Success of Leading Organizations Such as Nike - Essay Example

Discuss why Nike and other organisations known to you have become leading organisations in their industries. You should include discussion of organisational control and influence over the external environment in your answer. Using two diagrams or models from your study of Environments module, illustrate your ability to use non-text methods to present information. 1.0 Introduction Today's business environment is increasingly becoming more turbulent, chaotic and challenging than ever before and to survive, it is vital that a firm can do something better than its competitors ( Kanter 1995). Globalisation has not only altered the nature and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Kanter 1995). Kanter (1995:71) on his work of "Mastering Change" argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. This is so because, success is based on an organisation's ability to create, rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71). Within the context of today's global competition, businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). These researchers further argue that, this strategy has become quite common in many businesses today. The conventional vertical integrated company based business model is gradually being replaced by collaborative relationship between many fragmented, but complementary and specialized value stars and constellation (Wu & Chien:1). An alternative approach towards organisational success, one which is becoming increasing prominent and has attracted the sustained attention of both domestic and international business scholars are core competences, capabilities and resources (e.g. Madhok 1998, Prahalad & Hamel1990, Hamel & Prahalad1994 ). In today's global business environment it is no longer sufficient simply to meet customers demand as time quality and cost have become increasingly important in the phase of increasing competition (Petts 1997:551). According to Higgins (1998:2), "customers don't always know what they need or even that there is a problem to be solved." Success awaits those companies that recognize the fact that, to be successful and satisfy customers, it is often necessary to lead customers into recognizing these needs (Higgins 1998:2-3). This is what Nike and a host of other leading brands have been doing. In the next section, using the five forces framework of Porter (1980), I will diagnose the Nike brand to see the company's control over suppliers, competitors, competitive rivalry etc. 1.2 Nike and Porters Five Forces Model According to Porter (1980), argues that understanding of the sources of competition in an industry was vital in developing an organisation product advantage. As shown in the five forces frame work, Porter further states that, five forces were vital in shaping the nature of competition in an industry, and at the same time dictate the company's advantage through the nature of the relationship with the market participants. In the industry in which Nike operates rivalry is not fierce though there are many niche players, with direct competition coming from Addidas. Nike through the five forces has a higher bargaining power when compared to its competitors, suppliers and customers, because of the brand equity. With a relatively high profit margin, in the sector to attract potential competitors or new entrants, the situation is however difficult for new entrants to enter the line of business, because huge capital, and capabilities to support after sales services are vital too. Through an understanding of the five forces, Nike and other successful organisation have redefined their operations with the various stake holders, such as buyers, suppliers and competitor. One will not hesitate to conclude that the success of most companies can be attributed to a greater extent to an understanding of the five forces, product differentiation, assorted brands and cost leadership. Pace setters in different industry through market analysis and by using both product differentiation and cost leadership strategy redefined the activities with respect to different industry. 1.4 NIKE and the SWOT Matrix. In this section, I have tried as much as possible answering the question in an unbiased manner by approaching the question from both an academic and professional point of view. I start by given a brief description of the SWOT, with its component qualities. These same qualities are replicated in the second part of the question in respect to Nike. According to wikipedia, SWOT Analysis, or sometimes known as the TOWS Matrix, is a strategic planning tool used to evaluate the S trengths, W eaknesses, O pportunities, and T hreats involved in a project or in a business venture or in any other situation of an organisation or individual requiring a decision (www.wikipedia.com). Market analysis of competitors, suppliers, customers and potential opportunities has long been a competitive preparation of the staple firm (Bauerschmidt & Blood good 2002). Through an analysis of the strength, weaknesses, opportunities and threats one can understand the sources underpinning success in the industry. This is so because, to re-launch existing/new products, enter new markets and strengthen market segments, firms often perform market analysis of their competitor's strength, opportunities, and weaknesses and threats (Bauerschmidt & Bloodgood 2002). Under the assumption in some major strategic theories firms know their industry and competitors fairly well. Firms engage in competitive analysis to gain a better understanding of their competitors' resources, capabilities, and strategies (Porter, 1980). Smith et al. (1992) detailed how firms in the airline industry initiate strategies and respond to competitors' strategies. Smith et al. portrayal of the dynamics of strategy illustrates the importance of understanding competitors. The perception of similarities and differences among competing firms can drastically affect the types of competitive behaviors in which a firm engages (Thomas et al., 1993). Nike as a firm with a high reputation is likely to witness a low perceived risk than a firm with a low reputation from the customers. A firm must therefore try to maintain a high reputation so that its products will not be perceived as high risk products by consumers if the firm must succeed. The higher the perceived risk, the lower will be the customer's purchase intentions and thus the competitiveness of the product Analyses of Swot Strengths Largest and strongest portfolios of trusted brands. Global presence, 80 countries, value attached to their employees,. New innovative product and services. Large investment on R&D with long and existing history on brand development. Effective and easy distribution chain. Distribution done through chain stores and other retail outlets. More than five billion customers worldwide Continuous improvement and development of new products i.e. Nike trainers Many of the its brands