Nike Inc. & Phil Knight essay
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Management is a form of art where every manager has his or her own unique style. Some individuals prefer vertical hierarchies while others prefer horizontal stratification. Certain managers approach situations directly and positively while others are adamant and harsh. Clearly, management varies in style and form. For instance, consider Phil Knight of Nike Inc. Phil Knight is the co-founder and current chairman of the board of Nike (Forbes, 2010). The company is the leading provider of sports shoes in the world and reached $19 billion in sales last year (Forbes, 2010). In September of 2010, Forbes reported Phil Knight's net worth at $11.1 billion (Forbes, 2010). A review of Phil Knight's management style, his team's strengths and weaknesses, his company's path to success, and a discussion of his overall effectiveness is presented for review.
Typical or Atypical
Phil Knight does not employ a vertical or horizontal hierarchy but instead a matrix hierarchy (Roth, 2005). This matrix design has several unique characteristics. First, management is fluid. Managers and subordinates can switch indiscriminately (Roth, 2005). Second, every subordinate answers to multiple managers, usually from different departments (Roth, 2005). For instance, a marketing team member might report to not only the marketing department head but also the head of a completely different department (Roth, 2005). Third, responsibilities are allocated as a function of the matrix. Every employee at Nike has a unique position in the matrix and a consequent unique set of responsibilities (Roth, 2005). In my opinion, this matrix style of management has advantages and drawbacks. On a positive note, the switching of positions and roles within the company can enhance one's understanding of overall operations and also re-energize focus and drive. On a negative note, the matrix of management has the potential to cause confusion, conflicting feedback, and high stress.
Phil Knight gives corporate freedom a new definition. As discussed later, Phil Knight's introverted personality does not lend itself to diligent oversight. Executives and employees throughout the matrix hierarchy are allowed to make decisions and pursue business ventures with little direction (Roth, 2005). For example, Daniel Roth reports:
One competitor likens Nike's internal structure to the Winchester Mystery House, the Victorian mansion in San Jose loaded with staircases to nowhere, false passageways, and doors that open on walls.
Even Phil Knight himself reports that his executive team and employees have learned to interpret his idiosyncrasies to the point that nobody recognizes that they are actually idiosyncrasies (Roth, 2005). In my opinion, this level of corporate freedom and idiosyncratic customization is problematic. First, the lack of directional oversight allows employees and managers to run in different directions. If Nike were a sports team, its players would head in different directions at every play. Without at least directional oversight, it is not possible for Nike to maintain coordination, thereby also decreasing efficiency. Second, the company's adaptation to idiosyncratic methodology means that it has grown in a non-traditional direction. In my opinion, this is a problem because the level of management uniqueness might be so extreme that nobody can effectively fill Knight's shoes in the future.
In my opinion, Knight's matrix style of management and excessive freedom are not characteristic of typical management. Knight's atypical form of management has trickled down and shaped the strengths and weaknesses of his executive team.
Strengths and Weaknesses of Nike's Executive Team
Nike's management team is good at maintaining the status quo. Phil Knight recognized the hidden demand for running shoes within the US market (Roth, 2005). He played off of that demand and made increasingly higher profits as the market for running shoes developed. However, the market has not changed in any significant way; the primary income generator for Nike is still shoe sales (Roth, 2005). For the most part, the executive team has showed strength in maintaining and shaping the demand of shoes in the US market with the only weakness being a susceptibility to big changes in the market.
The executive management team is self-sustaining. Phil Knight purposefully hires individuals who are talented and independent (Roth, 2005). His lack of organizational direction and corporate freedom act, in effect, as a virtual autopilot (Roth, 2005). During Knight's tenure at Nike, he has periodically left the company and operations carried forward reliably until the market changed.
