Nike Case Study Analysisv2

 

Case Study Analysis of Nike Sustainability Goals

SUS 500 Principles of Sustainability Liana Harriot October 15, 2011

 

 ABSTRACT 

Nike, a company that is over 40 years old, is the largest seller of athletic footwear and apparel in the world and the leader in its field. After negative reactions from stakeholders perta pertaini ining ng to its posit position ion rega regardi rding ng their their contra contracto ctor’s r’s un unfa fair ir an and d un unsa safe fe labor labor an and d environmental practices in the late 1980s and early 1990’s, Nike began to undertake a total overhaul towards their business practices. Nike, in the last 20 years, has has been on a strong pursu pursuit it to becoming sus sustainable. tainable. By continually developing and implementing new methods to achieve sustainability, Nike has been the forerunner within the industry regarding sustainability issues and values. Nike’s branding power is so large that it will lead the way for all other companies in the industry to follow suit and may serve as an example for companies in other industries. Nike corporate strategy continues to evolve as well and by opening its doors to external stakeholders and third parties like The Natural Step, Nike shows they are open for  suggest sug gestion ions s to better better the compan company, y, increase increase their profitab profitability ility and reputati reputation on and become a world leader in sustainability. Nike will also need to continue to be consistent to maintain the social, economic and environmental balance that makes up their triple bottom line. line .

 

GOAL GO ALS S THE THE COMP COMPAN ANY Y HOPE HOPED D TO ATTA ATTAIN IN WITH WITH THEI THEIR R SUST SUSTAI AINA NABI BILI LITY TY EFFORTS Nike had been pursuing a strategy of global sourcing opportunities to produce products at a lower cost in the 60’s, 70’s and 80’s. 80’s. This strategy had been been fiscally rewarding, rewarding, but as it became known about the mistreatment of its contracted workers, the chemical used to build their products and environmental degradation committed, Nike’s image began to suffer. In the late 1980s, Nike came under attack as the company’s overseas labor practices were exposed exposed.. Activist Activists s alleged alleged that Nike’s contrac contractors tors workers workers were subjected subjected to sweatshop sweatsho p conditions. These accusations accusations began to create significant significant negative negative public relations problems problems for the company. company. Nike’s management management first denied responsibility responsibility for  contract factory workers and resisted any attempt at change, but gradually came to see that their company was part of the problem and wanted to change their outlook on their  business processes and practices. Eventually Nike began addressing its labor and sustainability issues in a more strategic way. By the mid-1990s, mid-1990s, Nike realized that corporate social responsibility needed to be a core part of Nike’s business business in order to maintain maintain long-term long-term profitability. profitability. Nike began a serious commitment to overhauling the labor practices in its suppliers' overseas factories afterr it was targete afte targeted d by activists activists campaign campaigning ing against against sweatshop sweatshop condition conditions. s. Nike formulated formulat ed a Code of Conduct for its suppliers that required them to observe basic labor  and environm environmenta ental/he l/health alth standards standards.. Nike also began began making making a business business case for  sustain sust ainabil ability ity strategy strategy for the entire entire compan company y by acknowle acknowledgin dging g that that a competi competitive tive advantage could be gained by being proactive on environmental and social issues. Nike created an external structure, the Nike Environmental Action Team (NEAT), and partnere part nered d with a third party, the Natural Natural Step to impleme implement nt sustain sustainabil ability ity principle principles s throughout througho ut its organization. organization. With input from the Natura Naturall Step, the NEAT team has been able to identify sustainability process that has identifiable costs that have affected longterm environmental environmental and financial financial performance. performance. They have been been able to articulate how how Ni Nike ke’s ’s fi fina nanc ncia iall pe perf rfor orma manc nce e woul would d be im impa pact cted ed by st stak akeh ehol olde der’ r’s s re reac acti tion ons s to sustain sust ainabil ability ity performa performance nce by linking linking the impacts of this strategy strategy on both corporate corporate strategy and performance. Under then CEO Parker’s guidance and influence, the Neat team   began exploring how to tackle Nike’s environmental footprint using this new strategy, and homed in on product design as a key intervention point. CEO’s Parker’s insights along with Hannah Jones, Nike’s Nik e’s head head of corpo corpora rate te respo respons nsibi ibilit lity, y, becam became e a drivin driving g force force be behin hind d the ne new w approach. The NEAT and design teams decided that there was a great opportunity to phase in environmental issues at the beginning of the supply chain process. Jones’s team decided it needed to help Nike “design the future…as opposed to retrofit the past1. After Natural Step and the NEAT team identified the stakeholders to be impacted, they began formulating formulating a framework framework of sustainability sustainability principles. principles. In recent years, years, Nike has made sustainability a core corporate value by fully integrating sustainability into their all aspects of ttheir business operations. Theimplemente Nike Environmental (NEAT) hasy made great grea strides for Nike since being imp lemented d in 1993. Action NEATTeam has lead the way wa

