Finance Research Paper on Nike

Nike

Introduction

Nike is one of the biggest cloth and footwear companies globally. The company used advertising slogans to maintain its relevance in the industry. Its athletic footwear and clothing have become dominant among the American clothing. After a long time in the industry, the company made a dangerous move and decided to venture into casual shoes. This exposed the company to a number of challenges that forced the company into a period of self-examination. The company then changed focus from the design and manufacture of its products such as clothing and footwear to concentrate on the interests of its consumers (Lussie, David and Robert 92). In this respect, this paper will focus on the Nike Company. To begin with, the paper will provide a detailed analysis of how the Nike organization adds value. Secondly, the paper will discuss the four key success factors including cost, quality, innovation, and time and whether the Nike Company shows evidence of success for these factors. Furthermore, this assignment will identify examples of each type of cost for the Nike Company. The types of cost that will be identified are the direct cost and indirect costs, and variable cost and fixed cost and product and period cost for the Nike Company.  In addition, how the Nike Company deals with the four perspectives of the balanced scorecard will form an essential part of this paper. The final part of the assignment will talk about the Nike Company with Total quality management (TQM) with detailed analysis.

How the Nike Company adds value

The Nike Company has consistently added value to its structure and organization through managerial innovation. Managerial innovation is often required to adapt the important characteristics of successful approaches in ways that best fit a company’s own situation. The Nike Company has thus benchmarked from other organizations hence exposing its managers to new ways of doing things in order to spark creativity and addition of value to the company and not creating efficient copycats. In fact, it is safe to say that the greater the differences or disparity between the focal firm in this case the Nike Company and the firm being benchmarked, then the greater the need for learning and innovation and addition of value on the part of the benchmarking firm.

It is also important to emphasize that the Nike Company adds value by exposing its managers to new ways of doing things through stimulating new beliefs and understanding about its own management. The managers then develop new mental models that guide decision making and the formulation and implementation of strategies hence adding value to the company.

The other way that the managers of the Nike Company have employed to add value to their company is by rethinking their own company’s value chain. This reflects that such a process involves a change in manager’s mental models about the ways various value-adding activities contribute value to the company. Very much related to benchmarking, rethinking the value chain of the company involves careful analysis of each of the various links in the company’s value chains. The analysis include reconsidering which of the various links of the company add or could potentially add value and which of the links are unlikely to contribute to the development of competitive advantage of the company. In this regard, the Nike Company’s managers realized that with the widespread availability of low-cost shoe and apparel-manufacturing facilities in the Far East, the company did not need to have it own production facilities and that manufacturing actually contributed very little to the addition of value of the company’s shoe and apparel products.

Furthermore, the Nike Company’s managers realized that the best way to add value was to develop and exploit new-product development, marketing and promotion capabilities that would allow Nike to differentiate its products from those of its rivals.  This has made Nike a more of a marketing and product development company than any other athletic shoe and apparel company (Weil and Michael 233).

The Four Key Success Factors

To compete in today’s competitive environment companies have had to become more customer-driven and make their customer satisfaction an overriding priority. Customers are demanding ever-improving levels of service in cost, quality, reliability, delivery, and the choice of innovative new products. In order to provide customer satisfaction organizations must concentrate on the key success factors that directly affect them. These factors are cost efficiency, quality, time, and innovation. In addition to concentrating on these factors, organizations are adopting new management approaches in their quest to achieve customer satisfaction. Since customers will buy the product with the lowest price, all other things being equal, keeping costs low and being cost efficient provides an organization with a strong competitive advantage (Friesen and James 65). Increased competition has also made decision errors due to poor cost information more probable and more costly. If the cost system results in distorted product costs being reported, then over cost will lead to higher bid prices and business lost to those competitors who are able to quote lower prices purely because their cost systems produce more accurate cost information.

