Nikes Core Competency: The Risky Business of Fairy Tales

With annual revenues doubling during the last decade to over $25 billion and having a globally recognized brand,
Nike is the undisputed leader in the athletic shoe and apparel industry. The number two adidas has some $15 billion
in sales, while recent entrant Under Armour reports revenues of less than $1 billion. Nike is tremendously successful,
holding close to a 60 percent market share in running and nearly a 90 percent market share in basketball. The
Beaverton, Oregon, company has come a long way from its humble beginnings. It was founded by University of
Oregon track and field coach Bill Bowerman and middle-distance runner Phil Knight in 1964 originally as Blue Ribbon
Sports. In 1971, the company was renamed Nike (the goddess of victory in Greek mythology) and the now iconic
swoosh was designed by a Portland State University student. Coach Bowerman was a true innovator because
he constantly sought ways to give his athletes a competitive edge. He experimented with many factors affecting
running performance, from different track surfaces to rehydration drinks. Coach Bowermans biggest focus, however,
was on providing a better running shoe for his athletes. While sitting at the breakfast table one Sunday morning and
absentmindedly looking at his waffle iron, Coach Bowerman had an epiphany. He began pouring hot, liquid urethane
into the waffle ironruining it in the processbut coming up with the now famous waffle-type sole that not only
provided better traction but was 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 Stanford. One
entrepreneurship class required him to come up with a business idea. So, he wrote a term paper on how to disrupt
the leading athletic shoe maker adidas. The research question he came up with was Can Japanese sports shoes do
to German sports shoes what Japanese cameras have done to German cameras? 1 At that time, adidas athletic
shoes were the gold standard. They were also expensive and hard to find in the U.S. After several failed attempts to
interest Japanese sneaker makers, Phil Knight was able to strike a distribution agreement with Tiger Shoes. After his
first shipment arrived in the U.S., Phil Knight sent some of the running shoes to his former coach Bill Bowerman,
hoping to make a sale. To his surprise, Bill Bowerman replied that he was interested in becoming a business partner
and contributing his innovative ideas on how to improve running shoes, including the waffle design. With an
investment of $500 each and a handshake, the venture commenced. Based on a highly successful string of
innovations including Nike Air, by 1979 the company had captured more than a 50 percent market share for running
shoes in the United States. A year later, Nike went public. In 1984, Nike signed Michael Jordan, whom many consider
the greatest basketball player of all time-with an unprecedented multimillion-dollar endorsement deal. Rather than
spreading its marketing budget more widely as was common in the sports industry at that time, Nike made the
unorthodox move to spend basically its entire budget for a specific sport on a single star athlete. Nike sought to
sponsor future superstars that embodied an unlikely success story. Michael Jordans story is that he had been cut
from his high school basketball team only to become the greatest basketball player ever. In the 1990s and 2000s,
Nike continued to sponsor track and field sports stars such as Marion Jones, as well as Kobe Bryant in basketball.
With the help of major celebrity endorsements, Nike was also able to move on to different sports and their superstars,
including golf with Tiger Woods, cycling with Lance Armstrong, soccer with Wayne Rooney, and football with Michael
Vick. Over time, Nike developed a deep expertise in creating heroes. It picked athletes that succeeded against
the oddscancer survivor Lance Armstrong, double amputee blade runner Oscar Pistorius, and other athletes
hailing from disadvantaged backgrounds. Although this core competency made Nike highly successful, it has not
been without considerable risks. Time and time again, Nikes heroes have become unmasked as cheaters, frauds,
and criminals, some of whom have committed serious felonies, such as (alleged) homicide. As Nike veers from one
public relations disaster to the next, disappointment with the brand and its promise may eventually set in causing
customers to go elsewhere. Although nikes co-founder and chairman Phil Knight declared that scandals surrounding
its superstar endorsement athletes are part of the game, its marketing strategy is not without risks. 40 In some
instances, Nike continued to sponsor its athletes involved in various scandals, while in others it terminated its
lucrative endorsement contracts. Nike continued to sponsor LA Lakers Kobe Bryant who was cleared of alleged rape
charges. After Tiger Woods was engulfed in an infidelity scandal, Nike continued to sponsor the golf superstar.
In 2007, Nike ended its endorsement deal contract with NFL quarterback Michael Vick after a public outcry and his
subsequent felony conviction of running a dog-fighting ring and engaging in animal cruelty. In 2011, after serving a
prison sentence and restarting his career at the Philadelphia Eagles, Nike signed a new endorsement deal with
Michael Vick. In 2012, Nike terminated mits long-term relationship with disgraced cyclist Lance Armstrong. Just
before Armstrongs public admission to doping in an interview with Oprah Winfrey, PhilKnight answered never say
never when asked if Nike would sponsor Lance Armstrong again in the future. In 2013, Nike removed its ads with
Oscar Pistorius and the unfortunate tag line I am the bullet in the chamber, after the alleged homicide charges
against the South African track-and-field athlete. Time and time again Nikes heroes have fallen from grace. Clearly,
Nikes approach in building its core competency of creating heroes is not without risks. Too many of these public
relations disasters combined with too severe shortcomings of some of Nikes most celebrated heroes could damage
the companys reputation and lead to a loss of competitive advantage.

Questions
Thinking about ChapterCase 4, answer the following questions.

1. The case indicates that Nikes core competency is to create heroes. What does this mean ? How did Nike build its
core competency ? Does it obey the VRIO attributes ?

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

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

4. If you are a competitor of Nike (such as adidas, Under Armour, New Balance, or Li Ning), how could you exploit
Nikes apparent vulnerability ? Provide a set of concrete recommendations.