APRIL 2012

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NIKES GLOBAL WOMENS FITNESS BUSINESS: DRIVING STRATEGIC INTEGRATION

Santiago Molano
A Case Analysis of Strategy Implementation

MBA 625- Managing Strategic Action Professor- Michael Carney

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Introduction and Problem Statement In 2006, Nike, the American clothing and equipment giant for the sports industry announced a major corporate reorganization from a product orientation to a category-driven approach. Although the company had built a strong brand since its humble beginnings, managed to supply for the worlds greatest sporting events, partnered with top profile athletes, attained revenues of $15B in 2006, growing 9% from its previous year, it realized that it would have to attack the market in a different way in order to pursue greater growth and profitability. More specifically, the company saw micro-segmentation and category focus as the strategic steps to take in the future. However, a special mission to develop the womens fitness business under a special corporate project initiative code-named Changing the Game, created in 2004, revealed the companys numerous limitations to integrate its capabilities and resources. Although Darcy Winslow, exiting General Manager for the womens fitness division, and her team attained important milestones and brought the business from a non-existent to a significant level, the road to success was difficult and demonstrated that Nike could face serious problems when adapting to top managements reorganization. This document analyses Nikes situation through seven elements of strategy implementation strategic goals, people, leadership, structure, incentives, supportive activities, and culture- by looking at the road travelled by Winslow and her team and provides a recommendation to the following problem statement: how can Nike implement its category driven strategy successfully? Analysis Evolving trends of customers wanting more specialized clothing and equipment for their sports of choice, rising competition in niche markets, fragmented apparel and equipment markets for which Nike did not have a strong position, were all good reasons for the company to make a shift in its strategic goals from product to micro-segmentation and category focus. Although the

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company had successfully managed to deliver special collections to major events such as: the Olympics, the U.S. Open and the World Cup, it had struggled in doing so. Greater proof of this was the process of building the womens fitness division. It is important to acknowledge that planning and executing initiatives that range outside the comfort zone of an organization as large and as complex as Nike requires high degrees of collaboration, integration and speed to achieving uncommon objectives. Especially when the company has been operating in a certain way for many years. By analysing the six other elements of strategy implementation under the development of the womens fitness department, as shown in Exhibit 1, we can understand why the company is not aligned to meet it new strategic goals. First, when looking at the leadership element, we can see that although top management firmly advocated the Changing the Game initiative and assigned Mindy Grossman, a high profile company executive, as sponsor of the womens fitness group, it was overall very distant during the execution phase of these projects. This is found to be very negative because it creates a great strain for those who are accountable for the project as they are forced to use their own influence and to work harder to obtain collaboration and buy-in from different departments. Top management should be relentless at providing support during the execution of activities that require strong integration. It can do so by constantly reminding employees of company objectives and by managing priorities within the organization. Clearly Nike needs to address this point to achieve its strategic goals. Second, although reorganized to a category-focused approach, the structure seems no different in complexity than under product focus; i.e. composed of the category, functional, regional and other product lines dimensions. It was seen in the case that this arrangement caused disintegrated day-to-day operations, poor ability to deliver an integrated point of view to the customer in the stores, and misalignment in priorities between global functions and regional teams. Furthermore, it can be assumed that inconsistencies in centralized and decentralized departments

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under the product approach, which would also be replicated under the new structure, may create uneven collaboration and clarity roles and responsibilities. Clearly, this arrangement makes competition for resource and organizational capacities a ferocious battle. When using the strategy implementation alignment checklist in Exhibit 2, Nike obtains a no on the structure question because of its misalignment with the strategic goals. A recommendation to the problem statement must look into this deficiency. Third, by looking at the incentives element under Winslows project, it was observed that the performance of the members of her part time virtual team and the people who participated into making the womens fitness business happen were only assessed on their primary functions. This is an important flaw in the company because it sends a message of insignificant importance to those who are supposed to work on second mandates. This practice does not stimulate people to go out of their way to achieve additional objectives. Luckily, Winslow managed to motivate her team members and thanked them for their support to keep them engaged in her mandate. It is highly probable that Nikes reorganization will trigger various parallel mandates that will need to pull on peoples capacities, therefore making performance evaluations and recognition to their additional work some important items to work on. Nike obtains a no on the incentives questions in the strategy alignment checklist because its current practices dont go in tandem with the strategic goals. Fourth, the supporting activities element presents high deficiencies to make category approach successful. Winslows project demonstrated that there were no formal mechanisms in place that would allow smooth integration between departments. Winslow had to go on an internal road show to obtain collaboration and buy-in from other departments; once she stopped to pursue other activities, people would feel that her initiative was no longer one of priority. Winslow also had to strongly coordinate and prioritise project activities thoroughly because her team had no formal structure and its members had to juggle with many other work related tasks. Evidently,

