NIKE: Designing the world’s best running shoe
Through designing a brand new manufacturing process, Nike has decreased cost, increased revenue and bolstered their overall brand image.
Introduction
Nike has long been the market leader in sports apparel focusing on inspiration and innovation targeted to the athletes. In 2012, Nike made a leap forward in shoe innovation called “Flyknit” that represents significant value creation through the alignment of Nike’s business model and its operating model. Through this innovation, Nike is a clear example of a highly effective organization.
Operating Model
Description: At its core, Flyknit is a brand new way to design and manufacture shoes. There are two key parts of a shoe design, the “lower” part which includes the sole / cushion and the “upper” part which includes the primary logo design and surrounds the foot. Nike’s new innovation allows the upper part of the shoe to be designed and stitched with a completely computerized system that uses one lightweight piece of fabric.
Benefits: The benefits of this innovation on Nike’s operating model are as follows:
- Materials: Traditionally, the upper part of the shoe was stitched together with multiple pieces of fabric. This cutting and stitching process creates significant waste from the leftover fabric. By using one piece of fabric to stitch the entire upper part of the shoe is estimated to decrease Nike’s overall material costs by up to 20% (1)
- Labor: Shoe stitching was a traditionally labor intensive process with one or more employees needed to stitch the multiple pieces of fabric together. With a completely computerized process, analysts estimate that Nike’s labor costs will decrease by up to 50% (1)
- Time: The decrease in materials and labor for the manufacturing process leads to a significant decrease in cycle time allowing Nike to produce shoes much faster making the company much more nimble. (2)
Business Model
This new manufacturing process creates significant value for Nike customers which Nike is able to capture for its shareholders. The benefits are as follows:
Benefits to the customer
- Light: The shoe is now almost 50% lighter than previous models. For runners, this innovation means more speed and a more comfortable running experience. (2)
- Customized: Nike aimed to create a “shoe that replicates a sock” and over time the shoe molds to fit the customers foot which enhances comfort. Some are predicting that the computerized manufacturing process will lead to a future where the customer can design their own shoe in a Nike store to fit their own foot perfectly and also will allow the customers to pick design and thread colors. This will allow each customer to have a truly unique shoe. (2)
Benefits to Nike
- Price: Nike captures this value to the customer through a nearly 60% price increase (relative to a similar model). As Nike transitions more of its shoes to be produced through this technology, they can continue to command a higher price premium and bring in additional revenue. (2)
- Marketing: Through utilizing this process that decreases material waste, Nike underlines its commitment to sustainability which builds its overall brand equity as not just an innovative company, but also a good global citizen. (3)
Conclusion
This innovation will likely revolutionize the entire shoe industry and potentially can be expanded into apparel. Nike has found an process that decreases costs, increases revenue and builds their overall brand image through their commitment to corporate responsibility. Through exploring this innovation, one can clearly see why Nike is the market leader.
Sources
(1) http://www.businessinsider.com.au/nike-saves-money-on-flyknit-2014-9
(2) http://www.bloomberg.com/bw/articles/2012-03-15/is-nikes-flyknit-the-swoosh-of-the-future#p1
(3) http://www.nike.com/us/en_us/c/better-world/flyknit
Interesting post! I am curious about the durability of the shoe in comparison to other Nike offerings as well as the comfort and the health aspects of this shoe in terms of odor control and whether this has been widely adopted by athletes outside of the realm of paid sponsorships.
It’s interesting that this new “one piece” technology in the upper part of the shoe is a selling point. In apparel, higher-end clothes typically fit better because they are stitched from more pieces of fabric and are thus more flexible/contour better. I wonder how Nike gets around the quality downsides of using less pieces of fabric with FlyKnit and would be curious to learn more.
I also believe Nike is a great example for this assignment because their main value proposition, which is innovation to the customer, forces them to upgrade their operating models every time they make drastic changes to their product line. And in this case, it was fascinating to read how they managed to decrease their labor costs with computerized processes. The decrease in materials and labor costs increases the company margins and probably leaves them more space to innovate – R&D costs.