Case Study: Nike Inc.

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- The goal conflict between the budget or profit-maximising behaviour of the Nike and the utility –maximizing behaviour of the contract factories (Tosi, Katz & Gomez-Mejia 1997).

- The contract factories look forward their own business growth rather than for the collective interests of Nike that lead to the moral hazard problem (use Nike technology for self-purpose) eventually (Dye & Sridhar 2005).

Application of agency theory can help Nike to manage their outsources (agents) effectively by controlling the agent behaviour and their interests aligned with Nike’s goals (Luhman & Cunliffe 2012). Based on the risk may occur in terms of the agency theory perspective, my recommendation to Nike can be divided into two key stage; pre-contractual and post-contractual. For pre-contractual stage, Nike ensures the risk of particular contract factory is minimised and the opportunity is maximised. At the current Nike system they select using the manufacturing index to measure the factory performance using a balanced scorecard including cost, delivery, quality, and sustainability. Nike should cooperate with the risk assessment embedded into this criteria. Nike only looks for the risk of country with country risk index to measure the country risks of politic, social, economic, infrastructure, and climate. The risk of non-alignment in policy and personal interests should be assessed and analysis. Moreover, the opportunity that Nike could help the contract factory in long terms period should be identified. The situation of win-win benefits must be concern. For example, the opportunity for extending the product lines, support multi-brand productions to gain the contract factory profit, training and education as well as the technology transfer. For post-contractual stage, Nike should ensure the action of contract factory is taken with strong alignment with Nike policies, local regulations, sustainability concern, social, and honestly (Esbenshade 2001). The gap distance and differential of cultures should be closely monitored and Nike seeks for its optimisation. Evaluating the Nike case study through the agency theory, Nike needs to create the special teams to support the contract factories (their agents), understanding insight of their needs, and the opportunity in business growth with Nike. This will reduce the risks of the principle/agent relations and minimum the confliction between them. Equality and fair issues should be considered to remain the same standards across the contract factories (Frenkel & Kim 2004).

Stewardship theory, issues, and recommendations

Another organisational theory is stewardship theory that uses to examine the relationship and behaviour of organisation focusing on the manager or directors. It can be said that the stewardship theory is alternative view of the agency theory (Davis et al. 1997). The situation of issue in stewardship theory is, for example, manage uses the asset or expense of shareholders for their own interest. The key assumption on Nike case study through the stewardship theory lens includes the long-term contractual relations, collective goals, involvement and alignment. Note that, this is a strong link with the previous sections; analysis through the agency theory. However, the stewardship theory address the collective goals rather than individual goals, principle decision making based on principle’s interest. Looking the accomplishment of contract factories of Nike, an incentive of achieving alignment conducted, and maximising the contract factories’ unities are addressed (Davis et al. 1997). Basically, the stewards are motivated bay rewards, trustiness, reputation, job satisfaction, stability, and mission alignment (Bramston et al. 2011). Note that, the stewardship theory relies on the principle-stewards relationship.

The current issue of Nike under this theory analysis can be assumed as the lack of organisational goals and objectives achieved through the stewardship (or mangers at contract factories) with initial trust disposition. As Nike has a large scale of shareholders, this issue becomes more different to promote the involvement-orientation management philosophy through the network. The different environment, culture, individual goals, psychology, and sociology make this problem becomes more complex. However, the fundamental of internal and external stakeholders have been significantly improved since 1998, including labour wage, ethic, and human resource management. Nike human resource management best practice has delivered to their contract factories. The special training and knowledge information update has regularly conducted. However, the issue of principle-stewards still remains. The recommendation to cooperate this issue include shared goal setup and trust to promote goal alignment, reducing the threat of opportunistic behaviour, reward contract factories though non-pecuniary mechanisms, and reducing the use of legal contracts to enforce behaviours (Van Slyke 2007).

Conclusion

The case study of Nike Inc. has been discussed and analysed using two key organisational theories; agency theory and stewardship theory. The issues of complex network of Nike to manage their contract factories was raised the key issue to discuss in this essay. Nike have been improving their sustainability and innovation to be top of the role models. Nike had been captured from public as inability to conduct the equality on labour wage, and less concern on environmental and social impacts. The agency theory has applied to evaluate the current situation of Nike in terms of principle-agent relations. However, the stewardship theory focused in stewards’ (agent’s) involvement and their alignment through their behaviour, psychology, and sociology. The recommendations to improve the partnership-agent can be classified into three domains; reduce risks of agents, maintain agents, and promote agents. With highly concern in their contract factories of Nike, the problem of moral hazard will be minimised. The sustainability and capability in network management will be increased as its consequences.

References

Alchian, A.A. & Demsetz, H. 1972, 'Production, information costs, and economic organization', The American economic review, vol. 62, no. 5, pp. 777-795.

Bramston, P., Pretty, G. & Zammit, C. 2011, 'Assessing environmental stewardship motivation', Environment and Behavior, vol. 43, no. 6, pp. 776-788.

Carr, A. 2013, 'Nike: The no. 1 most innovative company of 2013', Fast Company, vol. 11.

Christensen, C.M. & Raynor, M.E. 2003, 'Why hard-nosed executives should care about