The company's history shows a deficiency in its ability to predict and recognize changes in the market. First, consider the shift in sports culture during the 1980's. During this time period, the popularity of running declined in exchange for the increasing popularity of aerobics (Roth, 2005). Nike did not predict this change and the firm's profits declined by over 6% in two years (Roth, 2005). In my opinion, there are predictors that hint at upcoming shifts in industry trends. Nike should have been able to identify these predictors and adjust accordingly. Second, in 1994, Nike faced diminishing profits because of the decline in Asian financial markets (Roth, 2005). In my opinion, the problems in the Asian market did not occur overnight. The management team should have had contingency plans in place.
Interestingly, during both of these above bumps in Nike's history, Knight was not playing an active role in the company. Nike's executive team was on autopilot while Knight was pursuing other external interests (Roth, 2005). Whether the lack of executive foresight is tied to the matrix style of management or Knight's absence is not entirely clear; most likely, both of these factors played a role. Third, also in the 1980's after Knight returned to Nike, the company ignored the growing segment of shoe and clothing products for women (Krentzman, n.d.). Knight was so stubborn on this issue that Reebok briefly overtook Nike in 1987 as the overall industry leader (Krentzman, n.d.). In my opinion, this is again a deficiency in foresight on the part of management and also Knight, who was present for this last debacle (Krentzman, n.d.).
Nike's executive team has been unsuccessful in preventing or mitigating negative social feedback (Roth, 2005). Nike relies on foreign labor for manufacturing its various products. In many of these foreign production facilities, commonly known as sweat shops, laborers face very poor pay, poor working conditions, and unfair employment practices. The recognition of foreign labor atrocities in the US social sphere over the past two decades has placed Nike squarely in the spotlight. In my opinion, Nike should have seen this coming for a long time. Rather than require their manufacturers to maintain certain standards in an effort to prevent negative social pressure, the executive team simply ignored the situation.
When the powder keg exploded, the firm was forced to deal with the situation directly. What did they do? Their first reaction was to lie (Hess & Dunfee, 2007). They denied the practices and even issued corporate social statements that were arguably false (Hess & Dunfee, 2007). Organizations such as the AFL-CIO, American Civil Liberties Union, Sierra Club, etc., were all involved in the social battle (Hess & Dunfee, 2007). After non-stop pressure, Nike finally addressed the issue directly. Knight agreed that Nike's practices were a tragedy but ultimately stated that there were no other viable production options and that production would continue with minimal change (Jones, 2008).
In my opinion, Phil Knight has surrounded himself with a highly competent executive team but his selection process has resulted in some key deficiencies. The executive team is unable to exercise adequate foresight and the team failed entirely when it came to preventing or mitigating the social issues associated with Nike's business practices.
Knight's Role in Nike's Success
Phil Knight entered the US shoe market at the right time and he's ridden the wave very well. As previously mentioned, Nike's profits arise primarily out of shoe and clothing sales (Roth, 2005). Knight was able to recognize hidden demand and provide a necessary service. In turn, Nike has grown with the industry over the past four decades (Roth, 2005). In my opinion, the reason for Knight's success is not a direct consequence of spectacular business skills or strategy. His success arises out of being at the right place at the right time. The key to success is providing a necessary service; Phil Knight was merely innovative enough to find a way to "just do it" with a large profit margin.
In terms of increasing demand and shaping the industry, Knight has employed one tool that has increased and maintained demand for athletic shoes: marketing (Krentzman, n.d.). Knight's experience with running and athletics at the University of Oregon gave him first hand experience in the workings of the athletic industry (Krentzman, n.d.). Knight regularly signs contracts with high profile sports players to increase the status of Nike's brand (Krentzman, n.d.). In effect, this improves Nike's competitive advantage in two ways. First, it increases Nike's brand recognition via advertising during sporting events. For instance, consider Tiger Woods.
Phil Knight personally signed Tiger Woods for $40 million and his first advertisement was, "Hello, World" (Krentzman, n.d.). Knight branded Tiger Woods from the start and Nike has enjoyed winning alongside Tiger Woods throughout his career. Second, it improves the public's access to well known athletes indirectly via Nike products. For instance, consider Nike's "Air Jordan" shoes (Krentzman, n.d.). During Michael Jordan's heyday, every young basketball player wanted a piece of him and the Air Jordan shoes were one way to get it. In my opinion, branding athletes is not a new technique or a profound idea. Branding sports players has been a component of athletics long before Nike. Knight succeeded here more than other firms because of his personal experience with sports.
