Business Strategy and Enterprise Model

CLASS OF GM 6

Nike’s Core Competence : The Risky Business of Creating Heros

Ade Purna - 29317378

Dita Silviyana - 29317435
Gheo Olivero - 29317467
Talitha Nabila - 29317437
Case Synopsis

Nike is a world well-known brand, and a leader of athletic shoes and apparel industry.
with the annual revenue of $35 billion in 2018, it makes Nike holding 60 percent market
share in running shoes and 90 percent market share in basketball shoes and apparel.
Nike founded by university of Oregon track field coach Bill Bowerman and middle
distance runner Phil Knight in 1964 and originally named as Blue Ribbon Sports, and
in 1971 the company renamed the brand name to Nike (Greek mythology “goddess of
victory”) with the iconic “swoosh” logo designed by Portland state university student.

Coach Bowerman as founder, contribute to the Nike with his innovation, because he
always seeks ways to get competitive advantages for his athlete. He experimented with
many factors that affect the running performance, from the difference track surface to
the rehydration drinks. Bowerman biggest focus is to providing a better running shoes
for his athlete. One of his famous idea was waffle type sole in his shoes, who he
accidentally gets the idea when he get his breakfast and looking at his waffle maker. He
poured the hot liquid urethane rubber in the waffle maker and coming up with the waffle
sole that not only provide the better traction but 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 the Stanford. And one of his
class required him to come with a business idea, and he wrote the paper on how to
disrupt the leading athletic shoe maker, Adidas. The research question he come up with
was “ can Japanese sport shoes do to German sport shoes what Japanese camera have
done to German cameras?” at that time Adidas athletic shoes was expensive and hard
to find in U.S. After several attempts he failed to interest Japanese shoe maker, Phil
Knight finally done a distribution agreement with Tiger Shoes. And he sent one of the
running shoes to his former coach, Bowerman in hoping to make a sale. To his surprise,
Bowerman replied that he was interested in becoming a business partner, and add his
innovative ideas on how to improve a running shoes, including the waffle design. With
$500 investment each, the venture commenced.

Nike already reach the level of success in late 1970. By capturing more than 50 percent
of running market share in 1979 and followed by Nike went public a year later. Even
so, the company had yet to establish one of its most effective marketing tactics. In 1984
Nike signed Michael Jordan in his early career with a multimillion dollar endorsement
deal on a specific sport on a single athlete, rather than spending a budget more widely
as was common in the sport industry at that time.

In the 1990s and 2000s, Nike continued to sponsor athlete star such as Marion jones in
track and field sports stars such as Marion Jones, as well as Kobe Bryant in basketball.
With help of major endorsement, Nike able to move on to different sport and their
superstars, including golf, cycling, football and soccer. Nike uses its endorsement or
hero to tell a moral story about, with strong will, tenacity and hard work, anyone can
become a hero, and achieve amazing things, because Nike is less about sports apparel
but about unlocking human potential, as captured in Nike mission to bring inspiration
and innovation to every athlete in the world.

Although this competency made Nike highly successful, it has not been without
considerable risk. Many times, Nike “heroes” revealed as a cheater, frauds, and
criminals. Some of whom have committed (alleged) homicide, and the long time CEO
Phil Knight declared that the scandal surrounding its athletes are “part of the game”
Nike appears to comfortable tolerate those risk at least in some cases. Nike approach in
building its core competence of creating heroes is not without risks. Those scandals
could damage the company reputation and lead to a loss of competitive advantage.

Problems Identification

Nike core competency is in design and athlete sponsorship by finding athlete that
succeed against the odds, sign the athletes, and creates the products that are closely
linked with the athlete. They “create the hero” by inspiring the consumer that their
endorsers are human and like everyone else. Their mission is to bring inspiration and
innovation to every person in the world that we can achieve amazing things through
hard work and dedication. Although this core competency made Nike highly successful,
but their market strategy not goes at it should be, some of their heroes caught as a
cheater, frauds, and criminals, it caused the negative impact of the company reputation,
brand, and lead to loss of the competitive advantage

Related Theories
VRIN/VRIO Framework. Is the tool used to analyze firm internal resources and
capabilities to find out if they can be a source of sustained competitive advantage?
VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly
to imitate? And is a firm organized to capture the value of the resources? A resource or
capability that meets all four requirements can bring sustained competitive advantage
for the company.
-Valuable: If a resource adds value by enabling a firm to exploit opportunities or defend
against threats. If the answer is yes, then a resource is considered valuable. Resources
are also valuable if they help organizations to increase the perceived customer value.
This is done by increasing differentiation or/and decreasing the price of the product.
The resources that cannot meet this condition, lead to competitive disadvantage. It is
important to continually review the value of the resources because constantly changing
internal or external conditions can make them less valuable or useless at all.