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freeing up resources and clearly defining roles and responsibilities are of great importance to carryout extra-ordinary mandates. In addition to this situation, the companys supply chain

showed weaknesses when responding to Nikes objectives. Further, it did not have the capacity to scale up in response to increased demands from the collections businesses. Nike obtains a no on the supporting activities question in the strategy alignment checklist because its current state is not inline with the category approach. Fifth, the culture element shows another area of concern for the implementation of Nikes new strategic objectives. Grossman commented that the companys biggest issue was the pace at which it implemented change; i.e. very slow. She suggested that the companys culture, perceptions and commitment had to change in order to make future states happen. It was also observed that due to the fast pace of the retail/sports industry, the company had to think further than just a first delivery, thus limiting even more the availability of resources for new initiatives. Clearly, greater preparation, stronger forward thinking capabilities, and agility need to be in the culture to conduct the category approach. In addition, it was seen that the companys testosterone driven mentality slowed-down the implementation of products for women. It seemed that many in the company believed that this initiative would erode the mens business and cannibalize its products rather than enhancing the brand as a whole. Winslow thought it was unfortunate to see that the success of the external marketing campaigns would not translate into a major internal impact on the business of the womens products. The strong tendency to advocate mens product is harmful to the implementation of the category approach, as each category would share both genders in the creation of its collections. The company obtains a no on the culture question in the strategy alignment checklist because its current state does not support its future direction. Finally, the people element shows that the company has various employees with great experience at Nike and that most leaders and participants of special project initiatives have vast retail experience. This is good as it provides a wealth of knowledge and facilitates the process of

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influencing others in the organization, but it is bad as an overall mass may resist adopting radical changes since it is accustomed to working in a certain way. It can also be assumed that peoples expertise may be narrow and not suitable for the management, design, and manufacturing of a greater product portfolio as in a category based arrangement. The company must make sure its people have the knowledge and the skills to work on more products. Nike should also capitalize on the high degrees of motivation observed during Winslows project so that it can pursue its new strategic goals. Nike obtains nos on the questions one and four and yes on the other ones of the strategy alignment checklist. These issues will need to be resolved. From this analysis it can be seen that Nikes implementation of its reorganization brings various issues that need to be addressed in order to create an answer to the problem statement identified in this document. The following section provides two options for Nike to consider for its future. Options The two options available for Nike to meet its strategic objectives are: Re-structure to a divisional/matrix hybrid organization and readjust all elements in the strategic alignment checklist. As depicted in Exhibit 3, the organization would have almost fully autonomous divisions with the regional offices serving throughout them. Divisions would have their own strategic planning, market development, product design and innovation departments along with fully dedicated functional activities, such as sales, operations, logistics, supply chain and customer service, all of which would be supported by centralized regional offices. In addition, all the elements supporting the strategy would have to be readjusted. Table 1 below shows the pros and the cons of this alternative.

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Pros Cons Roles and responsibilities of exploration and 1. Another reorganization can be costly and can exploitation tasks are clearly defined create more shocks within the workforce Increased customer touch points 2. Customers may become confused i.e. who are Enhanced corporate entrepreneurship they dealing with? Increased standardization at the exploitation 3. Harder to integrate newly acquired level companies 4. Workforce will feel like they are working for two companies 5. Unknown territory for leadership Figure 1- Pros and Cons of Option 1 2. Re-structure to a horizontal/matrix hybrid organization and readjust all elements in the strategic alignment checklist. As depicted in Exhibit 4, the organization would have categories with autonomous strategic planning, market development, product design, and innovation capabilities, which would be informally supported by corporate offices; i.e. the horizontal structure component. And, it would have functional capabilities along with regional offices centralized at a corporate level but also reporting to each product category; i.e. the matrix structure component. In addition, all the elements supporting the strategy would have to be readjusted. Table 2 below shows the pros and the cons of this alternative.

1. 2. 3. 4.

1. 2. 3. 4. 5. 6.