Alternatively, there is a danger that under cost products will result in the acceptance of unprofitable business. These developments have made many companies, the Nike Company included aware of the need to improve their cost systems so that they can produce more accurate cost information to determine the cost of their products, pinpoint loss-making activities, and analyze profits by products, sales outlets, customers, and markets. In addition to demanding low cost products, customers are demanding high quality products and services. Most companies are responding to this by focusing on total quality management. The goal of TQM is customer satisfaction. Most European and American companies had always considered an additional cost of manufacturing, but by the end of the 1980s, they began to realize that quality saved money. The philosophy had been to emphasize production volume over quality; but this resulted in high levels of stocks at each production stage in order to protect against shortages caused by inferior quality at previous stages and excessive expenditure on inspection, rework, scrap, and warranty repairs.

Companies discovered that it was cheaper to produce the items correctly the first time rather than to waste resources making substandard items that had to be detected, reworked, scrapped, or returned by customers. In other words, the emphasis in TQM is to design and build quality in rather than trying to inspect and repair it after the event. The emphasis on TQM has created fresh demands on the management accounting function to expand its role by becoming involved in measuring and evaluating the quality of products and services and the activities that produce them. The Nike Company has showed evidences of effective cost and quality of its goods and services. This has been the sole reason behind the company’s success in the world making it one of the longest lasting and successful companies worldwide (Drury 13).

Organizations are also seeking to increase customer satisfaction by providing a speedier  response to customer requests, ensuring hundred percent on-time delivery and reducing the time taken to develop and bring new products to market. For these reasons, management accounting systems now place more emphasis on time-based measures, which have become an important competitive variable. Cycle time is one measure that management accounting systems have begun to focus on. It is the length of time from start to completion of a product or service. It consists of the sum of processing time, move time, wait time, and inspection time. Move time is the amount of time it takes to transfer the product during the production process from one location to another. Wait time is the amount of time that the product sits around waiting for processing, moving, inspecting, reworking, or the amount of time it spends in finished goods stock waiting to be sold and dispatched. Inspection time is the amount of time that helps ensure that the product is defect free or the amount of time actually spent reworking the product to remedy identified defects in quality. Only processing time adds value to the product, and the remaining activities are non-value added activities in the sense that they can be reduced or eliminated without altering the product’s service potential to the customer. Organizations are therefore focusing on minimizing cycle time by reducing the time spent on such activities. The management accounting system has an important role to play in this process by identifying, reporting on the time devoted to value added, and non-value added activities. The Nike Company has showed evidence of on time delivery of services and goods on the way it responds to the demand by customers. This has helped the company keep in touch and maintain its large customer base (Drury 14).

               The other key factor that is vital for organizations such as the Nike Company to succeed is innovation. To be successful companies and organizations must develop a steady stream of innovative new products and services and have the capability to adapt to changing customer requirements. It should be noted that being later to the market than competitors can have a dramatic effect on product profitability. Companies have therefore begun to incorporate performance measures that focus on flexibility and innovation into their management accounting systems. Flexibility relates to the responsiveness in meeting customer requirements. Flexibility measures include the total launch time for new products, the length of development cycles and the ability to change the production mix quickly. Innovation measures include an assessment of the key characteristics of new products relative to those of competitors, feedback on customer satisfaction with the new features and characteristics of newly introduced products, and the number of new products launched and their launch time. The Nike Company shows evidence of innovation because of the new products it produces regularly and this has helped it to maintain its large customer base (Drury 15).

Costs for the Nike Company

Direct and Indirect Costs

Direct cost is reserved for those costs that can easily that is, physically and conveniently, be traced to individual units of product. Direct cost is sometimes called touch cost, since they can directly be seen when using funds. Direct cost of the Nike Company include payment of assembly-line workers, for example, would be direct labor costs, as would the payment of labor costs of machine operators. Direct costs that cannot be physically traced to the creation of products, or that can be traced only at great cost and inconvenience, are termed indirect costs and treated as part of manufacturing overhead, along with indirect materials. Indirect cost in the Nike Company includes the payment of labor of caretakers, supervisors, materials handlers, and night security guards. Although the efforts of these workers are essential to production in the company, it would be either impractical or impossible accurately to trace their costs to specific units of product. Hence, such costs are treated as indirect costs in the company (Bhat 340).

