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Nike, Inc refers to a major publicly traded sportswear and equipment supplier based in Beaverton, Oregon, USA. Founded in January 1964 by track athlete Philip Knight and his coach Bill Bowerman, Nike was originally known as Blue Ribbon Sports. As it officially became Nike in 1978s, various organizational changes internally happened to aligned with the external requirements. Nike is a global brand with its Swoosh as the most recognizable logo. As a very competitive organization, gaining a valuable coverage is critical. This is especially true because of the fact that Nike makes a very lean organization, and a virtual chart organization makes it easy for the company to bring together functions, processes and activities. In this report, Nike’s organizational nature and dynamics will be explored. Several organizational changes that occurred in response to environmental changes will be also discussed.
A virtual organization, Nike shared organizational changes and resources for the purpose of better responding to emerging opportunities. Virtual organizations like Nike utilizes the virtual structure to outsource manufacturing particularly because the company owns no manufacturing facilities and are keen in moving production when the needs arise. Nike, as a network organization, had dispersed members that is linked using advanced technology. Nike believed that through modules or networks a strong mechanism of horizontal linkage greater cross-functional coordination could be achieved. This could be true considering that other organizational structure could not provide Nike the flexibility. Vertical structures could show only the functionality of Nike’s networks hence only formal relationships while horizontal structures would not be advisable since few rules are permitted. This would be impossible for Nike where functions are geographically-dispersed. Though both can tap efficiency and learning, Nike had its own idea of improving the flow of information from Oregon to other units globally.
Heneman and Greenberger (2002) state that in a virtual organization, the core business activities are reduced in scope, leaving other entities to focus on some of key business functions. Nonetheless, the core business functions can still be diverse or limited like that of Nike. Nike’s organizational core structure is tied with marketing and design, with much of the rest being outsourced. Hatch and Cunliffe (2006) suggested that it is natural for virtual organizations to outsource wherein networks of people whose connections take place primarily or entirely via electronic media is the basic level of interaction. What sets Nike apart from its competitors is the fact that it does not cash out on buildings and facilities. The company manufactures whenever they can produce high quality products at the lowest possible cost. Further, Nike has a strong research and development foundation with evolving and innovative product range as evidence. Nike, however, is dependent on profits on footwear market which could be exacerbated by volatile retail sector and price sensitivity.
As the largest and most profitable show manufacturer in the world, Nike’s success relies on the network structure that Nike founder and CEO Philip Knight created, allowing the company to produce and market shoes. Basically, the virtual organizational architecture that would allow Nike to focus on some functions such as design and leave others like manufacturing to keep costs low and to give the company greater flexibility. By far, the largest function of Nike Oregon is the design function responsible for pioneering innovations in shoe design while the rest of the major functions are scattered in Southeast Asian suppliers like China and Malaysia. Strategic alliances are important aspects of Nike production particularly since 99 million pairs of shoes manufactured annually are made through such.
Jones and George (2003, p. 232) assert that the network structure provides Nike two important advantages: quick responding to changes in sports shoe fashion and low cost. Nike makes use of a global IT system that can literally change the instruction it gives each of the suppliers in real time. As such, within a matter of short period its foreign manufacturers are producing new kinds of shoes. Nike’s cost are also low because of Southeast Asian labor are a fraction of that of its US counterparts. With Nike’s ability to outsource and use foreign manufacturers keep the headquarters' structure flat and flexible. This relatively inexpensive functional structure to organize its activities enabled Nike to obtain talent and resources worldwide.
Although the virtual structure provides high flexibility for Nike to be responsive to market trends and changes, Nike is hindered by the loss of hands-on control of several functions and employees. Considerably a hollow organization, Nike has a weakened organizational culture and employee loyalty. Inherent risks are also evident including relationship management and contract partner failure and/or business exit. True enough, Nike is faced with minimal tasks environment but with international environment that is otherwise conflict-laden and competition-pressured. While in the internal environment Nike is considered as a technological innovator, technological capabilities also make a standout within the athletic shoes industry.
Globalization, as such, not only requires Nike to globalize its communication technology but also contributes to ever-fiercing competition thus the continued product innovations (Frenkel, 2001). Stonehouse et al (2004) notes that continuous product development is considered necessary because Knight believes that there is a seven-year brand cycle within the athletic footwear industry. Nike combated the perils of globalization through embracing a continuous business model without sacrificing the core design of its products. Pal (2008, p. 265) describes Nike’s business model that transformed into a network-centric organization using information technology to better equip coordination among its more than 800 partners in over 52 countries.
Luo (2001, p. 227) maintains that Nike monitors the industry for changing trends and often leads it in product innovation. Technology has created a fierce competition within the industry and it is the only way to innovation. Public is increasingly becoming aware of new technological improvements in footwear as well hence increasing stability, support, comfort and performance are at the core of Nike’s research and design. Taken from the modernism theory of organizations, Nike adapts to rapidly changing environment through the use of technology. Likewise, Nike also capitalizes on healthier lifestyles of the people although the industry in general is in its mature stage of the industry life cycle. Further, major threats for Nike are government regulation especially those that attacks the corporate social responsibilities (CSR) and ethicality of Nike, and also economic downturns and changes in shoe fashion. All these makes high end shoes like Nike an unaffordable luxury good.
