Running Head: SUSTAINABILITY

Sustainability in the 21st Century Team innovIIXrs

Morgan McGrath Pam BarringtonJason Cumiford Dan Hockaday

Tran Pham

Pacific Lutheran UniversityBMBA 523

5.19.16

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Table of Contents

1.0 Executive Summary…………………………………………………………………………...41.1 Background…………………………………………………………………………....41.2 Issues, problems, and challenges……………………………………………………...41.3 Analytical framework and concepts to support the analysis…………………………..41.4 Managerial implications, and recommendations……………………………………...4

2.0 Research Question…………………………………………………………………………….5 3.0 Defining Cause and Effect through Framework Analysis…………………………………….5

3.1 How to integrate Sustainability……………………………………………………….53.1.1 Three stages of SLI Evolution……………………………………………....53.1.2 4Ps Framework……………………………………………………………...63.1.3 Prahalad and Nimdulo Five Steps…………………………………………...73.1.4 Challenges to Sustainability Linked Innovation…………………………….8

3.2 What constitutes productivity and success?...................................................................93.2.1 Accounting Profitability……………………………………………………..9

3.2.2 Economic Value Creation…………………………………………………...93.2.3 Triple Bottom Line……………………………………...……………...…...9

4.0 Nike Case Study……………………………………………………………………………...11 4.1 Historical Significance……………………………………………………………….11

4.1.1 History of Innovations……………………………………………………..114.2 Initiative’s Background………………………………………………………………114.3 Strategies Utilized……………………………………………………………………124.4 Innovations Developed………………………………………………………………134.5 Impact on Organization………………………………………………………………14

4.5.1 Business model change…………………………………………………….154.5.2 Manufacturing/Supply Chain………………………………………………15

4.6 Challenges Faced…………………………………………………………………….164.7 Projections for the Future…………………………………………………………….17

5.0 Managerial Implications……………………………………………………………………..175.1 Incremental Innovation toward Sustainability……………………………………….175.2 Sustainability as a Social Imperative………………………………………………...175.3 Profitability and Sustainability Aren’t Mutually Exclusive……………………….....18

6.0 Recommendations…………………………………………………………………………....186.1 Identifying the Appropriate Approach Using Three Stages of SLI Evolution……....18

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6.2 Culture Creation Pursuant of Sustainability………………………………………....186.3 Looking outside the firm for Sustainability Led Innovation………………………...19

7.0 References…………………………………………………………………………………....208.0 Appendix A…………………………………………………………………………………..229.0 Appendix B…………………………………………………………………………………..2310.0 Appendix C………………………………………………………………………………....2411.0 Appendix D………………………………………………………………………………....2512.0 Appendix E…………………………………………………………………………………26

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1.0 Executive Summary1.1 Background

Companies in the 20th Century were worried about making a profit, but as the calendar moved closer to the 21st century it became apparent that there is much more value available. Sustainability is quickly becoming the rule, not the exception, especially in the area of consumer goods. Organizations whom are already established in a particular industry must understand what it takes to transition, and how to make that as smooth as possible. 1.2 Issues, problems, and/or challenges

As the InnovIIXrs internalized the change in an operating environment, it led the group to the formulation of a research question, guiding the discovery process. The question simply is, “Can a corporation successfully incorporate sustainability innovation and still be productive and successful?” The next challenge was to determine the unit of Analysis. The chosen unit for this research was “the organization”. This allowed the group to ensure proper depth, extracting one organization and inserting another from the same industry; ensuring all frameworks and concepts apply. 1.3 Analytical framework and theoretical concepts to support the analysis

During research, four frameworks were found to be applicable to the incorporation of sustainability, with three concepts that determine productivity and success; each discussed below.

A firm must determine what it will take to incorporate sustainability moving forward. The InnovIIXrs determined that organizations must focus on four frameworks to incorporate sustainability. The first framework was the Three Stages of SLI Evolution. This framework is important because it offers not one but three options for pursuing sustainable practices. An organization will also find that the 4Ps Framework is equally important, allowing companies to see where its innovations are placed and then where - strategically - it can pivot to better incorporate sustainability. Next, the Prahalad and Nimdulo framework is applicable as it provides five distinct stages firms can follow to ensure proper incorporation. Finally, the Challenges to Sustainability Linked Innovation is important in that it provides various challenges and a historical view of one organization, better understanding various possible roadblocks.

As a firm decides what productivity and success means, three concepts can be leaned on. First, and most basic is Accounting Profitability, which allows firms to examine the amount of financial resources developed, and measure its fiscal success, as well as amount of revenue generated by new and altered sustainability projects. Second, Economic Value Creation is very valuable as its aim is to help identify competitive advantages a firm can have. Finally, the Triple bottom line is essential due to its ability to project financial, social, and environmental impacts.1.4 Managerial implications, and recommendations

Throughout research and case study of Nike, the InnovIIXrs found many valuable recommendations and managerial implications. Looking first at managerial implications, a firm must incrementally innovate as to ensure proper integration. Second, it must realize that sustainability is not a nice to have it is a must in the 21st century. Finally, an organization will have to lean out, and sustainability does not mean profitability.