Pros Requires little additional investment No emotional impact for employees Senior management remains in comfort zone No creation of confusion for the customer Faster implementation Addresses arising challenges

Cons 1. Harder to distinguish exploration from exploitation tasks 2. Reduced corporate entrepreneurship spirit 3. Reduced ability to standardize exploitation

Figure 2- Pros and Cons of Option 2

Option one reflects a clear form of ambidexterity, i.e. the capability of exploring new product or service opportunities and exploiting those that it currently offers. According to academics,

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Charles O'Reilly and Michael Tushman, this is the most effective way for a company to be ambidextrous, as it would allow both units the freedom to carryout their mandates under senior managements supervision and the leverage of company resources. Under this scenario, Cisco would be able to have its exploring and exploiting teams have touch points with the customers. Figure 1 on the next page, shows the pros and cons of this option.

Option two keeps Ciscos current structure and addresses the many points identified during the analysis. From the facts gathered, it can be said that Cisco had a very good ability to look forward and succeeded in offering innovating products to its customers and finding new opportunities for the company prior to the reorganization. However, it was not as strong when it came to exploiting product development and optimizing its business. Although it causes trade-offs, the reorganization does aim to address those salient flaws in exploitation and the company has launched new initiatives to maintain its forward-looking ability, thus, addressing the objectives of ambidexterity. Figure 2 below, shows the pros and cons of this option.

By looking at the pros and cons of both options, it can be seen that option two outperforms option one as it provides a more feasible and convenient solution to the problem statement identified. The following section describes the modifications needed to implement the recommendation. Implementing the Recommendation As discussed in the recommendation, Ciscos current strategy implementation will need to be fine-tuned in order to provide better results. This section provides the modifications needed in four of the elements in the alignment for implementation model depicted in Exhibit 1.

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The people and the culture elements, which are very well tied, will have to be addressed by training people to work in teams that are bigger and of a cross-functional nature. This will give workers a better sense on how to navigate within a bigger network of people and to have the confidence to do so. Conducting teambuilding activities will enhance teamwork and stimulate internal networking. The marketing team-leaders of the cross functional teams must be given leadership training courses and should be carefully selected. Management at the engineering organization should be aware that their people would have dual reporting roles, therefore creating the need to avoid confusion and redundancies. The implementation of continuous improvement tools, such as process mapping, value stream mapping, passport checklists, cookbooks, and clear definitions of roles and responsibilities will come in very handy, as they will facilitate standardization. Senior management should participate in these continuous improvement initiatives to demonstrate support and to understand the transformations in the lower levels of the hierarchy. The incorporation of these activities will also accelerate new employee integration. The incentives element will have to be tweaked by creating a compensation model that will remunerate fairly those who are close to customers and those who arent. Workers involved in processes distant from the customer should be compensated by the effectiveness of their products or services and the execution to plan of their projects. Project requirements should cascade from customers needs. Those workers in customer touch points should be compensated by the quality of the service directly provided to the customer. The supportive initiatives element must have an activity that will conduct thorough market intelligence at the competition and sourcing components levels. It was seen from the case that Cisco is losing ground on certain product lines to other rivals and that its prices are significantly higher than the competitions. The company can do so by dividing the ISBG group in two; one part will continue the traditional mandate; and the other will keep a close eye on the competition and on the scouting of more cost-effective sources of production/supply. This new

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dimension in Ciscos day-to-day operations will give it the capability of better facing the challenges imposed by its industry, i.e. the company can react to its rivals moves and can have alternative to reduces its product cost, thus adding more value to its customers. The following section provides the timeframe needed for the implementation this recommendation.

Implementation Plan It is estimate that a maximum of 12 months are needed to implement the recommended initiatives. The plan can be seen in Exhibit 3. The training and networking sessions, the redesign of the compensation model, and the creation of the market intelligence team should commence immediately. Working on these initiatives for a maximum of 5 months should prepare the company to tackle the arising market challenges and to address some structural shockwaves created by the reorganization. The continuous improvement initiatives would start 3 months later, once a considerable number of workers has undergone training and has learned to know one another. Continuous improvement sessions to tackle reorganization related issues should not end later than one year into the implementation. Cisco will find it easy to implement this plan as it is fully aligned to its strategic objectives and core values.