Product Cost

For the purposes of accounting, product cost is the cost that plays an integral part in the acquisition and manufacture of a product. Product cost may include cost used in purchase of direct materials and direct labor. Product costs help goods remain attached as they are put in a stock while waiting sale. In the Nike Company, when the goods are sold, the costs are released from stock as expenses and matched against sales revenue. Product cost may be incurred during a period in a company but may not be considered as an expense during that period (Bhat 341).

Period Cost

These costs are considered on the profit and loss account in the period in which they are incurred in an organization. In the Nike Company, period costs do not form part of the costs of purchasing or manufacturing goods. For instance, for the company, sales commissions and office rent are examples of period costs (Bhat 341).

In the production of various commodities, Nike Company has often considered extensive analysis in the various aspects of the market in order to result into production of commodities that are desired by the market and those that effectively achieves satisfaction of the customers. Learning has therefore played an integral part in the development plans and in the general growth of the Company. Initially, before initiating various production and design activities, the company has often considered undertaking gap analysis of the market. Owing to the global market, different demands are in most cases portrayed by various markets.

In the gap analysis, the firm targets to determine the satisfaction gap that is manifested in the market in order to adopt products that fulfils these market needs. In doing this, the company has involved individuals from various markets with a view of determining the specific demands from the markets. In addition, learning has also been integrated in the firm with the aspect of improving the levels of expertise of the employees of the firm. (Brackman, Levi and Sam 211) Quality production is one of the vital concerns of the organization. In order to realize this object, employee-training programs have greatly played an integral part. Learning of various process of the firm by the employees of the organization has also resulted to the overall effectiveness in the performance of the organization. The training programs have in most cases been tailored to meet the demands of various departments of the firm. This is to eliminate cases of negligence that can compromise the operations of the organization. Learning therefore has from time to time been central in the success of the company in the achievement of the desired objectives. Consequently, in the determination of the progress of the firm and the levels of success achieved, growth of the company has always been considered. The company has achieved growth over the years by expanding its operations to various markets and increasing the technological know – how employed. This has been boosted by the globalization that has been witnessed in various industries and in various countries. As a result, the company has effectively achieved coverage in new markets through extensive promotional activities.

Internal Business

The internal business of operation has always remained very instrumental in the success of the organization. This has therefore seen the company constantly improve its internal environment in order to meet the required standards for the achievement of the desired goals of the company. Initially, technological advancement has been constantly improved to meet the demands of the industry besides ensuring better working environment for employees. Advanced technologies has allowed for favorable environment for the workers. These technologies has resulted into efficiency in operation and reducing the much labor in the operations (Skrabec 95)  Besides, the management of the company has often eliminated those machineries that results into the reduction in the morale of the employees. Appropriate adoption of technologies in the internal business organization has therefore resulted into motivation of employees, hence high production levels achieved (Kennedy and Dan 201).

Customers of the organization have experienced great benefits in the adoption of the new technologies. The quality of the have often met the demands of the esteem customers resulting into achievement of satisfaction. Proper working conditions of the employees have also been among the considerations of the firm. Constant improvement of the working environment to fit the changing needs of the employees has resulted into motivation in the firm. Proper remuneration strategies are one of the measures that the organization adopts to create a conducive environment to the employees. This offers employees a sense of security to the employees as their financial needs greatly taken into consideration by the firm. Similarly, through job promotions, the internal environment of the organization has been made conducive for employees besides ensuring their job security (Brackman, Levi and Sam 87).

Concerning the customers, Nike Company has often strived to ensure the satisfaction of the customers. This has been done through various ways. Initially, involvement of customers in the operations of the firm has helped in producing the commodities that are desired by the customers. Yearly, the company carriers out market research that aims at achieving the customers’ view on various aspects of the firm’s operations. As a result of this analysis, the firm has constantly design the products to meet the demands of the customers. Through innovative activities and unique branding this has been achieved. Moreover, segmentation activities by the firm have been instrumental in attaining the specific needs of the market. This refers to dividing the market in various sections of the market according to their unique tastes and preferences. In the production shoe wares, the firm has often considered various social backgrounds of persons and the climatic regions of various markets (Skrabec and Quentin 43). The firm in the production of various commodities has considered a number of aspects. This has achieved in meeting the varied demands of various cultures and regions. Promotional activities by the firm have been designed to appeal to various class of the target market. When promoting commodities used by the youthful era, the organization has in the past adopted the use of various internet platforms that is more appealing to the middle class.