-Rare: Resources that can only be acquired by one or very few companies are
considered rare. Rare and valuable resources grant temporary competitive advantage.
On the other hand, the situation when more than few companies have the same resource
or uses the capability in the similar way, leads to competitive parity. This is because
firms can use identical resources to implement the same strategies and no organization
can achieve superior performance.

-Costly to Imitate: A resource is costly to imitate if other organizations that doesn’t

have it can’t imitate, buy or substitute it at a reasonable price. Imitation can occur in
two ways, by directly duplicate the resource or providing the comparable substitute.
-organized to capture value: The resources itself do not confer any advantage for a
company if it’s not organized to capture the value from them. A firm must organize its
management systems, processes, policies, organizational structure and culture to be
able to fully realize the potential of its valuable, rare and costly to imitate resources and
capabilities. Only then the companies can achieve sustained competitive advantage.

Case Analysis and Solutions

1. The Mini Case indicates that Nike's core competency is to create heroes. What
does this mean? How did Nike build its core competency? Does it, for example,
identify and leverage the potential identified in a VRIO analysis (are its
competencies valuable, rare, inimitable, and organized to capture value) in a
resource-based view of the firm?

Nike core competency is to create heroes, this strategy is by endorsing the famous
athlete who Nike sponsored were athletes that had defeated the odds of failure- from
defeating cancer to coming from a disadvantaged background, to show to everyone if
we do the hard work and high dedication we can achieve amazing things. Nike build its
core competency since the early days of Nike, some of these ad campaigns highlight
the hardships and roadblocks that athletes have overcome in order to solidify their status
as something greater than the average man.

In the case of Nike and its heroes all of the VRIO attributes seem to be followed. Each
Hero is handpicked from a pool of coveted athletes. This allows Nike to exploit a
resource that is not available to its competitors thus rendering them less of a threat. The
rarity of the hero is high as no other company or firm has access to them in the way that
Nike does. Each Hero’s contract makes them an exclusive resource for Nike. The idea
of procuring a highly skilled and well known athlete to represent the company or
product is in essence imitable. Yet, in this instance the imitations may or may not match
the skill level being exploited by Nike. Nike is well organized to support and exploit its
valuable resources allowing them to sustain competitive advantage and dominate the
market share. It is important to note that even with the VRIO framework attributes being
met, Nike should still consider their advantage to be a fleeting one. Shifts in the
perception of their Heroes can cause irreparable damage to the overall value of the
resource rendering their sustained competitive advantage obsolete.

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

In order to make someone a legend large financial investments are made in order to
shape public view and acceptance. When these individuals are found to act in ways
contrary to what they have been portrayed as, the public reacts negatively. The tipping
point has occurred in the past for this company but Nike is successful at navigating
what is and what is not acceptable to the public regarding its Faux Heroes. While the
company continues to remain financially successful, Nike will not be able to sustain its
competitive advantage based on the sole usage of its Heroes to sell their products. Each
scandal linked to the company systematically decreases the public perception of the
implicated Hero and in turn damages the reputation of the company as whole. Some of
the more notorious cases that have contributed to Nike’s tipping point include, Tiger
Woods, Michael Vick, Kobe Bryant, Lance Armstrong, Manny Pacquiao and Oscar
Pistorius. While Woods, Vick, and Bryant had relatively mild scandals involving
cheating and other actions devoid of moral reasoning, Armstrong, Pacquiao, and
Pistorius found themselves in such legal dilemmas that the company could no longer
continue with their contracts in good faith. The golfer, tiger woods found his contract
decreased as a consequence of his infidelities, Manny Pacquiao found his contract
terminated after making vulgar comments referring to homosexuals and animals and
Oscar Pistorius lost his endorsements when he was indicted for and subsequently
convicted of the murder of his girlfriend.

3. What recommendations would you have for Nike? Can you identify a way to
reframe the competency of creating heroes? Or a new way to think of heroes,
teams, or sports that would continue to build the brand?

Nike should continue to “creating hero” and bring inspiration and innovation to every
athlete in the world. And our opinion on new way to reframe the competency of creating
heroes is by focusing on everyday hero, like the student in high school, college/
university, teacher/lecture for example. With this strategy it will be more relatable to
the people.