Exhibit 1- Evaluation of Nikes Alignment for Implementation and SWOT Analysis

(Adapted from Harvard Business Schools: From Strategy to Implementation: Seeking Alignment)

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Exhibit 2- Strategic Alignment Checklist for Nikes Category-Driven Organization

(Extracted from Harvard Business Schools: From Strategy to Implementation: Seeking Alignment)

Exhibit 3- Implementation Rollout Plan

Elements of strategy implementation 1. Micro-segmentation approach i.e. understand what customer want in different sports (S) 2. Top management is distant and does not seem the support necessary during execution that will facilitate the implementation of new initiatives. This senior management approach makes project leaders work harder than what they should to make objectives happen. (L)(W) 3. The organizational structure is complex and does not allow for integration. The size of the company and the various dimensions in the matrix organization create internal boundaries that render project collaboration and synchronization difficult. (ST)(W) a. Businesses ran separately; disintegrated nature of day-to-day operations, nice initiatives that were taking place in silos and were not leveraging collective power. b. Poor ability to deliver an integrated point of view to the consumer. c. Global functions within the business units did not always share the same priorities with the regional teams. d. The biggest issue in my mind was being able to create at the point of the consumer touch point the experience that we wanted the consumer to have. Certainly on the Web we could tell an integrated story. But it was much harder to change the way we communicate to the consumer in a traditional retail store setting. e. Changing displays at the retailers who would have to change at the expense of other competitors. 4. Disparities in centralized and decentralized departments in the footwear and the apparel may create inconsistencies in collaboration, roles and responsibilities. (ST)(W) a. There are so many competing priorities. Its a very complex organization with so many different businesses in a hundred different countries. Every day we have to compete for resources. So any pushback we got was really more about capacity organizational capacity, resource capacity, and how many things people can be expected to do at any one time. 5. The people assigned to the womens fitness category are people who have a lot of retail experience and who have been working at Nike for a long time. This can be good in the sense that they are influential and they know how to navigate in the company to implement special mandates. (STR) However, the Nike culture can be deeply engraved within them, which can hinder proposed changes. (P)(W)

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6. The company has worked many years in a product-oriented manner; this creates a siloworking environment and hinders integration. Further, peoples expertise may be narrow and not suitable for the management, design, and manufacturing of greater product portfolio as in a category based arrangement. (C)(W) a. Each business had different timelines for bringing its products to market. b. It was hard to make the integration; the employees would tend to go back to the original structure: i. Unless we keep getting adjusted, we always go back to being footwearfocused and male-focused because that is our core skeleton. ii. Sumner provided another specific example: One time I saw a piece of footwear that was supposed to be part of the collection but I didnt even recognize it. It had completely changed through the footwear process and the information was not shared with the rest of the group. 7. The biggest issue for me was that the change was slow. I see now how it almost had to be an incremental change to affect the behavior and attitude of the greater organization. It wasnt just about changing the products, Grossman added. It was about changing the companys culture, perceptions, and commitment (C) 8. The nature of the industry is fast-paced; this forces teams in special projects to not only think about first steps, but also of subsequent ones, such that these steps will most probably have to happen concurrently, thus demanding greater preparation, strong forward thinking capabilities, and nimbleness. (C)(T) a. Problems listed above intensified as the global womens fitness team sought to expand beyond the spring 2006 season to additional categories and multiple seasons. 9. The companys testosterone driven mentality may slow-down implementation of products for women. (C)(W) a. Idea that adding the gender dimension would erode mens business rather than enhancing the brand. b. Not able to translate that success of marketing campaigns into a major internal impact on the business of our womens products. c. Resistance to change as some people would oppose the rise of the womens fitness division due to potential cannibalization. 10. Employees who work on special mandates are assessed on their primary mandates as opposed to both; this does not help in motivating them to aim for high performance in parallel mandates. No formal mechanisms to reward their performance. This shows objective misalignment (I)(W) 11. Special project managers must market their project within the company to obtain support and buy-in. When these roadshow initiatives stop people believe their projects are no longer a priority. (SA) (W) a. When stopping the roadshow to start working people thought that this initiative was no longer a priority. This means that the message was not coming from upper management. 12. Strong coordination and prioritization are required to make the project successful. (SA) a. Difficult to market a collection because it would require a tremendous amount of additional work from certain members of the organization because we didnt have a syncopated process or structure yet. b. Weekly or bi-weekly meetings (depending on the needs of each sub-team) were meant to help prevent such disconnects, but things still slipped through the cracks and people juggled heavy meeting schedules and competing priorities.

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13. Team members in special projects are assigned to them on a part time basis; this limits the amount of focus and dedication they can provide to a new initiative. (SA)(W) a. People in the organization had multiple responsibilities, which made it hard for them to support the womens initiative. b. The semi-virtual team changed along the process therefore it was difficult to proceed consistently. The new people wanted to chip in with new ideas. 14. Scalability of the supply chain. So that has sparked a lot of investment in our supply chain operations to figure out how to better integrate our supply chain processes across divisions. Our next challenge is to scale up our ability to do this for multiple businesses at larger volumes as we move from an items business to a collections business.