The group identified three recommendations. First, identify the appropriate approach using three stages of SLI evolution. Second, to achieve sustainability a firm must ensure the proper culture is present. Lastly, looking outside the firm to acquire some already established companies is wise.

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2.0 Research Question

In a period in time where social responsibility and environmentally friendly practices are

given heavy consideration by the public as a whole - and more specifically potential consumers -

it is important for firms to give consideration to integrating sustainability related innovations into

their respective businesses. The trouble with “Going Green” for most companies is the perceived

high cost of shifting paradigms. This unique situation led the InnovIIXrs to focus its research on

the following central question: “Can a corporation successfully incorporate sustainability

innovation and still be productive and successful?”

While this inquiry is apropos in light of the current climate of the business world, to truly

find the answer, the cause and effect relationship between sustainable practices and success must

be examined. In delving into the research, the InnovIIXrs defined the unit of analysis as

individual organizations. Examining what actions can be taken by a given organization, and

attempting to analyze the impact those actions have on productivity and success is imperative. At

a base level this relationship seems broad, so the group is seeking to refine the research process

by defining which actions it should consider to be pursuant of sustainability innovation, and how

productivity and success ought to be defined.

3.0 Defining Cause and Effect through Framework Analysis

3.1 How to integrate Sustainability

In order to properly assess which practices should be considered as a firm pursues

sustainability, our group applied four different course examined frameworks. All of the

following are vital to the integration of sustainability within an organization; no matter the size.

The four frameworks are, 1) Three stages of SLI Evolution; 2) the 4P’s Framework; 3) Prahalad

and Nimdulo Five Steps; and 4) Challenges to Sustainability Linked Innovation.

3.1.1 Three stages of SLI Evolution

A firm looking to reconcile profitability with sustainability would be wise choose a

direction for its efforts by examining the business model and core competencies of the firm. In

doing so, it will become clear which approach to sustainability should be pursued. Tidd and

Bessant offered three options for pursuing sustainable practices (Tidd and Bessant p.393) .The

first would be to optimize the company’s operations to decrease waste, energy use, and to

streamline the supply chain. By reducing overhead costs through process optimization, a

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company can realize profits through sustainable activities.

The next approach would be to either complement existing products with new products

specifically geared toward improving sustainability. These could include but are not limited to

introducing products that improve quality of life and reduce consumption, or becoming more

service driven rather than simply producing and selling products.

A third approach would be to work outside of the firm with firms in the same industry, or

those operating in different industries to better the net result of production. This is seen in Nike’s

practices in the way it uses recycled water bottles to create shoes and shirts. By shifting the entire

paradigm of the firm, a company can become a leader in sustainability while also realizing a

profit. A visual representation of the three stages and more of a description of the approach,

innovation objective, innovation outcome and innovation’s relationship to the firm can be seen

on Appendix A on page 23.

3.1.2 4Ps Framework

This first framework is a tool used by organizations to see, at a macro level, where they

currently have innovation products placed. This framework, or model also allows organizations

to determine development of future projects based on its business model. If an organization

currently is witnessing most of their innovations in one or two concentrated areas - position, and

process - it then can map out future projects in the areas of product/service, and/or paradigm.

Each of the four sections span incremental to radical to further detail placement (Tidd & Bessant,

2014). The below examples will revolve around sustainability to further Intellectualize its

relevance.

The first “P” is the product (service), and can be characterized as what the company

offers the world (Tidd & Bessant, 2014). A radical example of this would entail the creation of a

product that is made from interlocking plastic parts. Incremental examples include newer

version of shoes with ground up pieces from existing shoes.

Process - “P” Number two - characterizes how a firm creates and delivers a particular

offering (Tidd & Bessant, 2014). Streamlining a manufacturing process and incorporating new

onsite recycling methods to reuse products not fit for shipment to retail outlets would be

incremental. A radical example is incorporating an entirely new delivery process and system

that reduces time in transit of products being transported by large ships at sea, and semi-trucks

on land.

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The third “P” is position, and it entails how an offering is targeted to the market and how

it’s positioned in the mind of consumers (Tidd & Bessant, 2014). An incremental innovation

example would be to reposition the brand from children to more affluent socially conscious

adults. Radical innovation would revolve around developing programs in underserved

communities, and countries.

The final “P” - Paradigm - is simply how a firm frames what it does (Tidd & Bessant,

2014). Moving from an old type of business model to a new high tech model would be an

example of incremental innovation. A radical example would be to utilize a company's product

to redefine how a particular industry is perceived.

