Nike’s CEO John Donahoe is formally stepping down today with the reigns now being passed to Elliott Hill. Hill’s challenge? To bring some of Phil Knight’s long-lost magic back to Nike.
Hill got his start at Nike as an apparel sales representative intern back in 1988 and worked in the company up until four years ago when he retired. Hill saw firsthand the magic that Knight created. And because Hill is a lifelong Nike insider, he is likely well-versed in what went wrong under Donahoe’s leadership.
Donahoe’s downfall has been widely publicized, with criticism coming from multiple media outlets including Fortune and the New York Times. Among the chief causes of said criticism is the fact that Donahoe, coming from a finance background, led Nike down a path that prioritized cost-cutting over innovation and disregarded long-term partnerships that created a competitive advantage for Nike.
The result?
Earlier this year, Nike’s stock value took a massive hit, losing $28 billion in value in a single trading day. Here’s what went wrong — and how the company can bounce back.
The Foundation For Winning The Sneaker Game
The Portland, Oregon-based company forged its early successes through deep, collaborative, game-changing relationships. For example, its decades-long partnership with basketball icon Michael Jordan transformed and elevated sneakers from functionality to fashion.
Simply put, Nike and its ubiquitous swoosh became cool.
The brand remained “cool” by staying at the forefront of the sneaker game — branding with top sports leagues and teams, working with premiere athletes, investing in research and development, releasing stunning ads and making sure Nike products were easy to find through retailers.
But while long-term marketing partnerships helped create demand, Nike simultaneously turned to long-term supplier partnerships to deliver a competitive advantage in its supply chain. Knight’s early strategy of forging strategic supplier relationships helped Nike stay ahead of the competition by bringing innovation to its manufacturing and supply chain.
A Change In Focus
When Donahoe, an industry outsider, joined Nike he changed the game. Donahoe focused heavily on short-term financials at the expense of long-term relationships and innovation. This included trimming Nike’s research-and-development budget and laying off marketers, which boosted Nike’s financials — for a little while, anyway.
The company also shifted products from retailers to Nike’s own stores, making it harder to meet customers where they shop and reducing the buzz and windfall surrounding shoe releases.
“The move diminished Nike’s ‘Futures Orders’ program, which allows retailers to preorder products months in advance, giving the company a cash infusion even before products go on sale,” Mark Wilson wrote in a feature article about Nike’s struggles for Fast Company. “The loss of these small-store relationships had an unfortunate side effect: Nike severed a crucial feedback loop from the businesses closest to its customers.”
Treating Partners As Vendors
Donahue’s short-term focus also strained many of Nike’s strategic supplier relationships. When companies like Nike move away from strategic partnerships with suppliers and instead treat them as mere vendors focused on price, they often miss out on innovation, better service and ultimately, profits.
Strong strategic partnerships can better position an organization to deliver the experiences and services that customers seek. Leaders who recognize the role external business partners play and who view strategic business relationships as partnerships are better positioned to drive true collaboration and create lasting value for both parties.
Losing Sight Of Win-Win
Nike stumbled, in large part, because it lost sight of the power of win-win partnerships where both companies and suppliers can thrive together. The more Donahue focused on short-term, I-win-you-lose strategies, the more Nike’s market value declined. The company’s stock was down 24% this year before Donahoe announced his retirement.
As an academic researcher who studies strategic partnerships, I found it disheartening to see Nike’s downward spiral. For Nike to bounce back and reclaim its past success, the company needs to return to what has historically worked well: Seeing suppliers as strategic partners and rebuilding the trust that has been lost with retailers — ultimately, Nike’s customers.
Rediscovering The ‘Power Of And’
Knight’s hallmark in working with strategic partnerships is what University of Tennessee researchers refer to as the “Power of And.” The Power of And occurs when business partners collaborate to create mutual value far better than they can do alone.
Knight wrote about his approach to strategic partnerships in his memoir “Shoe Dog.” Through the Power of And, both Knight and his strategic partners created shared value. For example, despite the fact that Nike was constantly strapped for cash, Knight was passionate that short-term transactional thinking was inferior to long-term strategic collaborations, believing that sound, long-term strategic relationships could unlock opportunities to create value.
This included strategic collaborations with top athletes, as well as critical suppliers that would make investments to help Nike bring new innovative products to market faster than its competition.
At the end of the book, Knight reflects on the phrase, “It’s just business.” He shares an insight that my research at the University of Tennessee has proven to be true the world over: “I thought of that phrase, ‘It’s just business.’ It’s never just business. It never will be. If it ever becomes just business, that will mean that business is very bad.”
He continues, “You measure yourself by the people who measure themselves by you.”
The Bottom Line
The bottom line?
Short-term cost-cutting to boost profits may yield immediate results, but it’s not the way to sustain and grow a company’s long-term value. I’m hopeful Hill will bring some of Knight’s magic back to Nike, as he would have witness firsthand the brilliance Knight created with a long-term focus built on strategic partnerships.