 

to re rewr writ itin ing g Ni Nike ke’s ’s en envi viro ronm nmen enta tall po poli licy cy and and be begi gin n th the e pr proc oces ess s of inte integr grat atin ing g sustainability principles in its business operations and throughout the company. The major sustainability goals for Nike were: 1. Devel Develop op answe answers rs fo forr th the e social social and and envir environ onme menta ntall proble problems ms that that Nike Nike contra contract ctors ors production posed to the environment 2. Integra Integrate te the solutions solutions into the company’s company’s busines business s practices practices by making making sustaina sustainabilit bility ya core tenant of the company’s mission 3. Appl Apply y th the e prin princi cipl ples es of sust sustai aina nabi bili lity ty to it its s bu busi sine ness ss op oper erat atio ions ns by de deve velo lopi ping ng an organ org aniza izatio tional nal realig realignm nmen entt to set th the e stage stage fo forr a re-vis re-visio ionin ning g of the compa company ny’s ’s environmental policy 4. Taki Taking ng th the e init initia iati tive ves s to addr addres ess s th the e envi enviro ronm nmen enta tall life life cycl cycle e of its its prod produc ucts ts by implementing closed loop product life cycle 5. Develop its approach approach to product innovation innovation by defining defining a long-term vision for for production production of sustainable products 6. Build Build internal internal skills & knowledg knowledge e about susta sustaina inable ble business business by educating educating employe employees es in the principles of sustainability 7. Have an an industry industry wide wide list list of sustain sustainabil ability ity targets targets 8. More positiv positive e public public perception perception of Nike’s Nike’s social social responsi responsibili bility ty 9. Create Create new financial financial models models to include include sustainab sustainability ility principl principles es to reflect the full full cost of  doing business, ultimately providing transparency and potential additional benefits to both Nike and consumers. Nike has been very successful in its innovative efforts towards sustainability thus far. Nike has been able to fully integrate sustainability into their operations and have been able to show tangible tangible results. results. The NEAT team team and The Natural Natural Step set Nike’s Nike’s future goals including designing products within a fully closed loop, using only sustainable materials, water stewardship, and climate stability. Through these accomplishments Nike has developed new methods to create the same products with less less of an environmental environmental impact. impact. They have eliminated eliminated almost almost all PVC use, use organic cotton, and significantly reduced the use of petrochemical solvents to waterr based wate based solvents. solvents. The results results of these these various activ activitie ities s have have begun to produce some significant changes among Nike suppliers. For example, as a result of its various inspections, audits and internal research, Nike has been able to virtually eliminate the use of petroleum based chemicals in its footwear production. However management and the NEAT team recognized that focusing efforts inside Nike would wo uld not not be enou enough gh to imple impleme ment nt sustai sustaina nabil bility ity va value lues; s; they they ha had d to collab collabora orate te extensively with external stakeholders partners like factories and materials vendors to create more more sustainable sustainable products. products. There was was an acknowledge acknowledgement ment that that the company company need needed ed to look look at the entir entire e manu manufac factu turin ring g lif life e cycle cycle,, includ including ing produ product ct de desig sign, n, manufacture, and end of life to incorporate sustainability principles into all facets of  production. The result result was Nike's Nike's Conside Considered red Design Design initiati initiative, ve, a compan company-wid y-wide e program program that that incorporates green principles into Nike's design guidelines to help the company create

 

