why nike kicks butt in sustainability

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Why Nike kicks butt in sustainability

Marc J. Epstein, Adriana Rejc Buhovac, Kristi Yuthas

Nike Inc. has a unique combination of capabilities andcompetencies that position the company as a leader insustainability. Nike is among the worlds most prominentsustainable corporations, and is regularly recognized byorganizations that rank sustainable performance. For exam-ple, Nike has been named one of 100 most sustainablecorporations in the world by Innovest, ranked third in Cor-porate Responsibility Officers 100 Best Corporate Citizenslist, and named one of the Worlds Top Sustainable Stocks bySustainable Business.

Nike possesses a unique combination of strengths andcapabilities that enable the company to make rapid advance-ments in sustainability that are ahead of other firms in itsindustry, and that increasingly contribute to the financialperformance of the company. Nikebelieves that we are at thebeginning of a shift from a service- or knowledge-basedeconomy to a sustainability-based economy, as environmen-tal constraints increasingly influence business choices. Nike ismaking choices today that are intended to position the firmfor effective competition in a sustainability-based economicenvironment.

Several features of the firm, which have been fundamen-tal to the companys financial strength, are also instrumen-tal in the companys sustainability performance. Amongthe factors most important in its sustainability positioningare:

LeadershipOrganizational design

Market strength

Market positioning

Culture

LEADERSHIP

The primary reason for Nikes sustainability advantage isleadership. The chief executive officer (CEO) and boardare very supportive of sustainability and believe it to be

an essential component of the companys long-term strategicobjectives. Power is concentrated in the board chaired byfounder Phil Knight, who retains controlling ownership in thefirm. This allows the company greater flexibility in theoptions available for balancing social and financial objec-tives, and enables the company to make sustainability invest-ments with a very long payback period.

The board plays a significant role in pushing the focus onsustainability. One critical move has been the shift frompositioning sustainability as a compliance-related or risk-oriented activity, as many companies do, to an opportunityfor innovation. For example, in the past, one way Nikepursued sustainability was by reducing the level of regulatedtoxins used in its shoe designs. Today, the company uses theConsidered Index, which allows designers to predict andmanage a shoes environmental impact throughout the designprocess.

Nike has very strong leadership in the CSR function, andthese leaders have the ear of the CEOand the attention of theheads of strategic business units. In the huge Nike campus,where over 7000 people are employed, the CSR departmentsits in the same building and on the same floor as the CEOssuite. CSR staff also play a strong leadership role in thefootwear and apparel industries. Well known among sustain-ability circles, these leaders regularly participate on keyboards, and speak frequently about Nike practices. Forexample, Nike CSR leaders participate in panels and pre-

sentations in forums such as the Green Business Conference,Opportunity Green, and Business and Social Responsibility. In2008, Nike became chair of the World Economic ForumsConsumer Industries Working Group on Sustainable Consump-tion. In this role, it has spearheaded GreenXchange, a forumthat allows companies to share sustainability-related patentsand other intellectual property. In addition to sharing its owninnovations in these forums, Nike uses these opportunities togains insight into new developments in sustainability at otherleading companies, and to stay abreast of plans for futuredevelopments that affect sustainability and business perfor-mance.

Organizational Dynamics (2010) 39, 353356

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0090-2616/$ see front matter # 2010 Elsevier Inc. All rights reserved.doi:10.1016/j.orgdyn.2010.07.007


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ORGANIZATIONAL DESIGN

As CSR has gained prominence throughout the company, thestructure of the CSR function has changed in significant ways.In a recent reorganization, much of the CSR staff has beenmoved into the business units to enhance the integration ofCSR principles and initiatives throughout the organization.This allows the company to rapidly communicate and oper-ationalize initiatives and to receive information from thebusiness units about a broad spectrum of sustainability-related challenges. A small, centralized CSR staff still createsand pushes the corporate CSR agenda, but their focus hasshifted from a cost and regulatory emphasis toward a stra-tegic approach. In 2009, the vice president (VP) of the CSRfunction became a member of the Nike, Inc. Strategic Lea-dership Team, which sets mid- and long-range corporatestrategy. These changes allow CSR to be integrated intodecisions about new products and initiatives during thevarious phases of the innovation process, rather than tacked

on to the back end after strategies have been drafted.A recent name change of the CSR department is symbolic

of the reasoning behind the companys perspective on thevalue of sustainability to the corporation. Known as theCorporate Social Responsibility department for many years,the group was renamed theSustainable Business and Innova-tion department at the time the department was reorganizedand decentralized. This name change represents the shifttoward the forward-looking and opportunity-oriented natureof sustainability initiatives. It also highlights the integrationof sustainability with the business and specifically with theinnovation activities of the business.

The company has long operated with a matrix structure, inwhich a CSR staff member could be reporting to the CSR

department, a functional product group, such as football,and a geographic region. Because acceptance of new initia-tives both sustainability and economics-oriented isdependent on the quality of relationships throughout thecompany, embedding CSR staff within the business unitspromotes the ongoing relationships and frequent contactthat enhance integration of sustainability considerationswithin day-to-day operations.