This model is ever important to the sustainability movement as resources tend to be

scarce, and utilization of this model - along with other frameworks - allows organizations to

maximize their efforts in truly valuable areas, based on their desires. Refer to Appendix B on

page 24 for a visual depiction of the 4Ps framework.

3.1.3 Prahalad and Nimdulo Five Steps

A Harvard Business Review article describes why sustainability is now the key driver of

innovation. The article describes how becoming sustainable should no longer be the goal, rather

the goal should be to become sustainable as a corporate social responsibility. Prahalad, Nimdulo

and Ragaswami outline five stages to achieve competitive advantage and begin the sustainable

journey.

Stage one is that companies must now take on the march to sustainability, think about it

as an opportunity rather than compliance. As companies comply with the most stringent rules

and do so before they are enforced this gives them competitive advantage through being the first

mover. Companies to develop the skills to work with other companies to implement new

solutions to current problems. This creative environment sparks new partners and the ability to

experiment with new sustainable technologies, materials, and various processes (Prahalad,

Nimdulo & Ragaswami, 2009).

Stage two encompasses making value chains sustainable. This stages central challenge is

to increase the efficiency of the value chain. Companies must look deep into their supply chain

to look to see where they can use less energy and water and produce less waste overall.

Developing new sources of various raw materials and creating a closed loop ecosystem can aid

in achieving this goal.

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By the third stage, it may become more apparent that consumers prefer eco-friendly

products but the challenge is to further develop the tools and competencies (Prahalad, Nimdulo

& Ragaswami, 2009). Companies must determine which products are the most unfriendly to the

environment. This requires an understanding of consumer concerns and to be able to carefully

examine product life cycles.

Stage four is all about developing new business models and finding new ways to capture

value. Companies must seek to understand what consumers want and how to provide those

demands.

The final stage, stage five, is how to create those next practice platforms. It is developing

innovations that lead to the next level. The creation of a company-wide initiative also aid the

company in becoming sustainable. When everyone is working towards the problem together,

change can happen very quickly (Prahalad, Nimdulo & Ragaswami, 2009).

These five stages demonstrate that sustainability is achievable through innovative

solutions that allow companies to increase their competitive advantage and also create disruptive

innovation where sustainability is equal to innovation. Refer to Appendix C on page 25 for a

visual representation of the stages described.

3.1.4 Challenges to Sustainability Linked Innovation

While planning business strategy through the three prior frameworks, it is important to

understand the challenges associated with Sustainable innovations. Tidd and Bessant provide

insight into the challenges that were faced by Nike as they moved towards a sustainable business

model. Becoming sustainable, for Nike, meant that they would have to search outside of

processes familiar to them. The search itself posed a challenge as it forced the company to find

viable and sustainable solutions to their evolving framework while new communication channels

would have to be opened in order to establish working connections that would ultimately form

collaborative partnerships. Nike has alleviated some of the challenge it faces with search and

selection by remaining open to external innovation.

Its first attempt at implementing the new sustainable proved to be a great challenge and

an unsuccessful first step towards going green. As Tidd and Bessant note implementation poses a

risk due to the internalization effort that needs to occur when a company reframes it’s business

strategy (Tidd & Bessant, 2014) but their most relevant observation rests in the final aspect of

the innovation strategy. Creating a new corporate paradigm is something that not only prompted

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Nike into venturing towards sustainability it is also something at which they excel. The

challenges faced by most companies seems to be working well for Nike. They have formed a

strategy that sets criteria for people, processes, profit, and the planet and have been able to garner

success in both the profitability and sustainability sectors.

3.2 What constitutes productivity and success?

After analyzing how a company would identify viable opportunities for implementing

sustainability linked innovations, the next step is to frame how productivity and success will be

measured observant of these measures. To do so, our group chose to not only examine the effects

of a traditional bottom line in a firm’s financial performance, but to also take into account

Economic Value Creation, and the Triple Bottom Line.

3.2.1 Accounting Profitability

The profitability of a project through an accounting perspective is relatively simple to

measure in the context of SLI. To do this a firm must examine the amount of financial resources

devoted to individual projects, and measure their fiscal success in terms of the cost saved through

implementation of reductive practices, and the amount of revenue generated by new and altered

product lines linked to sustainability. The more helpful measure of the costs and benefits of SLI

however, would be economic value creation model.

3.2.2 Economic Value Creation

The Economic Value Creation model seeks to identify competitive advantage a firm has

by examining the price at which a firm sells its goods or services, the cost of providing those

goods and services, and the perceived value created for the consumer (in the form of a dollar

amount a customer would be willing to pay). This measure is best applied to SLI through

identifying the extra value a customer perceives when a product is either implicitly or explicitly

defined as “green.” In an age where consumers are hyper aware of their individual impact on the

environment, oftentimes they are willing to pay a premium for products that reduce their eco

footprint. To deciding the success of sustainability measures then, a firm must analyze the net

effect on perceived value an individual project lends to the consumers of a given product or

service. For a visual representation of the Economic Value Creation Framework refer to

Appendix D on page number 26.

