Nike Strategic Analysis Nike's Strategic Term Paper

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For any strategic planning activity to be effective there must be the ability to quickly define process-level changes to increase competitive advantage. Mintzberg's critique of the strategic planning process is illustrated in the shortcomings of the Ashoff Matrix in this regard.

Lack of strategic prioritization of projects within the context of the Ansoff Matrix - the Ansoff Matrix does not provide for strategic criteria to be applied to specific projects. The portfolio management approach to strategic planning specifically has been developed to respond to the shortcomings of the Ansoff Matrix and other analytical constructs like it. Portfolio management is in fact the basis for Boston Consulting Groups' Growth/Share Matrix, or as it is commonly referred to, the BCG Matrix.

Lack of quantification of cash generation and modeling of future financial performance - the shortcomings of the Ansoff Matrix as a strategic tool relative to the needs of strategists, specifically at Nike, on this point relegate the Matrix to introductory discussions only in the context of strategic planning. Strategic planning is increasingly focused on the financial implications of the myriad of decisions involving investing in an existing dominant strategy, choosing to penetrate new markets, or defining a diversification strategy. It would be unimaginable for Nike for example to choose a fairly aggressive M&a strategy without highly accurate and precise financial data. From the introduction of the Profit Impact from Market Strategy database which is called PIMS, this series of databases that form a best practices methodology of defining the financial implications of marketing strategies has often been used by strategic planning departments in conjunction with the BCG Matrix to further financially test and validate strategic plans prior to their implementation, including the impact of pro forma market share estimates on profitability. For Nike, their many strategies require this level of financial analysis and insight before making significant investments. The depth of insights and best practices benchmarking possible with the PIMS database and methodologies further show the inapplicability of the Ashoff Matrix for planning at Nike.

Applying the BCG Growth/Share Matrix to Nike

The BCG Matrix is primarily focused on the resource allocation decisions companies need to make between competing products and strategies. For Nike, this specific strategic planning tool is perfectly suited for use across multiple levels and business units and the need to integrate into strategic plans their emerging process-centric competitive strengths in product development and new product introductions. The Boston Consulting Group specifically calls the ability of organizations to learn and embed processes into their organizations the experience effect. The ability of Nike to navigate their products through strategic realignments depends heavily on their ability to capitalize on this cornerstone aspect of the BCG Matrix. Nike must seek out those processes that will deliver the highest level of experience effect performance, in order to both attain lasting competitive differentiation in the markets they compete in first and second, to gain market share and further drive down costs.

While the BCG Matrix has achieved notoriety for its graphical definition of business unit positions relative to market growth and market share, the more valuable insights are actually in the quantifying of the experience effect dropping costs as a result of greater market share being attained. For Nike, this is essential for their business model to succeed. The experience effect is what delivers Return on Investment (ROI) within the boundaries of the BCG Matrix. In addition, the true role of the BCG Matrix is to define cash flow and investment strategies based on emerging growth opportunities (Stars) and fuel the development of entirely new strategies from cash generating products (Cash Cows). Saunders states that conventional wisdom regarding the BCG Matrix focuses on milking the cash cows, investing in star or high-achieving products, divesting and getting rid of dog products. The problem children products are either divested or invested in to turn them into stars. This interrelationship and inter-reliance of products on each other further distinguishes the BCG Matrix as a portfolio planning strategy. Figure 3 shows a simplistic representation of the BCG Matrix. Figure 4 shows the representation of the BCG Matrix by Henderson of BCG.

Figure 3:

Representations of the BCG Matrix

In applying the BCG Matrix specifically to Nike yields the following representation of the company's products and analysis of their core businesses.

Nike's BCG Matrix

Star Products

Question Marks

Cash Cows

Dogs

Analysis of Nike Brands and Product Areas:

Nike manufactures products in three main categories: footwear, apparel, and equipment.

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Nike accounts for its Converse, Cole Haan, Hurley, Nike Golf, Nike Bauer Hockey, and Starter businesses in what the company calls it's Other category. What was not immediately obvious from using the Ashoff Matrix to analyze these businesses that comprise the other category was their high growth, expanding market share, and increasingly high levels of cash generation. The company also it brands for swimwear, cycling apparel, children's clothing, school supplies and eyewear.

Footwear Analysis

Nike branded footwear is the largest component of overall Nike sales and in the vernacular of the BCG Matrix, a cash cow. However, this business is becoming a smaller portion of the company's portfolio as growth has slowed and the company aggressively launches into China. As this core portion of their business is aging quickly, it is feasible that the "Other" category of emerging businesses will be the majority of revenue within the next three years. Nike purchased Converse, a lifestyle and performance brand sold at a moderate price point, in June 2003. During the following year, Nike acquired Official Starter Properties LLC and Official Starter LLC, which are performance and lifestyle apparel and footwear value brands, respectively. The main benefit of adding these businesses was the reduction of Nike's dependence on its core brand and expanding the breadth of its product portfolio. Also, both Converse and Starter allowed Nike to enter into new price points and other retail channels without hurting the Nike brand. Both brands compete in a lower price tiers than the Nike core brand. Before the acquisitions Nike did not compete in a price tier below $49 per unit. Converse is both a performance and a lifestyle brand. Although it overlaps with some of Nike's existing business, Converse boasts a deeper portfolio of lifestyle brands and is moderately priced. Nike is also leveraging its technology, design expertise and scale to fuel further growth behind the Converse brands. It is clear that Converse could expand beyond footwear and into apparel and accessories. Additionally, Nike could introduce Converse to other retail channels. Starter fulfills the role of a value brand and sells in the mass merchandise channel (Wal- Mart), a retail channel in which the Nike brand was not participating before the acquisition. Currently, Nike is selling sneakers in 400 Wal-Mart stores throughout the U.S.

Women's Fitness

Women's fitness is a major opportunity for growth of the core Nike brand.

According to a survey by the National Sporting Goods Association, women purchased 54% of the $14.8 billion athletic footwear market; 64% bought fashion sneakers; 55% bought fitness shoes; and 49% bought running shoes. According to Nike, women buy 81% of all athletic apparel, including 60% of men's and 91% of children's. Nike management has identified four core key sports to focus on in women's fitness: running, cardio, yoga, and fitness dance. These four sports are some of the fastest growing activities currently in the U.S. According to National Sporting Goods Association, the largest sport for women currently is exercise walking (cardio), and it appears that over the last five years the fastest-growing "sport" category has been working out. Fitness dance is a category Nike is "creating" single-handedly. Nike management believes that the athletic shoes and apparel associated with this sport could start new fashion trends as well since Nike's designers have made these products trendy and in line with current lifestyle fashions.

Soccer

Soccer provides a global growth opportunity for Nike, which has already made significant progress in this sports category over the last several years. Surprisingly, Nike is has the largest market share in soccer footwear in Europe, Adidas' home turf. Globally, Adidas states that it has 34.5% of soccer merchandise sales, while Nike has around 29.8% market share.

Favorable demographics will continue to create soccer growth opportunities in the U.S. There are 18 million participants in the sport, which is made up of a younger generation, and more than half of these players are women/girls. Also, soccer is the most popular sport played in the U.S. By Hispanics, which comprise the largest U.S. minority group, accounting for about 14% of the population. The growth of the Hispanic population has been exceeding that of the overall population and is projected to continue at this pace until at least 2050, when the group is expected to be close to 30% of the U.S. population. Also, 35% of Hispanic-Americans are less than 18 years of age.

Apparel

Apparel comprises 28% of Nike's.....

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