STRATEGIC ANALYSIS AND PURPOSE In recent years, knowledge management has been used to share best practice across organis- ations. For example, Unilever's subsidiaries in South America had considerable knowledge of the management of companies in high-inflation economies, after the experiences in the continent in the 1980s. The company used its knowledge management intranet to transfer management practices to some Asian subsidiaries when they were faced with similar problems in the late 1990s. Comment From a strategic perspective, knowledge management has become important. However, no single concept or process has yet been devised that will capture all the main elements. The audit and its implications remain to be fully developed. Moreover, in spite of the enthusiastic reception for audit- ing knowledge, it has three disadvantages in strategy development: 1 The approach may lend itself to what can be easily audited and circulated - explicit knowledge - rather than the tacit knowledge that will also deliver competitive advantage but remains, by defini- tion, less easily defined and audited. 2 An audit makes little attempt to distinguish between what is merely interesting and what is vital to strategy and purpose. Companies run the risk of being swamped by the irrelevant in the name of knowledge management. 3 The knowledge audit is backward-looking while strategy development is forward-looking. Its value may therefore be somewhat limited. KEY STRATEGIC PRINCIPLES • The knowledge of an organisation is hard to define precisely. Essentially, it is a constantly changing mixture of experience, values, contextual information and expert insight. Importantly, knowledge is not just data and information. • The distinction between explicit and tacit knowledge is important. Explicit knowledge is recorded and structured. Tacit knowledge is fuzzy and difficult to set out. Both types may contribute to the sustainable competitive advantage of the organisation, but tacit knowledge may be particularly important because it is less easy for competitors to comprehend and therefore copy. • An organisation's knowledge can be audited, but the process is easier with explicit than tacit knowledge. The audit might form the basis of strategy development but suffers from several disadvantages UDY 7.2 new knowledge at Nike ht founded Nike with $500 in 1964, he could hardly have seen his purpose as building the biggest in the world. Yet this is what Nike had become by 2014. This case examines the foundations of t wth, especially the knowledge developed and retained within the company over the years. owledge years: the 1960s write a thesis on trainer manufacture. Knight then went world tour that included a visit to Japan, where he found I Knight was a middle-distance runner in the leading shoe brand called Tiger. He decided that this egon's track team, where his coach was Bill superior product and set up an importing company to later trained the US Olympic team. It was Tiger running shoes to the USA while still continuing to considered the existing running shoes were as an accountant. Then in 1964, he and Bowerman each p designed and made his own lighter version. $500 to found the Nike shoe company, named after the from Oregon, Knight studied for an MBA at goddess of victory. Its first 'office' was the laundry roo sity, where he was inspired by Bowerman to Knight's family home. knowledge. The audit might form the basis of strategy development but suffers from several disadvantages. CASE STUDY 7.2 Developing new knowledge at Nike When Phil Knight founded Nike with $500 in 1964, he could hardly have seen his purpose as building the biggest sports company in the world. Yet this is what Nike had become by 2014. This case examines the foundations of the company's growth, especially the knowledge developed and retained within the company over the years. The early knowledge years: the 1960s write a thesis on trainer manufacture. Knight then went on world tour that included a visit to Japan, where he found tl Back in 1958, Phil Knight was a middle-distance runner in the leading shoe brand called Tiger. He decided that this was University of Oregon's track team, where his coach was Bill superior product and set up an importing company to bri Bowerman, who later trained the US Olympic team. It was Tiger running shoes to the USA while still continuing to WC. Bowerman who considered the existing running shoes were as an accountant. Then in 1964, he and Bowerman each put too heavy and designed and made his own lighter version. $500 to found the Nike shoe company, named after the Gre After graduating from Oregon, Knight studied for an MBA at goddess of victory. Its first office' was the laundry room Stanford University, where