Nike The Sustainable Business Strategy

Presented By: Section C Group 1 Rishi R. Chaturvedi (13P162) Shivam Atri (13P167) Anshuman Joshi (13P126) Nancy Pahuja (13P151) Jaskiran Singh (13P144) Abhishek Minda (13P121)

Nike - Overview
Largest manufacturer of sportswear in the world Almost 1 million employees Founded in 1964 as Blue Ribbon Sports Nike outsourcing contracts 500 factories in 45 countries Business Model: High end consumer products sourced in cost efficient supply chain In 1990s, protestors rallied against conditions at Nikes overseas suppliers and made Nike the global poster child for corporate ethical fickleness

Nike Where things went wrong

Salaries less than minimum wage Poor working environment

Social Issues

No overtime pay
One bathroom break

2 drinks of water each 8-hour shift

Child labor scandal

Nike Where things went wrong

- 12 year olds were paid 60c/day to make footballs

Child Labour

- Company had factories in South Korea, Indonesia & Thailand - Children worked 12 hour days in sub-standard conditions

Nikes Evolution

Organizational Learning

Defensive

Compliance

Managerial

Strategic

Civil

Its not our job to fix that

Well do as much as we have to

Its the business, stupid

It gives us a competitive advantage

We need to make sure everybody does it

Nike Path of Evolution

From Denial to Compliance 1990s - Enormous pressure to adopt code of conduct in global supply chains Targeted bring high profile brand Nike responded defensively Later responded to demands for labor codes and agreed for external audits The companies hired for audits lacked credibility or experience in labor circles Approach backfired, perception of insincerity crept in Intense pressure from activists started affecting highly profitable markets in North America and Europe In 1996, Nike created department to manage supply chain partners compliance with labor standards In 1998, Nike established Corporate Responsibility Department

Nike Path of Evolution

Managing Responsibility

2000 - Nike labor compliance team had more than 80 members Costly external auditors were hired to audit about 900 suppliers Non-compliance to own labor codes revealed Increased frustration both within and outside organization Eventually, team of senior managers was assembled led by Maria Eitel, VP (Corporate Responsibility) The new team focused on upstream drivers Group considered issues at factory level symptoms of larger systemic problem Concluded that Nike approach of doing business was root cause

Nike Path of Evolution

Managing Responsibility Performance Incentives to procurement teams based on price, quality and delivery time Encouraged unwanted behavior of circumventing code compliance to get bonuses Tensions found between Nikes short term financial goal and long term strategic goal of brand preservation Created urgent short term needs for goods to satisfy demand, drove procurement team to take what they could get Forced suppliers to cut corners -> Led to overtime in factories Review team proposed Nike grade all factories based on labor conditions Suggestion to tax or reward procurement teams based on grade of supplier used Difficult from cultural and commercial perspective -> Nike core business model was based on entrepreneurial culture that extended from brand management to procurement

Nike Path of Evolution

Managing Responsibility Nikes resistance to shift procurement methods based on cost and commercial risk Challenge to adjust business model looking at long term without compromising todays bottom line Several multi-stakeholder initiatives launched worldwide to ensure compliance Fair Labor Association (FLA) established with support from Clinton administration SA 8000 standards developed in the United States Ethical Trading Initiative (ETI) developed in United Kingdom These responded to need of developing, monitoring and complying with labor standards as per UN conventions

Nike Path of Evolution

Responsible Business Strategies MFA, established country based garment import quotas to US market MFA inhibited businesses from making long term procurement commitment to suppliers MFA thwarted stable conditions for brands to invest in technological and managerial progress Multi-fiber Arrangement (MFA), prevailing trade agreement in apparel sector expired on Jan 1, 2005 Lead to fewer and larger suppliers Industry was expected to move towards form of Lean Manufacturing shifting away from traditional top down managerial style to greater worker selfmanagement -> Leading to more productivity and flexibility Estimates suggested manufacturer cost savings of up to 25% Expected to improve worker conditions

Nike Path of Evolution

Responsible Business Strategies New Skill trainings required as a result of LEAN manufacturing Upward pressure on wages and improve management behavior toward workers In 2004, Nike acquired Starter, an athletic apparel and footwear brand Concerns of higher volumes and lower margins arose while maintaining commitment to labor codes Value customers were also known to focus on price and had little concern for ethical standards Nike was committed to maintain labor compliance standards across all product lines and supply chains It responded to value-economics challenge by arguing for regulated international labor standards

Nike Path of Evolution

Toward Civil Action Pushed for support of mandatory global standards for social auditing Nikes suppliers and competitors had to share financial burden of securing regulated level of worker conditions in global supply chains Nike progressed from target of attack to convener of erstwhile critics In 2004, Nike convened high profile players from international labor, development, human rights and environmental movements to discuss potential negative fallout from MFAs demise End of agreement raised challenge of assisting countries with garment industries that may be suddenly rendered far less competitive in international markets For instance, export oriented garment industry in Bangladesh which employed more than two million people and contributed to 75% of foreign exchange earnings was at risk

