Nike’s Category Offense on the Offensive
Nike has found its fast. How category offense has brought Nike up to speed and past the competition.
Nike’s business, like the athletes who best represent the brand – LeBron James, Rob Gronkowski, Neymar, Serena Williams – is outperforming the competition. In 2015, the domination extended outside of sporting apparel for the 50+ year-old company and into a broader context as Nike spent most of the year leading the Dow while booking $30 million in revenue (1) and CEO Mark Parker was named Fortune’s Business Person of the Year (2). With revenue targets of $50 million by 2020 (2) the future looks bright. How does an established company maintain such momentum? First, by focusing on the mission established by its founders, Phil Knight and Bill Bowerman: bring inspiration and innovation to every athlete* in the world (*if you have a body, you’re an athlete – attributed to Bowerman, Knight’s University of Oregon Track & Field Coach) (3). Then, they took this mission and aligned it to a business model and an operating model, together called Category Offense. Category Offense, announced in 2010 (4) realigns business units around consumers (organized by use case) allowing a large global brand to communicate with its consumers and to provide innovative products to meet their needs.
Nike is the leading sports apparel provider in the world and reaches its consumers directly (Nike.com or Niketown stores) and through retail partners (e.g. Footlocker, Dick’s Sporting Goods). Nike incorporates their iconic partners in sports around the world, including the National Football League, Team Brazil in global football, and soon the National Basketball Association, to reach consumers world-wide. Business units are focused on specific consumer segments – e.g. running, basketball, football – and matrixed through geographies – e.g. North America, Greater China, Emerging Markets – in order to best communicate with the consumer and establish consumer demand for innovative athletic products. (4) Through this model, Nike is finding significant growth opportunities by focusing on opportunities across verticals as new trends emerge. For example, as online shopping has emerged and legitimized, Nike has deftly shifted their growth towards the higher margin direct-to-consumer channel. As boutique, experiential brands have expanded the women’s athletic apparel market, Nike has adapted their in-store experience and products, revamping stores and introducing community oriented products like the N+ Training Club. In the last 2 years, Nike has completely stripped down their retail outlet and applied its product design principles to create the experience that lifestyle consumers have come to expect.
Focus on geography as well as consumer segments has enabled Nike to pave the way to greater success in China to the tune of a $6.5 billion revenue goal by 2020 as China’s middle class has emerged and fitness become more of an emphasis (5). Nike’s engagement with the consumer and their ability to adapt to emerging trends allows the company to deliver for athletes* around world-wide.
Nike’s operating model supports this agility with a relentless focus on innovative design and a lean, responsive supply chain. The creative culture of the company is enabled by the Nike campus in Beaverton, Oregon. The Nike campus is an active, athletic workplace where every team member is an athlete and an innovator. State-of-the-art (and science) labs are employed to constantly reassess current product offerings and launch new iterations for the athletes they serve. In this video, we see some of the science that goes into Nike innovation, as well as how Nike partners with their superstar athletes to gather data and athlete insights.
https://www.youtube.com/watch?v=g8QIYfWsYDg
Through this innovation, Nike has been able to diversify away from a shoe company into a complete athletic apparel company. In many cases, Nike attacked a product category that was considered a commodity (socks, tennis shoes, t-shirts) and produced gear to enable better athlete performance.
Nike’s supply chain is able to deliver new products for the consumer by being where the business is – everywhere.
(3)
Nike faces, and, to be fair, has created many operational challenges due to its manufacturing footprint. By having a manufacturing presence in over 40 countries, Nike maintains worldwide production to match its customer base. With this global presence Nike is able to keep product costs low and limit associated shipping costs to local markets while broadly reducing operational risks by diversification. However, by manufacturing in countries with lower labor and emissions standards, the Nike brand took a hit over the last 15 years. In response, Nike has taken several steps to improve its labor conditions and reduce its carbon footprint. New product innovations have added a focus on reducing waste – Flyknit technology, which makes for a lighter shoe without seams and with less material use, has contributed to Nike reducing its material waste by 2 million pounds since 2012. After the passage of the Transpacific Partnership (TPP), Nike announced plans to shift some shoe manufacturing to the United States. This will further allow Nike to enhance its customer responsiveness and reduce its carbon footprint (7).
Over the last 5 years, Nike has tightly aligned its business and operating models under the Category Offense. This tight linkage has enabled faster innovation and faster response to consumer demands. Nike has…found its fast.
https://www.youtube.com/watch?v=bh8r6S2FNP0
(1) http://www.cnbc.com/2015/10/14/nike-ceo-how-well-reach-50b-in-sales.html
(2) http://fortune.com/2015/11/12/nike-ceo-mark-parker/
(4) http://news.nike.com/news/nike-inc-introduces-2015-global-growth-strategy
(5) http://www.bloomberg.com/news/articles/2015-11-11/a-fitter-china-promises-fatter-profits-for-sports-companies
(6) Nike Company visit to HBS
(7) http://www.forbes.com/sites/peterpham/2015/10/29/the-tpp-induced-love-triangle-between-nike-the-u-s-and-vietnam/
Great article! I enjoyed the points about the synergies between the athlete-centric innovation at headquarters and how that fits into both product design and initiatives like N+ Training club. I thought the points about re-organizing Category Offense around consumers was an interesting way to get around the size of Nike’s organization. I wonder what initiatives exist to promote cross-unit collaboration in order to cut down on waste and redundant efforts? It seems like there might be some commonalities between the business units that might be lost by organizing them around specific sports.
Great piece. I think, though, a big part of Category Offense is this idea that Nike is connecting with their consumer 12 months a year and so it actually removes the geographical split. Additionally, Nike has been able to keep costs down by sourcing their material in the local currency they manufacture the product it. It is a bit nuanced but is a reason for why Nike maintains higher margins than most of its peers. This is truly a world-class brand; glad you wrote on it!