A study of 1,850 companies by Zook and Allen revealed

two conclusions: First, the most sustained profitable growth occurs when a corporation pushes out of the boundary around its core business into adjacent businesses. Second, corporations that consistently outgrow their rivals do so by developing a formula for expanding those boundaries in a predicable, repeatable manner.

Nike is a classic example of this process. Despite its success in athletic shoes, no one expected Nike to be successful when it diversified in 1995 from shoes into golf apparel, balls, and

equipment.
Only a few years later, it was acknowledged to be a major player in the new business. According to researchers Zook and

Allen, the key to Nikes success was a formula for growth that
the company had applied and adapted successfully in a series of entries into sports markets, from jogging to volleyball to tennis to basketball to soccer and, most recently, to golf. First, Nike established a leading position in athletic shoes in the target market, in this case, golf shoes.

Second, Nike launched a clothing line endorsed by the sports top athletesin this case, Tiger Woods. Third, the company formed new distribution channels and contracts with key suppliers in the new business. Nikes reputation as a strong marketer of new products gave it credibility. Fourth, the company introduced higher-margin equipment into the new market. In the case of golf clubs, it started with irons and then moved to drivers. Once it had captured a significant share in the U.S. market, Nikes next step was global distribution.

Zook and Allen propose that this formula was the reason Nike moved past Reebok in the sporting goods industry.

In 1987, Nikes operating profits were only $164 million

compared toReeboks much larger $309 million. Fifteen years later, Nikes operating profits had grown to $1.1 billion while Reeboks had declined to $247 million.2 Reebok was subsequently acquired by Adidas in 2005 while Nike went on to generate operating profits of $2.4 billion in 2008.