In addition to decentralization of authority, the companyhas effectively decentralized control. Nike employees arevery autonomous in their practices. This ensures that nothingis ever accomplished through mandate any new initiative isaccepted only when its driving logic ensures that it is ben-

eficial to the firm. This requires a high level of communica-tion and interaction both horizontally and verticallythroughout the firm, which Nike accomplishes in part throughstrong personal relationships. In addition, employees are notwedded to the status quo. The company is fast moving andable to change rapidly, so when an initiative does pass acritical analysis, it can be implemented quickly.

MARKET STRENGTH

Nike is the worlds largest manufacturer of apparel andfootwear, recording over $19 billion in sales in fiscal year2009. Its two largest competitors, Adidas and Puma, reported

sales of $14 and $3 billion, respectively. Nikes size and thefact that it is the dominant company in the industry, provide

it with the power to implement sustainability standardsthroughout the organization and the thousands of manufac-turing companies that supply Nike.

On the push side, every major action taken by the com-pany is visible and is picked up by the media on some level.Actions or outcomes that cause damage to the environment

or have negative social impacts are under close scrutiny particularly because the companys massive scale ensuresthat small changes multiply to create substantial globalimpacts. Labor advocate Dana ORourke andcolleagues arguethat Nike has raised the bar for transparency, in partbecause of intense media attention following the exposureof unfair labor practices in Nikes Vietnam subcontractors:Nike has perhaps been on the hot seat with regard to laborstandards longer than any other multinational corporation,and its painstaking initiatives result in large measure fromthis pressure.

On the pull side, the company has enormous power in themarketplace. When it wants a supply chain partner to makechanges in the way a product is produced, transported, ormarketed, it can easily convince its partners to go along. Thecompany also has the power to influence regulatory regimes.In Vietnam, for example, Nike worked with labor ministryofficials to revise employment legislation to improve oppor-tunities for people with disabilities. The labor policies andpractices in its plants are often far more attuned to the needsand rights of workers than other plants in certain regions, andthe company is often consulted by regulators in determiningpolicy. Through its actions, it can raise standards for sustain-ability performance, putting competitors under constantpressure to catch up.

Nikes continuing profitability contributes to this advan-tage. Balancing the sometimes-competing demands of social

and financial performance can cause companies with slimmargins to forego pursuit of sustainable actions and initia-tives. Sustainability-related investments often carry higheruncertainty and a longer time horizon than traditional invest-ments. Adequate resources allow for a broader portfolio ofinitiatives and acceptance of higher levels of risk than wouldbe acceptable to financially challenged firms. Nikes comfor-table financial position sustained over many years providesthe foundation for taking a very long-term perspective onbusiness investments. While Nike is able to make investmentsthat may require decades to pay back, other companies withfewer resources or less commitment to sustainability arelikely to have expense or capital budgeting standards thatwould rule out opportunities Nike is able to pursue.

MARKET POSITIONING

Nikes products and target markets provide another keyelement in contributing to Nikes sustainability status. Manyof Nikes products are geared toward athletes who are likelyto spend time out-of-doors. Customers who use sport-relatedproducts may be more aware of issues relating to environ-mental degradation, such as air quality and waste disposal.And the customers these products are targeted to are likelyto be relatively young and affluent. These customers areoften more attuned to environmental and social issues, and

might therefore weigh these factors in their purchase deci-sions. In addition, Nikes sponsor athletes, like Michael Jor-

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dan, value CSR as part of their own brands and are verysupportive of these efforts in the companies whose productsthey sponsor.

Nikes competitive strategy also contributes to its abilityto pursue sustainability successfully. The company competesheavily on brand, and many of its products carry the Nike

brand or another brand name that is closely associated withthe company. Changes in brand image are closely related toand have an immediate effect on customer behavior. There-fore, Nike carefully protects its brand by avoiding environ-mental and social actions that could negatively impact thebrand. At the same time, to the extent that the companyultimately becomes known as a socially responsible company,the brand may be strengthened as a result.

Another core element of Nikes competitiveness is itsemphasis and effectiveness in product design and innovation.While resources like innovative patents per se confer greatadvantages upon a company, of more interest is the firmsability to consistently produce new patents. Nikes compe-titive strategy is grounded in continual innovation, and thecompany seeks to dominate every product category it enters.Nike designers are expected to make smart, sustainabledesign choices at the start of their creative process.Designers at the company consider achieving sustainabilityobjectives like new materials or waste targets as interestingdesign challenges similar to the challenges presented byperformance, quality, and other design parameters. Theyseek to continually develop something different and betterthan anything ever conceived before. Sustainability objec-tives can present designers with opportunities to pursue suchchallenges, and accomplish outcomes unrivaled by otherfirms. Nikes long-term vision is to design products that arefully closed loop: produced using the fewest possible materi-

als, designed for easy disassembly while allowing them to berecycled into new product or safely returned to nature at theend of their life. Marketing positioning, with its strong focuson innovation, and product development are among the mostimportant capabilities driving Nike customer loyalty.

