Nike Inc.: Study Of Value Chain Functions And How They Contribute To The Success Of Nike.

Nike Inc.: Study of value chain functions and how they contribute to the success of Nike.

Prepared by

Helgi Frimannsson

MBA 640A

Dr. Norcio

2/19/2007

When Bill Bowerman, a former track-and-field coach at University of Oregon and co-founder of Nike Inc, once said "if you have a body, you are an athlete", his words marked the foundation for a future business venture. Built on this quote is NikeÒ's mission statement that states: bring inspiration and innovation to every athlete in the world. In reality it means supporting all athletic activities regardless of anything else. This simple and ambitious yet humble objective has led Nike to the top of multi-billion dollar business category that is selling athletic footwear and apparel worldwide.

Nike was founded in 1968 by two entrepreneurs who used innovation to inspire their athletic footwear design. The inspiration for NikeÒ's business model came from Bowerman who taught his athletes, Phil Knight among them, to seek competitive advantage everywhere, especially in their bodies, their gear and their passion. Today, Nike has the same core value installed. Knight, a co-founder of Nike and now Chairman of the Board, has witnessed an initial idea from his days as middle distance runners for Coach Bill Bowerman, evolve over the years and constantly grow into a global athletic empire. Knight and Bowerman are credited as some of the world's most celebrated businessmen. (Heritage, 2006)

In the fiscal year 2006 Nike Inc. and its five wholly-owned subsidiaries (Cole Haan, Converse, Exeter Brands Group, Hurley, Nike Bauer Hockey, and Nike Golf) brought in just short of fifteen billion in revenue, its highest figure ever. The net income for the same year registered at approximately fourteen hundred million dollars. Earnings per share also came in at its all time high rate and growing some eighteen percentages from 2005. (Nike 10-K form, 2006, p.46)

An interesting part to examine is how Nike has reached these incredible figures by globally managing all categories of the value chain: research and development, design, production, marketing, distribution, and customer service. The respective categories function within each other to add worth to the product for the final consumer. The reasons why Nike has been so successful are found in every aspect of the value chain.

Research and Development

Nike strives to produce products that help athletes in terms of reducing injury, enhance performance, and maximize comfort. To achieve these standards Nike employs a staff of specialists in the areas of biomechanics, exercise physiology, engineering, and industrial design, who all contribute their respective areas of expertise to the development of products. Additionally, NikeÒ's development division relies on advisory boards made up of athletes, coaches, trainers, equipment managers, and medical experts, to give their industry specific input. Nike also utilizes its own employee athletes for wear-testing and evaluating products at various levels of usage. These are all factors that help to fully satisfy consumer demands by offering top quality products. Nike recognizes these efforts as one of the key success factors in the company's past and future success. (Nike sports research lab, 2007)

The Nike Sport Research Lab is located at its World Campus in Oregon in a state-of-the-art facility named after U.S. womenÒ's national team soccer legend Mia Hamm. The work of the researchers falls into three primary areas. First is biomechanics, the study of the human movement and related forces. Second area is physiology, which studies the integration of the body's energy systems and responses to environmental stresses. Third research area studies sensory and perception which is an evaluation of product attributes, effectiveness, and durability. For each of the three areas there are four consumer variables that are incorporated into the product development: geographical location, gender, age, and skill level. Nike's Sport Research Lab also makes use of the latest technology in product testing tools to create high performance athletic footwear and apparel. (Nike sports research lab, 2007)

Results of product testing and development are some of Nike's trademarked technical innovations featured in high performance products. Nike made famous the "Air Sole" a high level cushioning system found in many of Nike's earlier and current athletic shoes. The "Shox" technology a more recent footwear cushioning system that provides ultimate stability and comfort level. (Product technology - footwear, 2006)

Nike has also developed dozens of trademarked technologies in apparel, most notably the dri-fit fabric which wicks moisture away from the body and allows the fabric to remain dry and lightweight. (Product technology - apparel, 2006)

Nike+ is a new product twist from Nike that proves its innovative thinking that benefits athletes. The device and software product is a collaboration project with Apple Computers the makers of the popular mp3 player, the Ipod. Nike+ system allows joggers to synch their Ipod Nano with Nike+ running shoes through a special device placed inside the shoe-sole. It then provides accurate real-time information about distance and speed of their runs displayed while enjoying music on the Ipod Nano. Launched in 2006, Nike+ is an example of NikeÒ's will to inspire athletes through innovation. (Nikeplus, 2007)

Design

Like all sellers of consumer products, NikeÒ's success is grounded in acquiring and maintaining high level of customer acceptance of its products. Some of the most important factors contributing to high level of customer acceptance are the aesthetics and design factors of Nike branded products. NikeÒ's primary logo the "swoosh" is one of the most recognizable corporate logos in the world and is featured on all of NikeÒ's products. (Nike 10-K form, 2006, p.8)

Nike has acquired its pinnacle status especially among female athletes through superior use of elements such as color and fabric in designing apparel and footwear for women. Equally important as visual aesthetics of Nike are the technical innovations that aim at enhancing the user's athletic performance. For many athletes, self-motivation is driven by not only wear apparel equipped with technical features, but also by being visually appealing for themselves and others.