in the years 2002 04. Lynch (2009:270). These acquisitions contributed to 14 % of Nikes global sales in 2007. This is a significant contributor to Nikes resource pool as it ensures that the company remains sustainable and competitive in their chosen market. The company also acquired Adidas contracts to sell branded soccer boots worldwide. II. Financial Resources Nike has become a financially stable organisation over the years. They started the company with US$1000 in 1964, now they are worth billions of dollars. Compared to their competitor (then Reebok) that spent around US$400 million, Nike invested US$1 billion in sports marketing to build their brand so that they gain the competitive advantage.


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3.2.2. Nikes Intangible Resources (I) Leading Sports Personalities and Teams Sponsorship In order to place itself as the leading and biggest sports company in the world, Nike aligned itself with leading sports personalities and teams in the world. Nike partnered with Michael Jordan, the leading US Basketball star, and this saw the Nike Air shoe get great marketing attention in the Basketball arena. Nike realised that such partnership provided a remarkable and powerful support for its brand. The company went on to sign up the Brazilian national soccer team and the golfing sensation Tiger Woods in multimillion dollar sponsoring partnerships. (II) Attractive Slogans, Logo and Message The companys target market during the 1980s and 1990s was young, cool and competitive teenagers Lynch (2009:269). Nikes slogan Winning your way, the message Just Do It and the swoosh logo was developed to express the individuality of their target market. The slogan and message captured the aggression, competition and individual success epitomised by leading sports personalities that were signed up by Nike. (III) Innovation

Phil Knight and Bill Bowermans innovative ideas date back from 1958. Even though back then they did not have much industry experience, they had a vision of having a lighter version of the running shoe designed and manufactured. Nike has committed itself to developing innovative sports shoe designs like the 1990s Nike Air shoe. Their innovative outlook, willingness to take risks by breaking into new markets gave them the competitive advantage. (IV) Contacts - Local and international. Phil Knight had been a middle-distance runner in the late 1950s, and had many contacts in athletics locally. This assisted them when they started selling the Tiger running shoes and eventually started Nike. Phil Knights visit to the Japan manufacturer, and eventually teaming up with Korea and Taiwan also assisted them in acquiring international contacts. From the success of their Tiger shoe sales, they decided to start


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Nike. These many contacts also helped them in bouncing back after they were threatened by Reebok in the mid to late 1980s. (V) Technology Nike used very good technology to manufacture their products. The technology was first used in the late 1980s to invent the Nike Air shoe. This involved putting an airbag under the foot to cushion it. It is one of the main resources that helped them to recover the threat of competition with the invention of Nike Air, which was eventually launched successfully in 1990. 3.2.3. Nikes Organisational Capabilities (a) Strong Leadership Phil Knight and Bill Bowermans strong leadership saw the company flourish under fierce competition, overseas manufacturing risks, labour disputes and from humble beginnings to a multimillion dollar company. Under this strong leadership the company achieved the following: y y Market share rise from 25% to 28% in 1990 under fierce competition from Reebok. 10 year Football Sponsorship worth between US$200 million and US$400millon in 1996. y y Doubling of Revenue from US$5Billion Acquisitions of over US$500 million.

(b) Financial Skills and Experience To build a company and ensure its sustainability; requires one to have financial skills and resources that will guarantee proper financial management within the company. Phil Knights accounting background helped Nike rise from a US$ 1000 start-up company to a multimillion dollar corporation it is today. His financial skills and expertise ensured that the company minimised production and labour costs by moving operations to newly industrialised countries like Taiwan and Korea.


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(c) Design and Development y Nike expanded its product range to cover a selection of different sports e.g. soccer and golf. y Nike was able to blend their knowledge of its customers with the knowledge of technology that was used in manufacturing footwear. This is confirmed by the invention of the Nike Air that comprises of a sole and heel which has a built-in air cushion. (d) Marketing Nike utilised the services of top sports athletes to promote its products. Examples of athletes sponsored by Nike include Michael Jordan from basketball, golfs Tiger Woods and the Brazilian football team.