3.2.3 Triple Bottom Line

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The final, and perhaps truest measure of SLI’s impact on success and profitability is the

Triple Bottom Line. Measuring not only the financial benefits of a series of innovations, but also

their social and environmental impacts demonstrates an even more detailed level of productivity

generated by their implementation that would not otherwise be communicated to stakeholders

seeking to identify value. There are three components to the triple bottom line, 1) Social; 2)

Ecological; and 3) Economic. When all three dimensions are synchronized a firm can identify a

sustainable strategy (Tidd & Bessant, 2014). Refer to appendix E on page 27, as well as a

description of each dimension is follow-on paragraphs for further discussion regarding this

framework.

The social aspect of the triple bottom line revolves around human actions to combat

negative trends in its industry. This can be achieved with a holistic approach towards the whole

person taking action (Tidd & Bessant, 2014). Sustainability can be achieved through social

impacts by radically creating new fitness equipment that helps to achieve better fitness

conditions for the country, and world. While in doing this the firm can develop new material or

goods that are sustainable in achieving this new effort.

The Economic portion of the framework is quite possibly the trickiest to align. There is a

continual balance between profit and pivoting towards sustainable products, services, and

equipment to produce those good and services - as well as the extra cost. Once a firm is

established it must determine how slowly it will pivot from current operations to more

sustainable ones - if currently not doing so. The fixed costs of purchasing new equipment is

what stretches the sustainability timeline.

Companies looking to incorporate the ecological - or sometimes better known as the

“Environmental” - arm should be concerned with environmental sustainability. This would

involve adaptation of clean water, clean energy, recycling, and much more (Tidd & Bessant,

2014). This is where the fixed overhead costs come into play, and must be strategically

emplaced, and acquired over time. As an example, pivoting to a new system that provides

energy to run equipment through the use of solar, wind, or water as power will require many new

parts, bypasses, and updates to existing equipment. This is not to say such an effort can not be

done, it can, although it must be planned strategically with expectation management.

Aligning all three of these efforts takes time. A firm will not be able to implement its

proposed sustainable strategy overnight. It will take time, and throughout the process an

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organization will no doubt need to make a pivot or few as some practices adopted may not work

for the company. However, once this framework is fully realized along with the possible

inclusion of others above sustainability can be realized.

4.0 Nike Case Study

Once a firm definition of variables within the inquiry were obtained through framework

examination, the next step was to apply a case study to the generalized relationship we’ve

established. Through careful study of a specific company who has been able to marry concepts of

sustainability and success, a roadmap of sorts can be laid out for any given firm to concurrently

pursue ecofriendly innovation and profit.

4.1 Historical Context

4.1.1 History of Innovations

Nike introduced the “Waffle Trainer” in 1974, and still produces newer versions of it

today (Peterson, 2015). This is just one example of a radical innovation followed by subsequent

incremental innovations. Nike has made a living on the above types of innovations. A more

recent example is its use of old shoes - ground up bits from them to be exact - in manufacturing

the soles in newer shoes. Other well-known innovations are its Military boots, and Nike+.

4.1.2 Waiting for the Right time

Innovations rise to prominence due to many factors - some of which relate to luck. Nike

began to expand its brand in the 1970s. Also occurring during this time was a cultural shift in

running. Prior to this decade running was embraced by children and athletes, but the majority of

adults were not sold until this time period (Baer, 2016). Nike’s rise can be attributed - in part - to

this cultural shift. This cultural shift can also be attributed to a certain degree to Nike’s efforts to

reach every household possible.

4.2 Initiative’s Background

Since the 1990’s Nike has began the process of thinking of sustainability. Nike took

efforts to reduce its environmental footprint by practicing several steps such as recycling shoes,

phasing out sulfur hexafluoride and manufacturing sports accessories from waste. Nike saw that

understanding and working towards sustainability is crucial for the company's growth. Nike was

one of the first companies to take the step towards sustainability and did so by first looking at

their supply chain. Nike set a target of manufacturing its footwear with minimum environmental

standards by 2011, their apparel by 2015 and sports equipment by 2020.

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Nike hoped to accomplish these tasks through exploring a close looped system. For Nike

sustainable based innovation was key. Nike looked into the costs of purchasing corrugated

cardboard. Much of Nike’s packaging consisted with this material, so Nike applied an innovative

design and was able to produce new designs with different material. This change also helped

Nike keep their costs lower. Nike also adopted lighting management in their retail stores which

aids in reducing energy waste. Consumers were also very worried about the amount of water

Nike was using to dye their apparel. They attempted various incremental programs, but they

wanted a disruptive solution (Jones, 2016). In attempts of solving the problem, Nike came across

a Netherlands company, DyeCoo Textile Systems B.V. The company could die products without

water, which would reduce Nike’s footprint significantly. Nike made a minor investment in the

company and have developed a strategic partnership with the firm as well.