are millions sellers. One of the world largest consumer products company with continuous increase in record revenue. Market leader, in fashion and trainers market Low cost operators, product differentiation, broad market focus Opportunities. Developing market opportunities and emerging markets. The potentials associated with the internet are numerous. Creating a customer supplier interface will proof quite profitable. Developing countries markets still remain virgin. This market makesup80% of the world's population. Entering and strengthening holds into potential markets such as India and China. Opportunities for merger, acquisition, and joint ventures are bound. The world becoming a global village is an indication of weakening trade barriers. The creation of a common market for Europe and Africa. Threats More than 80 competitors and other niche players operating almost in the same markets and products segment. Addidas and others are all key players. The turn around market in Europe. Media Economic and political disruptions. The war in Iraq, the present situation in the Middle East, the situation in Iran, Kosovo, and the increasing threat of global warming. The certainty nature of government policies on taxes and trade barriers. Competitor's websites are more informative. Fluctuations and foreign exchange exposure. Changing consumer patterns. Weaknesses A major competitor like Addidas and Puma continue to lead in major markets The lack and absence of unique product with total differentiation from those of competitors. The lack of ownership of exclusive patents. Dropped and sold of many products that have not delivered reasonable profits. Some divisions have not been quite successful and profitable, e.g. France Some market are already matured Fierce competition coming from direct competitors e.g. Puma, Londale and Addidas If Nike and a host of other companies have succeeded today, it is because of their competences, competitive advantage, their low-cost strategies, product differentiation have turned the company into a high reputation low risk company. Porter in his competitive advantage framework states that, the more unique and distinct the product is the more attractive it will be to customers and thus the higher will be the competitive advantage of the firm in the industry. Perceived risk measures customers' expectations on how the product will meet their needs, that is, whether the product will perform above or below expectations. 2.1 Introduction Figure 2: LAYOUT OF THE PESTEL FRAMEWORK Johnson et al (2006) states that the PESTEL framework is a framework that can be used to categorise the factors that influence the business environment of an organisation into six main types including: Political Influences, Economic influences, Technological influences, Social Influences, Environmental influences, and Legal influences. Figure 1 below presents a layout of the PESTEL framework according to Johnson et al (2006). Looking at the PESTEL framework shown above one can observe that the organisation is affected by almost all or some of the environmental factors in the framework. Under political factors, an organisation is affected by both taxation and social welfare policies. Given the fact that consumer's income is dependent on government taxation policies, it is evident that take home income might either increase or reduce depending on the taxation policies adopted by the government at anyone time. In addition, government spending is greatly affected by its taxation policy. The political situation of the country, global politics, the fight on terror. Social welfare policies will likely affect an organisation's area of its business (Food and non-food items) in the US for example; increased social welfare to the public will mean a corresponding increase/decrease on the demand of those items required by the states from businesses. Under environmental factors I consider waste disposal, energy consumption and environmental protection laws in the country of operations. Under the legal factors I identify employment law, health and safety and product safety laws as having potential impacts on the organisation. This is so because, an organisation's product must be certified, and must abide at anyone time to all these laws. This should not be neglected at any onetime All the economic factors can be regarded to have an impact on an organisation. For example, high unemployment rate, high inflation rates, low GNP trends and slumps in the business cycle will imply low disposable income, more dependence by the citizens on credit facilities, borrowed funds and thus alternative sources of finance. The US dollars is currently falling at an increasing rate, this will mean an increase in the currency exposure of those currencies pegged to the US dollar. The PESTEL framework can only be used to look at the future impact of environmental factors and that this impact might be different from the past. Thus an understanding of how the factors in the above framework may drive change is only a starting point (Johnson et al., 2006).There is a need for an understanding of the key change drivers and this will be explained in section 4 below. In this section, using the PESTLE framework to analyse the business environments priority was placed on key change drivers with particular emphasis on Taxation, Demographics, and Environment, socio-cultural and technological developments. References Bauerschmidt A.,& Bloodgood M.J., (2002). Competitive Analysis: Do Managers Accurately Compare Their Firms to Competitors Journal of Managerial Issues, Vol. 14, 2002. Smith, KG., C.M. Grimm and M.J. Gannon. (1992). Dynamics of Competitive Strategy. Newbury Park, CA: Sage Publications. Thomas, J.B., S.M. Clark and D.A. Gioia. (1993). "Strategic Sensemaking and Organizational Performance: Linkages Among Scanning, Interpretation, Action, and Outcomes." Academy of Management Journal 36: 239-270. Porter, M.E. (1980). Competitive Strategy. New York, N.Y.: The Free Press. Prahalad, C. K. & Hamel, G. (1990). "The Core Competence of the Corporation." HarvardBusiness Review 67(3): 79-91. Hamel, G. and Prahalad, C. K. (1994). Competing for the Future. Boston, MA: Harvard Business School Press. Johnson, G. and Scholes, K., (2007). Exploring Corporate Strategy, Prentice-Hall, Europe Kanter, R. M. 1995. "Mastering Change." Pp. 71-83 in Learning Organizations: Developing Cultures for Tomorrow's Workplace, edited by Chawla and Renesch.Portland, OR: Productivity Press Wu, S. & Chien, F. C. (2006). Building Core competences through operational Excellence. International Journal of Production Economics special issue on ''Building Core-competence through Operational Excellence'' Park, S., & Russo, M. V. (1996). When competition eclipses cooperation: An event history analysis of joint venture failure. Management Science, 42(6): 875-890. Porter, M.E. (1985). Competitive advantage: Creating and sustaining superior performance. New York, NY: Free Press. Read More