he was inspired by Bowerman to Knight's family home. damentals of N CHAPTER 7 PURPOSE EMERGING FROM KNOWLEDGE, TECHNOLOGY AND INNOVATIO spending at around $400 million. oss organis- ledge of the inent in the practices to To start the company, Knight used his athletics contacts to sell Tiger running shoes from a station wagon at track and field events. He bought the shoes from Japan, but both he and Bowerman always felt that there was potential for a US- designed shoe. This led Bowerman to invent the 'waffle' trainer. In the early 1970s, demand for Nike shoes was sufficient for the company to consider developing its own shoe manufac- ture. However, he was concerned to use Japanese experience of shoe production. In 1972, he placed his first contract in Japan to begin shoe manufacture to a Nike all-American design. no single dit and its for audit- almost $1 billion in sports marketing, compared with Reeb In addition, Nike began sports sponsorship deals. These included the golf star Tiger Woods and, for a previously unheard-of sum, the whole Brazilian football team. By signing a 10-year deal in 1996 worth between $200 million and $400 million, Nike broke new ground in football sponsorship. Importantly, this moved the company into totally new areas of sports goods. The sponsorship gave Nike credibility in a new market area along with knowledge of that area. For example, the technology of a football boot is not the same as that of an athletic running shoe. But it was not just the Nike sports sponsorship that was important. The brand and the message were also important. During the 1980s and 1990s, the company had come to understand its target market well - young, cool and competi- tive teenagers. The 'swoosh' logo was highlighted on all its goods to help brand the product and the main message, 'just do it', was developed to express the individuality of the target group. The accompanying-slogan of winning your own way' wledge- by defini- t is vital ne name Developing new knowledge: the 1970s Over the next few years, the yen moved up against the dollar and Japanese labour costs continued to rise. This made Japanese shoe production more expensive. In addition, Nike itself was gaining more experience of international manufacture and making more contacts with overseas shoe manufacturers. In order to cut production costs, Nike switched its operations in 1975 from Japan to two newly industrialised nations, Korea and Taiwan, whose wage costs were exceptionally low at that time. In this context, the company had to learn how to handle overseas production, how to brief manufacturers on new designs and models, and how to set and maintain quality standards. ing. Its the ture. However, he was concerned to use Japanese of shoe production. In 1972, he placed his first contract in Japan to begin shoe manufacture to a Nike all-American design. no single t and its or audit- ledge defini- sports good market area along the technology of a athletic running she But it was not important. The bra During the 1980s understand its targ tive teenagers. The goods to help bran do it', was develope group. The accomp Developing new knowledge: the 1970s Over the next few years, the yen moved up against the dollar and Japanese labour costs continued to rise. This made Japanese shoe production more expensive. In addition, Nike itself was gaining more experience of international manufacture and making more contacts with overseas shoe manufacturers. In order to cut production costs, Nike switched its operations in 1975 from Japan to two newly industrialised nations, Korea and Taiwan, whose wage costs were exceptionally low at that time. In this context, the company had to learn how to handle overseas production, how to brief manufacturers on new designs and models, and how to set and maintain quality standards. is vital e name ng. Its ng e is 11 JU tange of of The decade of difficulty and renewal: the 1980s By the early 1980s, Nike was profitable and continuing to develop its role as a specialist US sports shoe manufacturer with no production facilities in its home country. It became the leading brand of sports trainers in the USA. Then along came competition in the form of a new sports shoe manufac- turer, Reebok. From a start-up company in 1981, Reebok went into battle against Nike under its founder and chief executive, Paul Fireman. Reebok launched a strong and well-designed sports shoes with great success. To hit back against Reebok, Nike then began to invest con- siderable sums on developing new and innovative sports shoe designs. The most successful of these was begun in the late 1980s, the Nike Air shoe. 'It was an intuitively simple techno- logy to understand,' said John Horan, publisher of Sports Goods intelligence, a US industry newsletter. 