Nike also had the realization that they cannot just simply create a “green” product, they

want their entire line of products to be sustainable. In 2005 Nike created, “Considered,” which

was a sustainable shoe, but failed due to the design of the shoe. In 2009 Nike released “Air

Jordan XX3” which allows all of the pieces of the shoe to fit together almost like a puzzle. This

new design eliminated any excess plastic, and thus reducing the carbon footprint.

Today, Nike still has continued towards becoming even more sustainable and has three

current aims to guide their work. 1. Minimize environmental footprint: This aim is directly

related to sustainability and perfecting the close looped system. Nike is still attempting to better

understand their supply chain, and focusing on energy, chemistry, water and waste. 2. Transform

manufacturing: Nike wants to invest with companies that have highly skilled, engaged, and

valued workers. 3. Unleash human potential: Nike wants to help consumers continue to be

active, engaged, and participate in the world around them.

4.3 Strategies Utilized

Nike has been able to continue to be a leader and innovator in many fields. From

innovating its shoe to sustainable innovation Nike has employed various strategies to maintain

their competitive advantage, as well as growth. Nike has demonstrated that they have been able

to conquer the three milestones of sustainable development; social, economic and environmental.

Technology and innovation are huge portions of any potential solutions to environmental and

social issues. These new sustainable developments create shared value. Nike was able to deliver

a social benefit and business value.

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Nike also employed a strategic alliance between themselves and DyeCoo Textile Systems

B.V. This alliance helped them work towards achieving their goals of using less water and

hopefully will aid other companies in doing so as well. They employed business model

innovation, where the use of new knowledge capitalizes on the disruptive attributes of new

emerging technology as a way to offer solutions that satisfy customer’s demands.

Nike looked at themselves and asked how to take ahold of competitive advantage when

competing in the athletic product market. They determined they want to serve a diverse segment

of customers, looked at what customers value, and how they were going to do so. They were able

to create differentiation, and employed a differentiation strategy. They created unique product

features, they were one of the first companies to think about going green while implementing

new technologies and shoe designs. The benefit they derived from these changes were a reduced

rivalry and high costs of imitation. They developed a strategy to go green and become

sustainable which motivated those working for the company to execute the strategy as well as

attract more buyers.

4.4 Innovations Developed

Nike is constantly pushing their innovations limits by providing variety of solutions that

will benefit themselves, other people, and the world. Nike plans on changing their system to

reduce their carbon emission level to better support the global economy. Taking a competitive

approach, particular ideas are meant to be closed loop, but releasing sustainable products and

services to providing a competitive advantage. Continuing with this approach, Nike focuses on

building their partnerships to better utilize their innovations and reaching their goals. By

embracing technologies and new science, a successful path can be found in produce a low carbon

emission level while still being competitive and benefiting the company and products.

One strategy is organic innovation, bringing new ideas while keeping the focus of the

company. By letting the company grow through different concepts such as through technology

and processing improvement. At the same time not tampering with certain parts of the company

that doesn’t need to be changed. Nike encourages their teams to produce new innovations that

goes hand in hand with sustainability. For example, they use the Footwear Sustainability Index

(FSI) and the Apparel Sustainability Index (ASI) to evaluate their apparel products. These are

standard tools guiding their product creation teams to “make better choices in planning,

designing and developing products” (Nike, Inc. FY14/15). Creating a structure that allows

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employees to express and generate their ideas to maintain the vision of the company. Teams can

earn incentives by using materials that require fewer chemicals or use less energy during

manufacturing to improve product sustainability scores. Organic innovation allows the company

growth and innovation in developing new design products to the environment and in people's

lives.

A second strategy is introducing disruptive innovation to enhance the idea of a low

carbon system while still producing the same quality system and product. By taking a friendly

environmental approach using certain products and technologies, Nike helps to generate low

carbon emission to the environment. At the same time still focusing on the company vision and

producing quality services and performance products. As an example, their Flyknit technology

has successfully developed such precise shoe stitch that helps to lessen waste by 60% comparing

to a traditional cut-and-sew methods (Nike, Inc. FY14/15). This innovation has helped to cut

down 3.5 million pounds of waste. Another example is, in FY02, Nike introduced new airbag

technology to reduce potent greenhouse gas emission with their revenue hovering up to 1 million

(Nike, Inc. FY14/15). Nike’s vision has always been improving the focus to meet the company

environmental vision, but still focusing on satisfying the customers and the world.