4. If you are a competitor of Nike (such as Adidas, Under Armour, New Balance,
or Li-Ning), how could you exploit Nike's apparent vulnerability? Provide a set of
concrete recommendations.
● Enter a market where their share is not as strong as it supposed to be. Adidas
for example, they enter the casual wear market and gave them more competitive
advantage than Nike.
● Begin ad campaign focused on the quality of their product as compared to Nike
Product.
● Capture the market where they do not have endorsers.

Conclusion and Recommendation

- Conclusion
Nike's distinctive competency is in the field of marketing, specializing in the
field of consumer brand awareness and brand strength. Despite the reasons why Nike
has managed to market the products using professional athlete very much, this
prominent core competency looms above our competitors. As a result, Nike's market
share is number one in the athletic shoes industry. Capture phrases like, "Just Do It,"
and symbols like Nike "Swoosh," with a sports icon that will be used as an instant
reminder of the Nike empire.
The two main attributes of different competencies are their uniqueness and
functional product that hard to be copied easily and the value or benefits they offer to
consumers. When Nike became a more integrated part of American and world culture,
the strength of our brand became increasingly difficult to imitate. The premise of
trademarks and slogans is that they are the company's fingerprints. Nike can use its
unique identity because of its industry-leading financial strength. Nike reaches out to
millions of consumers through large-scale marketing campaigns made possible by
significant budget allocations. Some companies have images and resources that can be
identified to promote it. This ultimately translates into added value for consumers.
People benefit from the power of Nike's image at the time of purchase. For decades,
consumers have associated the image of Nike with quality products. By associating star
athletes and motivational slogans like, "Just Do It", with marketing campaigns that
emphasize fitness, competition, and sportsmanship, consumers identify their purchases
with the prospect of achieving greatness. Younger consumers especially benefit from
this positive influence. This image is something that competing companies cannot
imitate by only improving the physical characteristics of their products.

- Recommendation
Nike should continue to “creating hero” and bring inspiration and innovation to
every athlete in the world. And our opinion on new way to reframe the competency of
creating heroes is by focusing on everyday hero. The key opportunity for Nike, Inc.
currently is the booming trend of high-fashion apparel for daily use that also there more
new product emerges as a co-branding with prestigious designer, such as Adidas-
Yeezy, Off-white, Bape, and Supreme. Currently the company has the ability and the
resources to exploit this opportunity. Nike has capitalized on the recent economic boom
with higher sales and income. However, we are not using our resources to the fullest
degree. There are currently many areas in which Nike is not paying attention. We have
not catered to a large portion of the new generation that demand the latest trends and
styles. Also, Nike must take into account the changing demographics in this country.
There is a much higher proportion of Hispanics, Asians, and African Americans than
there was before. These groups have somewhat different tastes that Nike should be able
to satisfy.
To exploit this opportunity, Nike needs to focus on who the next generation of
loyal customers will be and cater to their needs. In addition, the world economy is
recovering currently, which allows Nike to make an impression in foreign markets as
well. Nike is strong in many foreign countries, but we need to focus on the younger
market of consumers. Nike has been doing a great deal of research and development,
but if we want to keep the lead in market share, we must look at trends while
maintaining our high standards of quality.
Lesson learned
1. Effective Endorsements. Nike spends millions of dollars sponsoring athletes /
athletic teams. For many people, Michael Jordan immediately remembered the
mention of the Nike brand, but there are many other famous celebrities-athletes
associated with this brand. When you associate well-known celebrities with
brands, it produces positive associations, and with Nike, people expect this to be a
high-performance and durable product that works harder.
2. Simplicity works Best. Everything about Nike's marketing strategy is simple and
sleek, starting from the logo to the strapline. The strap line of 'Just Do It' is eternal,
to the point and easy to remember. This can be applied to everything this brand
does, while logos appear above all, from brand websites to actual products. The
Nike logo is so strong that the company doesn't even need to write its name
anywhere, because most people recognize Nike swoosh and immediately
understand the brand.
3. Stay One Step Ahead of the Competition. Nike is always one step ahead of the
competition, especially when it comes to staying up to date with the latest
technological innovations. It has developed its own application, has a
contemporary like smart-watch range as well as the latest Nike Fuel watches,
which allows users to track their activities and measure movements for various
activities. Nike is a strong and pervasive brand that can be linked to anyone. This
is a brand that people can and want to connect with, and as long as the company
remains technologically advanced when using smart marketing strategies, it will
continue to experience extraordinary success for years to come.
 References

Almaney, A. J. March 14, 2000. Strategic Analysis of Nike. Chicago,IL. DePaul

University.