Nike Company has also designed the production activities to be cost effective in order to reduce the overall prices of the final products. Owing to globalization of the industry, the firm has indulged in outsourcing of various factors of production to limit the expenditures in the production process. In the production of rubber materials, the company has considered production in countries where the material is cheaply acquired. This has resulted into reduction in the general prices of the commodities (Greenhalgh, Leonard and James 309). This has greatly relieved the consumers from the great financial burden caused by high product prices. Pricing strategies adopted by the organization has been made to meet the financial status of the market. When supplying markets consisting persons from the low social class, penetration pricing has been effective that besides increasing the overall sales has resulted into improved public image of the organization. On the other hand, when dealing with commodities of ostentation, the firm has often adopted price skimming. This price strategy has resulted into often been viewed as an improvement in the overall quality of the products hence has been effective in most markets when necessary.

After sales services by the company has efficiently achieved in retaining customers to the organization besides causing new customers to switch to the usage of the firm’s products. Through offers like free transportation costs, the firm effectively achieved the customers’ loyalty to the products. In addition to this, discount allowances have in most instances reduced the expenditures by the customers. However, these services are undertaken by the firm skilful to eliminate cases of realization of losses (Gagliardi and Gary 90). For example, in order to offer the discount services, the firm initially reduces certain costs of operation. This can be done by reducing the costs incurred in the delivery programs or in the promotional activities. This will therefore easily allow the firm to carry out the discount programs without experiencing losses.

In the quality management of the organization, Nike Company has ensured that innovation is integrated in the development of the products. Technological advancement has been also key in ensuring improved qualities of the products of the company. In the event that a technology is outdated in the market, the firm has usually considered adoption of those machineries that ensures improvement in the overall quality. Setting of standards of operation has also ensured the achievement of the desired qualities in the realized products. These standards both relates to the levels of productions and the employees ’performance (Kennedy and Dan 309). Through employees’ performance appraisal, the desired levels of productions among workers have been efficiently achieved. I the event that certain operations of the employees are below the required standards, training programs has always been done. Actions adopted by the competing firms have been considered in the operations of the firm. This is to ensure that the levels of operations and adoptions ensured are either in line with those adopted by competing firms is above. After the delivery of the commodities, the company has designed a program that ensures the attainment of the levels of satisfaction of the customers. This has allowed the firm to constantly improve on the qualities of the commodities offered.

Works Cited

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Brackman, Levi, and Sam Jaffe. Jewish Wisdom for Business Success: Lessons from the Torah and Other Ancient Texts. New York: American Management Association, 2008. Internet resource.

Drury, Colin. Management Accounting for Business. London: Thomson Learning, 2005, p 10-20. Print.

Friesen, Michael E, and James A. Johnson. The Success Paradigm: Creating Organizational Effectiveness through Quality and Strategy. Westport, Conn: Quorum Books, 1995, p 65. Print.

Gagliardi, Gary. 9 Formulas for Competitive Business Success: The Science of Strategy. Seattle, WA: Clearbridge Pub, 2006. Print.

Greenhalgh, Leonard, and James Lowry. Minority Business Success: Refocusing on the American Dream. Palo Alto: Stanford University Press, 2011. Internet resource.

Kennedy, Dan S. No B.s. Business Success: The Ultimate No Holds Barred Kick Butt, Take No Prisoners Tough & Spirited Guide. Irvine, Calif.: Entrepreneur Press, 2004. Print.

Lussier, Robert N, David C. Kimball, and Robert N. Lussier. Applied Sport Management Skills. Champaign, IL: Human Kinetics, 2009, p 92. Print.

Skrabec, Quentin R. St. Benedict’s Rule for Business Success. West Lafayette, Ind: Purdue University Press, 2003. Print.

Weil, Roman L, and Michael Maher. Handbook of Cost Management. Hoboken, N.J: Wiley, 2005, p 233. Internet resource.