A third strategy is to create an open-sourcing innovation. While certain business tend to

keep their sources closed, Nike has been sharing multiple tools to the industry to use as

successful ways in lowering carbon emission level. They shared their Materials Sustainability

Index (MSI) to the Sustainable Apparel Coalition which helped developed Higg Index. Their

open-source information and tools helps the industry as a whole to develop environmental

friendly products. For example, they collaborated with Massachusetts Institute of Technology

(MIT) Climate CoLab to come up with new ideas attracting industries, designers and customers

to “value, demand and adopt low-impact materials” (Nike, Inc. FY14/15). They also share

information on what products are restricted to use so it doesn’t cause harm to the product or to

the environment. Nonetheless, 400 of Nike’s utility patents were introduced under a Creative

Commons license to enable organizations to use as a tools developing new sustainability

innovations catering to different industries (Nike, Inc. FY14/15).

4.5 Impact on Organization

Nike has made great advances in sustainability since it began to take the company into a

new direction. Nike has clear statistics that document its progress in reducing waste and the more

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efficient use of water both of which contribute to their reduction in overall CO2 emissions. Nike

has been able to reduce the number of factories needed while demand and sales continue to

increase (Manning, 2016). Their supply chain runs more efficiently and Nike recently took the

top award, tied with Hewlett-Packard, for best practices in sustainability.

4.5.1 Business model change

Nike has focused its efforts on moving from a linear business model to a close-looped

model in an effort to go Green. Nike can tout its clear understanding of the Three Cornerstones

of Sustainable Development and the importance of integrating all three aspects in future

operations. Nike weighs the economic benefits of not only the company but society at large. Its

approach to environmental benefits is not restricted to local or regional rather the company

places high importance on its global environmental impact. The value placed on social benefits is

one that stands as a shining example to all companies attempting this shift in its business

approach. Indeed, Nike has even devoted resources to implement a ‘call to action’ that enables

other companies to learn from Nike’s successes and implement them into their own business

models.

A close-looped business model would incorporate the integration of the Three

Cornerstones and reinforce Nike’s commitment to transparency. Nike has made its sustainable

efforts open to the public in an effort to not only be clear about its message of sustainability but

to also encourage open innovation from the public.

4.5.2 Manufacturing/Supply Chain

Nike has initiated a complete supply chain redesign. Each factory must meet the

minimum standards contained in Nike’s Code of Conduct manual. Factories are then further

evaluated on aspects pertaining to sustainability commitment. The evaluating criteria requires

that factories perform operations while paying close attention to labor and environmental

practices, quality of product, cost efficiency, and timeliness of delivery. Nike works hard to

establish working relationships with factories whose ultimate goal is to become a global leader in

manufacturing standards and innovation (Nike, 2014). Countries as a whole are also held to this

higher standard. Nike has reduced its presence in a number of countries amid concerns for labor

conditions.

Nike’s shift towards sustainable manufacturing is multi-faceted. Nike has also taken a

serious stance on engaging a skilled and motivated workforce to bring the sustainable vision to

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fruition. Fair compensation with access to healthcare and educational resources are among the

tools that Nike uses in an effort to retain a workforce dedicated to sustainability in and outside of

the manufacturing factories. Nike has taken lessons learned from the missteps it experienced in

the past with its labor workforce and has dedicated itself to building a better, more resilient, and

higher performing employee who shares its values and goals pertaining to sustainability.

Nike has also set its sights on innovative technology to better achieve its mission in

sustainability. By introducing new material into the manufacturing of its shoe line it was able to

reduce waste by 3.5 million pounds since 2012. The introduction of Flyknit material is stated to

reduce waste by 60% according to Nike’s website. Flyknit is composed of recycled polyester and

has the equivalent of five plastic bottles in each pair of shoes (Nike, 2014). Nike does not limit

its use of innovative technology to its product line, it also uses new technological approaches to

engage consumers in healthy activities. It's T+NC application for iPhone encourages athletes to

strive towards and achieve their goals. It allows the global connection of athletes who provide

motivational athletic workouts through the platform.

4.6 Challenges Faced

There are several challenges that Nike has faced pursuing their sustainability vision. The

opportunity for innovations in materials are matured which poses a challenge on their team

seeking new ways to introduce better solutions. Thus, their main goal is to focusing on materials

at the portfolio level. They also follow the closed loop idea to reuse, recycle, and reduce

materials as a way to better produce ecofriendly products. Nike aims to use their top-volume

materials, polyester, cotton, leather and synthetic leather, to find more opportunities and

solutions to help reduce waste and chemistry (Nike, Inc. FY14/15).