Indirectly, Knight's branding efforts have tied Nike to popular culture. First, Athletes play a vital role in the setting of popular trends. Branding these key athletes brings Nike into the mix (Krentzman, n.d.). Second, Nike's popularity allows it to get away with a lot. For instance, Nike donated $25,000 to Tonya Harding's defense against Nancy Kerrigan, who was signed by Reebok (Krentzman, n.d.). This type of behavior was not only counter-culture but also attention grabbing (Krentzman, n.d.). In my opinion, tying the company to popular culture was an accidental stroke of genius. Nike is arguably the longest standing pop culture superstar and the spotlight has helped to maintain the demand for Nike products.
Effectiveness of Phil Knight
Based on all of the information presented above, it is clear that Phil Knight's primary role at Nike is that of an orchestrator. First, Knight has played a role in periodically guiding the company throughout the years. However, the lack of a top-down organization makes it difficult to attribute Nike's successes directly to Knight. It sincerely seems as though Knight was at the right place at the right time and that he has ridden the industry over the last four decades. Second, Knight's interpreted and self-stated strategic plan is to hire competent people around him and give them the freedom to do what they think is right. Hiring competent individuals is a good practice, but the degree of freedom that Knight allows is above normal limits. It seems as though his job title would better be served as human resources manager rather than President or Chairman of the Board.
Second, Knight's personality issues make it extremely difficult to function in a positive manner within the company. Phil Knight has a demonstrated history of being difficult to approach, being difficult to access, not making decisions, not responding to questions, and being inconsistent. In my opinion, these personality traits are not ideal for the President or Chairman of the Board of any company. On the same token, however, these personality traits are not a problem if Knight does not play a fundamental role in the company, which all of the available evidence indicates is the case. Knight is effective in the sense that he is aware of his limitations and is able to compensate accordingly.
Third, history indicates that Nike's success is tied directly to Knight's presence in some capacity. This is very interesting. Knight is all about orchestrating and his personality is not ideal but every time he leaves, the company flounders. After reviewing all of the evidence, it seems as though the issue is operational management of the company. Although Knight's matrix model and freedom is innovative and unique, only he has the personality to manage it. As previously discussed, the entire company is built around Knight's management style. Nike Inc. is a custom fit shoe for Phil Knight, and it certainly seems that the shoe is a tight fit for others.
There are two ways to determine whether Phil Knight is an effective leader. First, has the company achieved an acceptable level of success during Knight's tenure? In my opinion, yes. The company has grown tremendously over the past four decades regardless of the reason. Phil Knight might have ridden the wave, but fact of the matter is that financially the company has thrived under his leadership. Second, is the company well poised for long-term success? In my opinion, maybe. It is clear that the operational management, coordination, and foresight in the executive team is lacking. It is also clear that the entire management structure is built around Phil Knight. This is problematic because the management style might work for Phil Knight but not necessarily for other CEOs of equally successful organizations.
Overall, yes, Phil Knight is an effective leader, orchestrator, and visionary, but he could benefit from better personality, foresight, and business management skills.
Nike Inc. is a very successful company with a very eccentric leader. Despite the company's lack of a traditional hierarchy and excessive corporate freedom, Nike has seen tremendous growth under Phil Knight's leadership. Knight has developed a management team with excellent autopilot ability, but the leadership team and sometimes Knight himself have lacked the foresight necessary to prevent or mitigate challenges from competitors and social factors. Knight entered the market at the right time and rode the wave of industry expansion, but along the way he pushed the company in the right directions. His adamant pursuit of signing high profile athletes has indirectly kept Nike in the spotlight as an industry superstar for the last two decades. It is clear that Knight is an effective leader that is cognizant of his deficiencies, but there are some areas where he needs improvement.