Moreover, Nike faces tough competition with Reebok and Adidas with the former focusing on quality and not quantity and strategizing for increased international sales. Possibility of new entrants, nonetheless, is not significantly high and established companies could easily venture into an athletic footwear line. These companies, however, might be trendy but must be guarded with the demands of the athlete. Nike is an organization that had long-term contracts with professional and collegiate athletes then running expensive television and magazine advertisements. Aside from contracting agreement with individual teams, Nike settles agreements with the entire sports league which enables the company to enter and market itself in growing industries using existing industrial leaders and popular sports.
Going back to CSR, Nike had faced dilemmas of unethical treatment of its labor force hence in the manufacturing aspect whereby sweatshops make most of the production units. Heal (2008, p. 168) points out the responsibilities of a Western company outsourcing to a poor country. Frenkel (2001) termed the process as the international contracting wherein a buyer-driven commodity chain is apparent. In such an arrangement, the lead firm, in our case Nike, is a brand name merchandiser in a developed country. Nike orchestrates the procurement, manufacture and marketing of athletic shoe products manufactured in developing countries. Virtual organizations adhere into environment uncertainties that require buffering, boundary spanning, strategic alliances and co-opting, and Nike understands this very well. However, various unethical criticisms necessitated Knight to rethink its organization.
Environmental contingency theory explains that the environment affects the decisions that managers make and adjustments follow. Because Nike is propositioned at moderate to high uncertainty and is an unstructured organization, it is easy for Nike to fall prey of the changes in the environment. What made Nike to proactively respond to its global environment was the pressure anti-Nike activists are imposing the organization (Wokuch, 2001). From symbolic interpretative theory, the problem of poverty wages and working under extreme pressure for long hours prevail. Nike institutionalized itself by becoming more responsive when cases of labor rights violations in specific suppliers are brought to its attention to improve the conditions of the worker in supplier factories. This is normative considering that Nike is being pressured by cultural expectations (DiMaggio and Powell, 1983).
Using Myron Chartier’s change management model known as change by rational problem solving, Nike felt the need and decided to do something about it. Nike tried at defining the problem and discovered that wages are not only the central of these criticisms but also health and safety laws, and laws guaranteeing human rights. This prompted Nike to take unprecedented step of listing all of its subcontractors and admitting that it was unable to ensure that they all comply with its labor standards. Disclosure was attempted through cooperative monitoring. Nike then searched for promising solutions and applied one or more promising solutions to the need. What Nike did was to bring together the industry through setting up standards and communicating such through a code. Nike sought at disclosing its supply chain while also investing in and improving communities where productions are in existence. Those suppliers that are not in favor of the new agreement are quickly replaced, as a way of symbolizing that Nike is serious with its endeavors.
Since this will be fairly ineffective if Nike will do it alone, the role of Fair Labor Association (FLA) to conduct unannounced audits for five percent of the supply chain annually, amounting to at least 40 independent audits of Nike factories. Non-compliance with the requirements of FLA means dropping out of such factory. On a broader scale, Nike encouraged the industry to embrace and agree on common standards because of the fact that Western sports organizations can have different and potentially conflicting standards. Coercibly, Nike is pressured to conform to various rules and laws imposed by different states worldwide.
This was mirrored in Nike’s Code of Conduct, setting standards for partnerships by seeking contractors who are committed to best practices and continuous improvement in areas of employing management practices that respects the rights of all employees, minimizing impact on the environment, providing a safe and healthy workplace, promoting the health and well-being of all employees. Core standards hence are forced labor, child labor, compensation, benefits, hours of work/overtime, environment, health and safety and documentation and inspection (Hartman, Arnold and Wokutch, pp. 145-146).
This is a process wherein Nike determines, and continued doing so, whether the problem is solved satisfactorily. In particular, SHAPE that stands for Safety, Health, Attitude of Management, People Investment & Environment was conducted. SHAPE is performed also for a new production factory that desires to establish a relationship with Nike. To say, there is no need for Nike to repeat the problem solving cycle since the problem had been solved from a supplier-centric point of view.
In sum, the nature of Nike as a virtual organization had cultivated various unethical practices, mostly of its suppliers and their factories, that had driven Nike to rethink its organization and how Knight conducts his business. Nike received and was attacked by various labor activists and advocacy groups because of its direct involvement with sweatshops particularly in Asian countries. Knight responded to such condemnations by means of introducing codes and programmes that will bind Nike and its suppliers to uphold fair labor practices.
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Frenkel, S. J. (2001). Globalization, athletic footwear commodity chains and employment relations in China. Organization Studies, 22(4): 531-562.
Hartman, L. P., Arnold, D. G. & Wokutch, R. E. (2003). Rising above sweatshops: innovative approaches to global labor challenges. Greenwood Publishing Press.
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Heal, G. (2008). When principles pay: corporate social responsibility and the bottom line. Columbia University Press.
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Pal, N. (2008). From Strategy to Execution: Turning Accelerated Global Change Into Opportunity. Springer.
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Stonehouse, G., Campbell, D., Hamil, J. & Purdie, T. (2004). Global and Transnational Business: Strategy and Management. New York: John Wiley and Sons.
Wokuch, R. E. (2001). Nike and Its Critic: Beginning a Dialogue. Organization and Environment, 14(2): 207-237.