Nike Path of Evolution

Toward Civil Action Nike joined a group of organizations comprising Companies -> Gap (US), Asda (UK) NGOs -> Oxfam International, AccountAbility Labor Organizations -> International Textile, Garment and Leather Workers Federation Multi-stakeholder Initiatives -> ETI, FLA, Global Compact The group focused on Benefits of alliances to deal with Post MFA environment Advise governments and agencies to develop public programs to assist workers in transition Establish framework to guide companies in realignment of supply chains Lobby for changes to trade policies that would confer benefits to organizations that took labor issues into greater account Thus, Nike evolved from object of civil activism to key participant in civil society initiatives and processes

Nike Sustainability Reporting

Nike Sustainability - Meaning

Using the tools available to bring about positive change across the entire supply chain

Laser-focused on evolving their business model to deliver profitable growth

Leveraging the efficiencies of Lean manufacturing

Minimizing the environmental impact

Nikes Learnings
Nike realized corporate responsibility as an issue integral to realities of globalization

It regarded CSR as major source of learning, relevant to core business strategy and practices

Nikes experience shows that business benefits of CSR are at best hard-won and are realized over the long term

Making business logic out of deeper sense of corporate responsibility requires

Courageous leadership, in particular civil leadership

Grounded process for organizational innovation

Shift of Focus
Reacting to Criticisms Pursuing Sustainability as an integral driver for long term growth

External Challenges
Traditional models of manufacturing and distribution need to evolve to offset rising energy costs and environmental concerns Many more natural resources will become increasingly scarce, driving up competition and cost Ongoing globalization, access to information and transparency will intensify the demand for equal access to economic opportunity

Nike - Vision

Nike Sustainability Pillars

Drive Disruptive Innovation

Optimise to deliver positive impact

Deliver Value

Nike Sustainability Pillars

Nike Sustainability Pillars

Nike CSR Activities

Nike Impact Areas

Energy & Climate Labour Chemistry

Water
Waste Community

People & Culture

Public Policy

Nike CSR Activities

Energy and Climate Replaced SF6, a global warming gas used in manufacturing of Air Soles with Nitrogen after a lot of trial and error Implemented energy management systems which has saved roughly 3.1 million KWHs of electricity Windmills that power distribution center Solar arrays on the roof of fitness center Labour Key emphasis on the health and safety of factory workers Reduced the number of Factories with worst E rating from 48% to 8% in 2 years Chemistry Committed to eliminate, reduce and responsibly manage hazardous chemicals in supply chain Started the Green Chemistry Program Gave birth to Nike MSI - tool for rating the sustainability of materials and the material vendors that produce them, as a criteria in choosing the material for manufacturing

Nike CSR Activities

Water Nike water program managing tracking the usage of about 60 billion gallons of water annually H2O*Insight online reporting system Waste Nike Reuse-a-shoe and Nike Grind - Nike Shoe Recycling Sustainability Use Nike MSI for the selection of various materials for the manufacturing processes Established standards for appropriate disposal and recycling of packaging material Community Investment in the Nike Foundation and The Girl Effect Support LIVESTRONG foundation and the fight against cancer N7 fund - Native American product line where revenue returns into the community

Nike CEO Mark Parkers Message

Transparency is an asset, not a risk

Collaboration enables systemic change

Every challenge and risk is an opportunity Sharing innovation does not require sacrificing competitive advantages

Design allows you to prototype the future, rather than retrofit the past
To make real change, you have to be a catalyst

Nike Sustainability

Thank You!!!

Theories Organizational Learning

Defensive Compliance Managerial Strategic Civil

Deny practices, outcomes or responsibilities Defend against attacks to reputation

Adopt policy based approach as cost of doing business Mitigate erosion of economic value in medium term due to ongoing reputation and litigation risks

Embed societal Integrate societal issue in their core issue into core management business strategy processes Enhance long Integrating term economic responsible value business practices Gain first mover into daily advantage by operations aligning strategy and innovation with societal issue

Promote broad industry participation in corporate responsibility Enhance long term economic value by overcoming any first mover disadvantages and realize gains by collective action

Theories Organizational Learning

Defensive

Compliance

Managerial

Strategic

Civil

Its not our job to fix that

Well do as much as we have to

Its the business, stupid

It gives us a competitive advantage

We need to make sure everybody does it

Theories Societal Learning

Beyond getting own houses in order, companies need to stay abreast of publics evolving ideas about corporate roles and responsibilities The emphasis is for companies to be able to predict and credibly respond to societys changing awareness of particular issues

Novo Nordisk Scale

Activists and NGOs aware of issue Weak evidence Issue ignored by business community
Political and media awareness about issue Emerging evidence, data still weak Businesses experiment with dealing of issue

Emerging

Institutionalized
Sector-wide voluntary initiatives Increasing view of need

Legislation established

for legislation
Voluntary standards developed, collective action occurs

Embedded practices
become part of business model

Latent

Consolidating

The Civil Learning Tool

The Civil Learning Tool

Help companies in understanding where they and their competitors fall on a particular societal issue Makes clear that there is a point where risky red zone could be converted to higher opportunity green zone Could help an organization become a leader and gain reputation in minds of stake holders E.g. BP, Levi Strauss, Rio Tinto