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3.3 Question 3: From a consideration of this case, what conclusions can you draw on the emergent purpose of Nike in relation to its knowledge?The authors strongly believe that Nike has applied an emergent approach to purpose through knowledge creation, technology development and innovation that has resulted on increased revenues, enhanced value added and stronger sustainable competitive advantage. 1. Nikes emergent purpose has: 1.1. Emerged over time. According to Lynch (2009:270), the purpose of Nike had changed over time as a result of building competitive resources, taking risks, achieving business success and employing the knowledge built up and shared across the company. When Nike started, their focal point was to manufacture running shoes. This changed over the years as they advanced into sports clothing and equipment. 1.2. Increased Revenue When Nike was founded, it only had US$1 000 as a capital which was put together by its founders Nike and Bowerman. Nikes knowledge of marketing and advertising more than doubled their revenue within a period of 10 years. This was a result of using top sports stars to endorse their products and sport sponsorship deals that allowed them to move into new areas of sports goods. The marketing campaign with Michael Jordaan increased the market shares of Nike by 3% in 1990. 1.3. Enhanced Value Adds y y y y Handling overseas manufacturing. Briefing manufacturers on new designs and standards. Setting and maintaining quality standards with suppliers. Making more contacts with overseas shoe manufacturers.

1.4. Stronger Sustainable Competitive Advantage y Nikes stronger image allowed them to diversify their customer-base. y During the 1980s and 1990s, the company had come to understand its target market well-young, cool and competitive teenagers (Lynch (2009). y Investment on technology has resulted in Nike developing new and innovative sports shoe designs and continual R&D.


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y Sponsorship knowledge along with technology knowledge gave Nike credibility and an opportunity to expand into new areas of sports goods. y Outsourcing all manufacturing to the developing countries where wage costs were substantially low, afforded Nike an opportunity to save on production costs. The funds were diverted to marketing, building brand identity and awareness through celebrity endorsements.

4 Alternative Solutions4.1 Based on Current weaknesses

4.1.1 Nike does not own any retail stores Nike management needs to consider owning retail stores. They currently have minimal control on what happens in the stores where their stock is sold. Having their own stores means that they can be directly involved with the employment of staff and their customers. They will also have direct control of the systems and operations of the organisation.

4.1.2 Not adhering to international labour standards i.e. use of cheap labour Nike needs to ensure that they meet all the national and international labour standards. They were criticised for using cheap labour in some countries, which was bad publicity for them. They were even forced to take steps to rectify the matter - this was obviously an unnecessary cost for the company. From now on, they need to ensure that they adhere to all labour standards. Bringing production to the US will not only assist this situation, it will also be a positive thing for the organisation because they will be employing local talent. This will be good for the local economy. 4.1.3 Reliance on foreign countries for manufacturing Nike relies on foreign countries for their production. Not having manufacturing plants locally poses challenges like differences in cultures, geographical distance, and economic changes. The other negative thing is that they also do not employ local talent. The authors recommend that they bring manufacturing to the US, so as to encourage training and hiring of local talent. This will help them to create skills and jobs for their own country.


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4.1.4 Nike was too complacent Nike was so successful that they got too relaxed and forgot that competition can enter the market anytime. This happened to them when they least expected it. In1981, Reebok came along - very prepared and kept Nike on their toes for almost a decade. Nike should ensure that they are always prepared for new competition and new opportunities that existing competition could spot. They need to stay ahead of competition by focusing on being innovative and continuously improving.

4.2 Based on Current threats4.2.1 Competition in shoe sports manufacturing (new & existing) Nike needs to constantly do market analysis (SWOT and PEST) in order to keep up with what their customers changing needs are and to stay ahead of the competition. They can accomplish this by being innovative and implementing continuous improvement.

4.2.2 Different national cultures (demographical change) The difference between local and international cultures often becomes a problem because it can affect communication to some extent. The meaning of a simple instruction can be interpreted differently on the other side, hence the authors recommends that Nike should acquire assistance of an in-house translator to ensure smooth communiqu.