'It's obvious to con- sumers that if you put an airbag under the foot, it will cushion But it was not until 1990 that the Nike Air shoe was launched and began to deliver success for Nike. Thus the 1980s were both the decade of difficulty and the time for renewal. Nike had learned about the heat of competition and the need for innovation and continual R&D in its shoe designs. The new heights of the 1990s - sponsorship and brand building soupling the new Nike Air shoe with advertising featuring Ichael Jordan was a touch of marketing inspiration. The US sketball star, top of his chosen sport, was signed up to omote the new product in a multimillion-dollar deal that ned a new dimension to sports sponsorship. Over the next wyears , this was enhanced by the heavy funds Nike was Apared to invest. For example, in 1995 Nike invested Nike's leadership developed from from the back of © Serge Attai/Time & 18 PART 2 STRATEGIC ANALYSIS AND PURPOSE 25,000 2,000 captured the aggression, competition and individual success epitomised by the sports stars who were signed up. However, Nike was criticised for its use of cheap labour in some coun- tries and was forced to take steps to deal with this. The com- pany's approach to this matter still rankles with some members of the target group to this day. 1,750 20,000 1,500 15,000 1,250 $ million 1,000 $ million 10,000 750 500 5,000 250 0 2010 Revenue (left scale) Net income (right scale) Sports clothing, equipment and total fitness: the 2000s Over the next 10 years, Nike continued to develop rapidly in two further, related activities. It used its involvement in new sports areas to develop into sports clothing using the Nike brand and into sports equipment, in some cases by company acquisition. At the same time, it began rapid international expansion, for example using its sponsorship in Brazil to expand in Latin America and its sponsorship of Arsenal Football Club to expand its position in Europe. It was using its resource-based competitive advantages to build into related markets. By the year 2010, Nike was the biggest sports and fitness company in the world, with a truly global spread of sales - see Figure 7.2. In the late 1990s, the Asian economic downturn hit the company hard. There was also heavy over-stocking of its prod- ucts in the US retail trade that hit the company in 2000. Trading profits soon recovered to record levels in 2004. In the same year, Phil Knight became the chairman and Tom Clarke took over as chief executive. Clarke was quite clear: You grow a lot, then you need a period when things aren't booming to ask what works and what doesn't.... Remember, we're a fairly self-critical bunch. We're running the company for the long term, not to keep people happy for the next couple of quarters. Figure 7.3 Nike growth slows but it's still the world leader Source: Nike Annual Report and Accounts 2010 years. For example, there was a company rationalisation in 2009 that impacted on profits although the company was stil the largest sports company in the world with continuing pro- fitable growth - see Figure 7.3. It was in early 2005 that Phil Knight announced that his retirement from Nike. It was just over 40 years since he and his friend Bill Bowerman had started selling trainers from the back of a station wagon in 1964. He had built a global company. The purpose of Nike had therefore changed over time, sometimes through prescriptive strategies and sometimes through exper- mental, emergent strategies. But fundamentally Nike grew asa result of building competitive resources like sports branding taking risks and employing and sharing knowledge across the company. The company continued to grow after Knight's retirement. Like many companies, its profits did not always hold up over the 13% Green 1% 35% Nike has substantive policies on green strategy. These can be viewed at: http://www.nikebiz.com/responsibility. Strate 11% © Copyright Richard Lynch 2015. All rights reserved. This case was wide by Richard Lynch from published material only." 5% 9% 6% O North America Western Europe Gentral and Eastern Europe O Greater China 20% Japan Emerging markets D Global brand division D Other businesses Case questions 1 What knowledge has Nike acquired over the years? Useini definitions of knowledge contained in this chapter to have you move beyond the obvious. 2 What other resources beyond knowledge does the com possess that offer clear sustainable competitive advana: 3 From a consideration of this case, what conclusions you draw on the emergent purpose of Nike in relatione knowledge? Figure 7.2 Nike's global sales 2010 ($ millions) Source: Nike Annual Report 2010 from the web.
Purchase answer to see full attachment