Case Study: Nike Inc.

Critical individual essay

Case study: Nike Inc.

Introduction

  A trend of outsourcing to minimizing the cost and maximising the profit becomes the general business model in modern corporations. The organisation aims to expand internally their production and manufacturing to the low labour wage level and competitive production costs, especially Chian and South East Asian. Even though the direct benefit of outsourcing to lower cost product sites, the hidden issues are related to the complexity of networking, long distance management, business goals alignment, compatibility, and sustainability. The organisational theory can be applied to estimate the risk though the shareholder behaviours that can assist in decision-making for business cooperation (Christensen & Raynor 2003). This study uses the Nike Inc. as the case study of using agency theory and stewardship theory to assess the current issues and its possible recommendations. These two theories have a strong correlation but they address in different domains. To assess the issue caused by the complexity of business network of Nike, these theories will help Nike to establish the risk management to moral hazard on their business.

Company background and current situation of Nike Inc.

  Nike Inc. was established in 1962 by Bill Bowerman and Phil Knight, and today becomes one of the most recognizable companies in the world. Nike offers all the athletic shoes, sport apparel, and accessories. In addition, Nike is the largest seller of athletic footwear and apparel in the world positioned with more than 50 percent of market-share. In 2015, Nike has 62,600 employees worldwide and more than 790 contracted manufactures over 40 countries to sever their entire supply chain.

Nike is considered one of the outstanding sustainability initiatives since they had been public captured and criticised the issue of fair and equality labour wage across their shareholders in 1998 (Porteous & Rammohan 2013). Nike improved their sustainability model and concerned the public voice and issues on environment, social, and employees. They have been working with both government and non-governmental organisation to improve that situation. With 15 years of their journey, Nike has success improved and gained their sustainability and innovation.

  The main issues of Nike during end of 2000 was the lack of transparency from the top management, their employees throughout the contracted manufactures outside US. Nike integrated their corporate responsively teams to get involve in management decision-making with high consideration of sustainability in every stage of Nike supply chain. Nike also set their internal key performance indicators (KPIs) or sustainability indexes to assist the decision-making on raw material selection, partners or contracted manufactures, country of partners, footwear, and apparel (Connolly 2015). With the internal KPIs, Nike is able to control their shareholders though this sustainability initiative. Moreover, Nike have been developed their new products based on a disruptive innovation model to build the new market disrupt on existing customers. As a result, Nike became one of the top innovate companies in the world (Carr 2013). With this high attempt from Nike inside-out, Nike has significantly improved their sustainability and innovation and resulted positive public response on their issues of labour practices, environmental and social impacted, and sustainability related.

Agency theory, issues identification, and recommendations

  Agency theory or a principal-agent model is used as a theoretical framework for structure and managing contract relationships as well as the relationship explanation between both (Alchian & Demsetz 1972; Eisenhardt 1989). Therefore, this model has widely applied in the organization, which creates the contractual relations between directors, manager, and employees though the external contractors (Lee & O'neill 2003). In this theory, a principal chooses their contract with an agent based on their decision on cost effective and agent’s expertise. The benefits have been shared between principle and agent. This situation is same as Nike to seek their agents or contract manufactures as they realised that the cost of building their own manufactures exceeded the costs of hiring or contracting with outsources. However, Nike have their own criteria to evaluate the prospect factories based on their quality, sustainability, and risk of country. Once the agreement between Nike and contract factory on inputs, processes, outcomes, quality, monitoring, report, other requirements have been made, the contract factory starts the productions. However, the benefit of dealing with Nike can be both direct and indirect benefits. For direct benefit includes the product cost and promise target quantity of production results of lower risks. For the indirect benefits include the technology transfer, know-how, and reputation. Therefore, the agent (contracted factory) may find the way of compensation of producing the products for Nike (with competitive cost under contract). The agent pursues their own goal more than aims to the Nike’s objectives (Lund-Thomsen & Coe 2013). For Nike case study; there are two assumptions can be made;