products with more more environmentall environmentally y friendly materials materials and fewer toxics an and d waste. It follows the “closed loop’ business model. CORPORA CORP ORATE TE PARAD PARADIGM IGMS S SHIFT SHIFTS S THAT THAT HAD TO TAKE TAKE PL PLACE ACE FOR THOSE THOSE EFFORTS TO BE SUCCESSFUL. The International Institute for Sustainable development, Deloitte & Touche and the World Business Busines s Council for Sustainable Sustainable Development (1992) defines sustainable development development as “For the business business enterpris enterprise, e, sustaina sustainable ble developm development ent means means adoptin adopting g busines business s strategies strategie s and activities that meet the needs of the enterprise and its stakeholders stakeholders today while protecting, sustaining sustaining and enhancing enhancing the human and natural resources that will be 2 needed in the future” . It took a major overhaul overhaul for this definition definition to be relevant relevant for Nike. The previously previously held intractab intra ctable le view that Nike was not responsible responsible for their their supplie suppliers rs treatmen treatmentt of their  their  worke wo rkers rs fai faile led d to ackno acknowle wledg dge e that that their their stake stakeho holde lders rs weren weren’t ’t limite limited d to ju just st their  their  customers custome rs and shareholders. shareholders. Nike Management Management had previously previously failed to account account for  reputational or social risk to their organization and was now paying the price for their  sh short ortsig sight hted edne ness ss with with nega negativ tive e press press and and reput reputati ation on.. Once Once Nike Nike mana manage geme ment nt recognized that there was a broader set of external stakeholders that could impact corporate profitability, profitability, , that they were accountable accountable for, the process of thinking differently in the context of sustainability began to take hold. A complete 180 degree turnaround from prior business decisions had to be made in the busin business ess proces processes ses and and co corpo rporat rate e plan plannin ning g had had to be revam revampe ped d throu through ghou outt the comp compan any. y. Visi Visibl ble e le lead ader ersh ship ip from from th then en CEO CEO Phil Phil Knig Knight ht he help lped ed us ushe herr in th the e develop dev elopmen mentt of sustainabil sustainability ity strategies. strategies. The Nike manageme management nt developed developed a new external structure structure for corporate responsibility. responsibility. The company company did in-depth analysis analysis into responses response s or lack of, to the unsafe, unfair and unhealthy unhealthy practices of its suppliers. After  much soul searching, research and analysis, the company came to the realization that corporate responsibility had to be a core part of Nike’s business. Although Althoug h initially initially there there was much resistanc resistance e within within the company company to the concept concept of  sustain sust ainabil ability ity values and practice practices. s. However However,, strong strong strategic strategic support from the top echelons of Nike was valuable in formulating an environmental culture in all aspects of  the business, business, a view that persists to this day. In order to facilitate u understand nderstanding ing and impleme imp lementat ntation ion of its standard standards, s, Nike introdu introduced ced factory-w factory-wide ide training training and educati education on programs to its facilities Corporate responsibility is no longer a staff function at Nike. It’s a design function, a sourcing function, a consumer experience function, part of how we operate. —Nike CEO Mark Parker 3

 

CAN THE BUSINESS CASE FOR SUSTAINABILITY BE MADE PURELY ON THE PROFIT POTENTIAL OR MUST ALTRUISM PLAY A PART? The stakeholde stakeholderr analysi analysis s begins begins by identifyi identifying ng the various groups affected affected by the business’s busines s’s acti activitie vities. s. These These include include shareho shareholder lders, s, creditors creditors,, regulato regulators, rs, employe employees, es, customers, suppliers, and the community in which the enterprise operates. It must also in incl clud ude e pe peop ople le who who are are affe affect cted ed,, or who who cons consid ider er th them emse selv lves es af affe fect cted ed,, by th the e enterprise’s effect on the biosphere and on social capital. This is not a case of altruism on a company’s part, but rather good business. business. Companies that understand what their stakeholders want will be able to capitalize on the opportunities presented. They will benefit from a better informed and more active workforce, and better information in the capital markets. From a broader perspective, however, it is clearly in the interest of business to operate within with in a healthy healthy environm environment ent and economy. economy. If companies companies “aren’t “aren’t good corporate corporate citizens” – as reflected in a triple bottom line accounting that takes into account social and environmental responsibilities along with their financial ones, eventually their stock price, profits and entire businesses could suffer. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business  business 4 If sustainable development at Nike is to achieve its potential, it must continue to be integrated into the planning and measurement systems of all facets of its business enterprises. enterprise s. Nike seems to be setting a good example, after all, their motto is “JUST DO IT” and they seem to be doing just that.

 

References

 

1

Nicholas Casey, “New Nike Sneaker Targets Jocks, Greens, Wall Street,” The Wall Street Journal, February 15, 2008. 2

International Institute for Sustainable Development (1992). Business strategies for sustainable development (1992) Retrieved from http://ww http://www.iisd.org/business/ w.iisd.org/business/pdf/business_strategy.pdf  pdf/business_strategy.pdf 

3

Innovate for a Better World: Nike FY05-06 Corporate Responsibility Report,” Nike Inc., May 2007, pp 4

4

Triple Bottom Line (2008). In The Economist (2008) Retrieved from http://www.economist.com/node/14301663 http://www.economist.com/node/14301663