CULTURE

Nikes culture represents the final contributor to Nikesleadership in sustainability. The company has a very strongcorporate identity, which seems to be shared by the majorityof the employees. The companys narrative orientation playsan important role here, and it shares a lot of the Nike story in

that orientation, which, in turn, contributes to the organiza-tional culture. Nike is a successful, intelligent, innovative,and fast-moving company, and it attracts and retains employ-ees who fit this kind of environment. The company is verycompetitive, too. It is filled with excellent, driven athletes,who compete with each other, and want to win at everything,including sustainability. The desire to be the best in everyrealm is far more compelling than any sterile profit or EPS(earnings per share) targets, or even the most well designedreward system.

Connecting the corporate image with strong sustainabilityperformance has internal branding benefits as well. Employ-ees of the company are likely to be young, athletic, andaffluent and take pride in their affiliation with a high-per-formance company. Because Nike is a U.S.-based company,certain CSR values are pursued without question. And with

headquarters in Portland, one of the greenest cities in theworld, there is a high-level of consciousness and acceptanceof a higher standard of social performance. The companysformally stated values contribute to this identity. Nike has11 maxims that are clear and well understood. Thesecorporate values are to be known to and shared broadly byemployees. Teamwork, discipline, leadership, tolerance,inclusion and diversity are among the most important.

But the employees arent just driven to win. For many,this passion can carry over and contribute to the environ-mental and social bottom lines of the company. Managersand employees take a personal interest and responsibility intheir contribution toward achievement of high-level sustain-ability performance. The high level of emotion imbued inNikes culture also plays a role. Although it is possible to getemotional about accomplishing traditional financial objec-tives, it is perhaps easier to attach emotion to social orenvironmental accomplishments such as helping the com-munity or fully closing the loop within some product cate-gories.

Nike has successfully developed these five sustainabil-ity-related strengths and supported them by buildingunique and difficult-to-imitate resources that representsolid foundations for a sustainable competitive advantage.Through this process, Nike has developed the capacity totranscend the pervasive problem of balancing financial andsocial performance. Nike has leveraged core competitive

strengths in pursuit of sustainability objectives, recogniz-ing both the intrinsic value of improving social impact andthe financial impact that will flow from CSR enhancementswhen stakeholders begin to believe, as Nike leaders do, in afuture economic regime governed by sustainability con-cerns.

ROLE OF THE FUNDING SOURCES

Funding for this project was provided by the Jack and LynnLoacker Sustainability Research Fellows program and Port-land State University, which supports research in the contextof Oregons sustainability-related industry clusters.

Additional funding was provided by the Foundation forApplied Research of the Institute of Management Accoun-tants, as part of a grant supporting research on how leadingcorporations balance financial and sustainability perfor-mance.

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SELECTED BIBLIOGRAPHY

For further reading on Nike, Inc.s sustainability perfor-mance, see Fung, Archon, Dara ORourke, and Chuck Sabel,Realizing Labor Standards, The Boston Review, NewDemocracy Forum (February, 2001); Nike, Inc., ChangingWorld: Urgent Challenges, Nike, Inc. Corporate Responsi-bility Report FY 0709; Debora L. Spar, and Jennifer Burns,Hitting the Wall: Nike and International Labor Practices,Harvard Business School (September 15, 2000); RebeccaHenderson, C. Reavis, R. Locke, and C. Lyddy, Nike Con-

sidered: Getting Traction on Sustainability, MIT Sloan Schoolof Management Case 08-077(January 21, 2009).

For further reading on informal systems and sustainability,see Marc J. Epstein, Adriana Rejc Buhovac, and Kristi Yuthas,Implementing Sustainability: The Role of Leadership andOrganizational Culture,Strategic Finance(2010, April, 4147); B. Schneider, A.P. Brief, and R.A. Guzzo, Creating aClimate and Culture for Sustainable Organizational Change,Organizational Dynamics(1996, Spring, 719).

Marc J. Epstein, Ph.D., is a Distinguished Research Professor of Management at the Jones Graduate School ofBusiness at Rice University. Prior to joining Rice, Epstein was a professor at Stanford Business School, HarvardBusiness School, and INSEAD (European Institute of Business Administration). He has written 20 books and over 100articles, including his most recent book Making Sustainability Work: Best Practices in Managing and MeasuringCorporate Social, Environmental, and Economic Impacts. Epstein has focused extensively on sustainability andcorporate social responsibility for most of his career. In both academic research and managerial practice, he isconsidered one of the global luminaries in the areas of corporate sustainability, governance, and accountability.You can reach him at [email protected](Tel.: +1 713 348 6140).

Adriana Rejc Buhovac, Ph.D.,is presentlyan assistant professor of managementin thefaculty of economicsat theUniversity of Ljubljana. As part of her academic career, she focuses on the design and implementation of strategicperformance measurement and evaluation systems, as well as on sustainability implementation. You can reach [email protected](Tel.: +386 1 5892 555).

Kristi Yuthas, Ph.D., is the Swigert Professor of Information Systems in the School of Business Administration atPortland State University, and has a primary interest in social sustainability. Her research focuses on howmanagement control and information systems can be used to improve organizational, social and ethical outcomes.You can reach her [email protected](Tel.: +1 503 725 3784).

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why nike kicks butt in sustainability

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