4.2.3 Geographical distance making it more difficult to control production and quality The geographical distance and cultural differences pose a threat in the immediate control that Nike has over the production as well as the quality of their products. This affects their promptness in responding to any problems. The authors propose that Nike bridge this distance by bringing the manufacturing closer to the US, where they can take immediate action. This is more especially for problems and challenges that can be very costly to the company. 4.2.4 Economic downturn It is the authors suggestion that Nike brings their manufacturing to the US. This will protect them from economic downturns and unpredictable currency fluctuations from the outside countries where their manufacturing plants are.


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5 Recommendations

5.1 Implement the Innovation and Knowledge-based Theories of strategyThe authors strongly recommend that Nike should implement the innovation and knowledge-based theories of strategy in order to outsmart the competitors. How this approach fits into the emergent strategic process is demonstrated in Appendix A.

5.1.1 Analyse the environment Lynch (2009:78):y Estimation of basic factors surrounding the environment i.e. Market definition and size, market growth and market share. This will assist Nike in identifying new market areas and plan marketing strategy. y PESTEL analysis to identify factors that influence the competitive environment e.g. threats at Nike and act in accordance. y Five forces analysis y Competitor Analysis and product portfolio analysis y Customer analysis

5.1.2 Analyse resource by implement the 7 elements of resource-based sustainable competitive advantage.The resource-based view (RBV) is of the opinion that the individual resources of an organisation provide a stronger basis for strategy development than industry analysis. The authors are of the opinion that the RBV will identify those resources that are outstanding and have sustainable competitive advantage. The seven elements that comprise the RVB: See Appendix B. Lynch (2009:149)

5.1.3 Develop StrategyThe authors recommend that Nike should develop business strategy options by using the approach mentioned in Appendix C in order to identify the environment-based and resource-based opportunities available to the organisation.


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5.2 Implement Balanced Scorecard Programme Management (BSPM)Then, a Balance Scorecard Programme Management System is recommended in this case. The framework to describe and communicate the strategy understandably and insightfully to teams and Programme Management and that delivers strategized implementation and an integrated team-based system that measures the strategic benefits is provided by the Balanced Scorecard. In order to implement the abovementioned, the four critical building blocks in the Balanced Scorecard model are: y y y y Financial Performance Customer Value Performance Internal Business Process Performance Learning and Growth Performance

The implementation of Balanced Scorecard Programme Management will: y Enhance required management decisions and will ensure that these are identified more pro-actively and that strategic alignment is re-evaluated and implemented more frequently if need be. y Discard the rigid functional management approach that can no longer cope with the dynamically changing requirements of Organisational Programmes. y y Enhance high performance team work. Improve Human Resource knowledge, skills and behaviour in aligning the strategy with the value system of Nike and applying it. y Ensure effective and efficient knowledge management within Nike from Top Management down, within the various business units and cross-functionally. Ensure that a Portfolio / Programme for Continuous Improvement, based on TQM Guiding Principles of Nike, are set up. Innovative, continuous improvement projects-portfolios are put in place and necessary for continuous value chain revalidation and enhancement. All BSPM system process deliverable must be measured, appraised and reviewed, followed by improvement. Change is inevitable, apply a growing approach and dont become overly prescriptive. Remember that goals and objectives can only be achieved to a reasonable degree.


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6 Bibliography

Lynch, R., 2009. Strategic Management. Fifth Edition. London: Richard Lynch. Steyn, P., Schmikl, E., & Van Dyk, P., 2011. Transformational Corporate Strategy. Study Material. Midrand: Cranefield College of Project and Programme Management. Steyn, P, & Schmikl, E. 2007. Programme Managing Organisational Performance and Innovative Improvement: Study Guide. Midrand: Cranefield College of Project and Programme Management.


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Appendix A

Source: Richard Lynch Strategic Management, 5th Edition, Richard Lynch, 2009.


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Appendix B



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Appendix C



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Appendix D

Source: Steyn, Pieter; Schmikl, Erik; Study Guide, Programme Managing Organisational Performance and Innovative Improvement, Cranefield College of Project and Programme Management, 2007


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m4_group assignment final draft

Documents

nike s corporate strategy

swot analysis of nike

emergent purpose of

case analysis

appendix b

appendix c

appendix d

situational analysis