The biggest challenge that Nike is facing is the competition within the industry. A 2015

Wall Street article stated that Nike’s recent success has been contributed by the style rather than

the sweat, called athleisure phenomenon, making Nike a hit fashion in these recent years

(Germano, S.). With new trends continuously introduced by Under Armor and other direct

competitors, the industry is no more dominated by Nike. Thus, they have to seek a way to

balance between their sustainability vision with delivering high quality products that can best

serve their athletes and customers. Nike needs to invest their resources in developing great sport

products rather than turning their company into a sustainability research organization.

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4.7 Projections for the Future

Nike’s ultimate goal for the company is to become an entirely closed-loop operation

based on a strong foundation of sustainability. Sustainability is an idea that Nike encourages

other companies to pursue as well. They are proponents of the implementation of a standard code

of conduct across the industry (Guilbault, 2016). Nike believes that a consistent way of

monitoring and auditing sustainability practices will allow more companies to pursue the idea. If

there are clear expectations Nike posits that it will be easier to develop a standard of practice

within the company.

Nike has also projected an annual revenue of $50 billion by the year 2020. They base this

prediction off of the success in women’s related business as well as its continued expansion into

other arenas of professional sports (Germano, 2015). Nike will continue its commitment to

reducing its carbon footprint by continuing to hold their manufacturers to high standards,

continuing to stay open to innovative ideas from all sources, and fine tuning the efficiency of its

operations.

5.0 Managerial Implication

5.1 Incremental Innovation toward Sustainability

While Nike was able to work through radical innovations and process innovation, an

important lesson found in this case is the opportunity to improve sustainability through

incremental innovation. With a product driven industry such as athletic apparel and equipment,

incremental product improvement is a constant. Nike seized the opportunity to take steps toward

sustainability by utilizing recycled material into its shoes, shirts, and other items. While none of

these incremental changes are able to single handedly save the environment, seizing the

opportunity found in these seemingly small steps toward improving practices gave Nike the

ability to reinforce its sustainability initiatives across all product lines. Aspiring managers must

also then be able to examine existing practices for opportunities to work sustainability into the

fold. The first approach sustainability mentioned by Tidd and Bessant is Operational

Optimization, or how to “do the same things better.”

5.2 Sustainability As a Social Imperative

As inherent as eco-consciousness should be, it must be understood that doing right by the

environment is also imperative to the success of a firm moving into the 21st century. As

consumers become more aware of climate change, resource scarcity, and waste proliferation,

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they demand as a whole better corporate responsibility. In an age where social media and

electronic communication is so prevalent, the impact of negative publicity related to poor

sustainability practices can be hugely damaging to a firm. It is more important than ever then,

that firms make a point to not only adopt sustainability measures, but be vocal in their support of

environmentally friendly and socially conscious innovation. (Tidd and Bessant, 2014)

5.3 Profitability and Sustainability Are Not Mutually Exclusive

One of the most important implications of the case of Nike’s Sustainability Initiatives is

the idea that profits and sustainability can in fact coexist. In many of the measures undertaken by

Nike to become more ecofriendly, specifically the reduction of water used in dyeing clothes, and

the electricity conscious lighting of stores, overhead costs were reduced. Focusing on measures

that will not only decrease energy usage, but also fixed costs of production and sales can widen

the profit margins for all associated product lines. Realizing that innovations aimed at

sustainability are not simply used as a public relations aid, but can also decrease top line and

bottom line costs is a great lesson for aspiring managers.

6.0 Recommendations

Applying the case study of Nike to the general relationship between sustainability and

success helped our group to derive specific recommendations and implications for companies

within the same industry as Nike. If these implications are more broadly interpreted, the lessons

learned should be able to apply to any company seeking to become more sustainable, and are

helpful to future managers as they find opportunities in the business world.

6.1 Identifying the Appropriate Approach Using Three Stages of SLI Evolution

Proper analysis of a firm’s position is perhaps the most important recommendation the

InnovIIxrs can make to a company seeking to work sustainability into its business model. To best

implement sustainability linked innovation, a firm must first identify where their business model

is situated within the three stages of evolution of SLI (Section 3.1.1) and where their efforts

would most effectively be applied. Whether optimizing operations, transforming the business

model, or systems building with other companies outside the firm, by positioning themselves

within the appropriate stage, the manager(s) of a firm can set themselves up to create the most

value The firm can then work to appropriate said value.

6.2 Culture Creation Pursuant of Sustainability

The next recommendation for successfully adopting sustainable practices would be to

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reinforce the principles of sustainability throughout the organization. While integrating

sustainability into the strategic vision of the firm at the leadership level is helpful, a company

must attain buy in throughout the organization. Creating a culture of sustainability should ensure

that the principles of eco-conscious behavior flow through the boardrooms of corporate offices

through the production level assembly lines of a factory. By reinforcing the ideas set out in the

strategic vision of the company, a firm can ensure that measures adopted are not simply

complied with, but embraced across the organization.

