Nikes Core Competency: The Risky Business of Fairy Tales

With annual revenues doubling during the last decade to over $25 billion and having a globally
recognized brand, Nike is the undisputed leader in the athletic shoe and apparel industry. The number
two adidas has some $15 billion in sales, while recent entrant Under Armour reports revenues of less
than $1 billion. Nike is tremendously successful, holding close to a 60 percent market share in running
and nearly a 90 percent market share in basketball. The Beaverton, Oregon, company has come a long
way from its humble beginnings. It was founded by University of Oregon track and field coach Bill
Bowerman and middle-distance runner Phil Knight in 1964 originally as Blue Ribbon Sports. In 1971,
the company was renamed Nike (the goddess of victory in Greek mythology) and the now iconic
swoosh was designed by a Portland State University student. Coach Bowerman was a true innovator
because
he constantly sought ways to give his athletes a competitive edge. He experimented with many factors
affecting running performance, from different track surfaces to rehydration drinks. Coach Bowermans
biggest focus, however, was on providing a better running shoe for his athletes. While sitting at the
breakfast table one Sunday morning and absentmindedly looking at his waffle iron, Coach Bowerman
had an epiphany. He began pouring hot, liquid urethane into the waffle ironruining it in the process
but coming up with the now famous waffle-type sole that not only provided better traction but was also
lighter than traditional running shoes. After completing his undergraduate degree at the University of
Oregon and serving in the U.S. Army, Phil Knight entered the MBA program at Stanford. One
entrepreneurship class required him to come up with a business idea. So, he wrote a term paper on
how to disrupt the leading athletic shoe maker adidas. The research question he came up with was
Can Japanese sports shoes do to German sports shoes what Japanese cameras have done to German
cameras? 1 At that time, adidas athletic shoes were the gold standard. They were also expensive and
hard to find in the U.S. After several failed attempts to interest Japanese sneaker makers, Phil Knight
was able to strike a distribution agreement with Tiger Shoes. After his first shipment arrived in the U.S.,
Phil Knight sent some of the running shoes to his former coach Bill Bowerman, hoping to make a sale.
To his surprise, Bill Bowerman replied that he was interested in becoming a business partner and
contributing his innovative ideas on how to improve running shoes, including the waffle design. With
an investment of $500 each and a handshake, the venture commenced. Based on a highly successful
string of innovations including Nike Air, by 1979 the company had captured more than a 50 percent
market share for running
shoes in the United States. A year later, Nike went public. In 1984, Nike signed Michael Jordan, whom
many consider the greatest basketball player of all time-with an unprecedented multimillion-dollar
endorsement deal. Rather than spreading its marketing budget more widely as was common in the
sports industry at that time, Nike made the unorthodox move to spend basically its entire budget for a
specific sport on a single star athlete. Nike sought to sponsor future superstars that embodied an
unlikely success story. Michael Jordans story is that he had been cut from his high school basketball
team only to become the greatest basketball player ever. In the 1990s and 2000s, Nike continued to
sponsor track and field sports stars such as Marion Jones, as well as Kobe Bryant in basketball. With the
help of major celebrity endorsements, Nike was also able to move on to different sports and their
superstars, including golf with Tiger Woods, cycling with Lance Armstrong, soccer with Wayne Rooney,
and football with Michael Vick. Over time, Nike developed a deep expertise in creating heroes. It picked
athletes that succeeded against
the oddscancer survivor Lance Armstrong, double amputee blade runner Oscar Pistorius, and other
athletes
hailing from disadvantaged backgrounds. Although this core competency made Nike highly successful,
it has not been without considerable risks. Time and time again, Nikes heroes have become unmasked
as cheaters, frauds, and criminals, some of whom have committed serious felonies, such as (alleged)
homicide. As Nike veers from one public relations disaster to the next, disappointment with the brand
and its promise may eventually set in causing customers to go elsewhere. Although nikes co-founder
and chairman Phil Knight declared that scandals surrounding its superstar endorsement athletes are
part of the game, its marketing strategy is not without risks. 40 In some instances, Nike continued to
sponsor its athletes involved in various scandals, while in others it terminated its lucrative
endorsement contracts. Nike continued to sponsor LA Lakers Kobe Bryant who was cleared of alleged
rape
charges. After Tiger Woods was engulfed in an infidelity scandal, Nike continued to sponsor the golf
superstar.
In 2007, Nike ended its endorsement deal contract with NFL quarterback Michael Vick after a public
outcry and his subsequent felony conviction of running a dog-fighting ring and engaging in animal
cruelty. In 2011, after serving a prison sentence and restarting his career at the Philadelphia Eagles,
Nike signed a new endorsement deal with Michael Vick. In 2012, Nike terminated mits long-term
relationship with disgraced cyclist Lance Armstrong. Just before Armstrongs public admission to
doping in an interview with Oprah Winfrey, PhilKnight answered never say never when asked if Nike
would sponsor Lance Armstrong again in the future. In 2013, Nike removed its ads with Oscar Pistorius
and the unfortunate tag line I am the bullet in the chamber, after the alleged homicide charges
against the South African track-and-field athlete. Time and time again Nikes heroes have fallen from
grace. Clearly, Nikes approach in building its core competency of creating heroes is not without risks.
Too many of these public relations disasters combined with too severe shortcomings of some of Nikes
most celebrated heroes could damage the companys reputation and lead to a loss of competitive
advantage.

Questions
Thinking about ChapterCase 4, answer the following questions.

1. The case indicates that Nikes core competency is to create heroes. What does this mean ? How did
Nike build its core competency ? Does it obey the VRIO attributes ?

2. What would it take for Nikes approach to turn from a strength into a weakness ? Did this tipping
point already occur ? Why or why not ?

3. What recommendations would you have for Phil Knight and Nike ? Can you identify a way to
reframe the competency of creating heroes ? Or a new way to think of heroes that would continue
to build the brand?
4. If you are a competitor of Nike (such as adidas, Under Armour, New Balance, or Li Ning), how could
you exploit Nikes apparent vulnerability ? Provide a set of concrete recommendations.