6.3 Looking outside the firm for Sustainability Led Innovation

The final recommendation for firms would be to look outside of the company for

sustainable innovation opportunities. For as many successful measure as there were with Nike,

there came a time when looking outside of the firm revealed the biggest opportunity for success.

This came when Nike sought to reduce water consumption in the dyeing process for its clothes.

Through partnering with DyeCoo Textile Systems they were able to completely eliminate water

usage in the dyeing process. This ability to identify when looking outside the firm was necessary

led to an impactful process innovation. Companies must be willing to commit to in house

sustainability pursuits, while at the same time remaining open to strategic partnerships and open

innovations to truly further pursuits in sustainability.

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7.0 References

Alberstadt, B. (12 January, 2014). Top 12 Biggest NIke Endorsement Deals of All Time. Retrieved on 12 may, 2016 from http://www.therichest.com/sports/top-12-biggest-nike-endorsement-deals-of-all-time/?view=all

Baer, D. (05 January, 2016). NIke Has Defined ‘Cool’ for 40 years - Here are the Greatest Hits. retrieved on 12 May, 2016 from http://www.techinsider.io/nike-has-defined-cool-for-50-years-here-are-the-greatest-hits-2015-12

Germano, S. (14 October, 2015). Nike sees $50 billion annual revenue by 2020. Wall Street Journal. Retrieved from http://www.wsj.com/articles/nike-sees-50-billion-of-annual-revenue-by-2020-1444848407

Germano, S. (n.d.). Nike's Challenge: Staying Ahead of the Pack. Retrieved May 25, 2016, from http://www.wsj.com/articles/nikes-challenge-staying-ahead-of-the-pack-1442655181

Guilbault, L. (14 May, 2016). Future of sustainability shapes up at Copenhagen fashion summit. Women’s Wear Daily Online. Retrieved from http://wwd.com/fashion-news/fashion-features/sustainability-copenhagen-fashion-summit-10429848/

Herrera, T. (n.d.). Nike: From Considered Design to Closing the Loop. Retrieved May 13, 2016, from https://www.greenbiz.com/blog/2009/10/19/considered-design-closing-loop

Hsieh, N., & Paine, L. (2015, April 16). SUSTAINABLE STRIDES AT NIKE, INC. Retrieved from http://www.hbs.edu/news/articles/Pages/nike-sustainability-hbs.aspx

Manning, J. (11 May, 2016). Nike adopts ambitious environmental, workplace goals. The Oregonian. Retrieved from http://www.oregonlive.com/business/index.ssf/2016/05/nike_adopts_ambitious_environm.html

Nidumolu, R., C Prahalad, and M. Rangaswami (2009) Why Sustainability is the Key Driver of Success. Harvard Business Review, 87.

Nike.com (December 31, 2014) Retrieved from http://news.nike.com/news/5-game-changing-nike-innovations-of-2014

O’Reilly, L. (04 November, 2014). 11 Things Anyone Hardly Knows About Nike. Retrieved on 12 May, 2016 from http://www.businessinsider.com/history-of-nike-facts-about-its-50th-anniversary-2014-11

Peterson H. (06 Jul, 2015). The Bizarre Inspiration Behind Nike’s first pair of Running Shoes. Retrieved on 12 May, 2016 from http://www.businessinsider.com/nikes-first-running-shoes-were-made-in-a-waffle-iron-2015-7

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Reena, J. (11 June, 2009). Nike Quietly Goes Green. Retrieved on 12 May, 2016 from http://www.businessinsider.com/nikes-first-running-shoes-were-made-in-a-waffle-iron-2015-7

Rothaermel, F. T. (2015). Strategic Management: 2nd Edition. New York, NY: McGraw Hill

Selling Sustainability (2016). Triple Bottom Line [Appendix G Photograph]. Retrieved on 20 May, 2016 from http://www.sellingsustainabilitysolutions.com/what-is-sustainability/

Sony, R. (02 December, 2014). Traditionally Innovative: The Story of Nike. Retrieved on 12 May, 2016 from http://marketrealist.com/2014/12/traditionally-innovative-the-history-of-nike/

Success story (2016). Nike, Inc. Success Story. Retrieved on 12 May, 2016 from http://successstory.com/companies/nike-inc

Tidd, J. and Bessant, J. (2014). Strategic Innovation Management, Hoboken, NJ: John Wiley and Sons, Inc.

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8.0 APPENDIX A: Three stages of SLI Evolution

(Tidd & Bessant, 2014)

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9.0 APPENDIX B: The 4Ps Framework

(Tidd & Bessant, 2014)

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10.0 APPENDIX C: Prahalad and Nimdulo Five Steps

(Rothaermel, 2015)

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11.0 APPENDIX D: Economic Value Creation

(Rothaermel, 2015)

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12.0 APPENDIX E: Triple Bottom Line

(Selling Sustainability, 2016)