Nike : The No. 1 Most Innovative Company Of 2013
For a pair of revolutionary new
products and a culture of true believers.
"This is the raw stuff."
Stefan Olander, head of Nike's
three-year-old Digital Sport division, is watching a group of his engineers
hack an experiment together. They're using a pair of Nike trainers with
embedded sensors. The sensors measure pressure created when the shoes, which
happen to be on the feet of a lanky product manager named Brandon Burroughs,
strike the ground. The data are collected and then fed wirelessly to an iPhone;
the iPhone is plugged into a MacBook; the MacBook's screen features a program
that is busily imitating a 1987 Nintendo video game called Track & Field
II. Which brings us to the ostensible goal of all this madness: finding out
if new-age sensors and wireless devices work with an ancient video game.
One of my fears is being this big,
slow, constipated, bureaucratic company that's happy with its success.
That's why Burroughs, who is
outfitted head to toe in Nike attire, is crouched in anticipation like a runner
before a starter pistol is fired. Suddenly, a whistle screams from the
MacBook--it's the game's signal that a steeplechase "race" has
begun--and Burroughs starts sprinting in place. It isn't pretty. He's panting
heavily. He's been at this for a while and is clearly spent. His feet thud
against the carpet like a clumsy drumroll as his crude avatar lurches forward on
screen. And he's doing all this in a big, clean, stark corporate lab full of
engineers, which isn't very glamorous. But the experiment is working, sort of:
As his avatar nears the first hurdle, Burroughs leaps too late, leading his
digital self to trip and tumble into a pixelated pool of water. "Arrrrrrr!"
yells Burroughs. "Come on!"
Olander, who bears a distracting
resemblance to Matthew McConaughey and looks fit enough to have cleared that
hurdle with ease, jokes that the only problem here is that Burroughs "is
not very fast." He actually loves that the group is "just mucking
about and having fun," as he puts it. "Really cool stuff can come
from the opportunity to test without constraints." And that, in sum, is
innovation, Nike-style: a messy, exhausting process culled from myriad options
and countless failures.
In 2012, Nike's experimentation
yielded two breakout hits. The first is the FuelBand, a $150 electronic
bracelet that measures your movements throughout the day, whether you play
tennis, jog, or just walk to work. The device won raves for its elegant design
and a clean interface that lets users track activity with simple color cues
(red for inactive; green if you've achieved your daily goal). Press its one
button for a scrolling stock ticker of how many calories you've burned, the
number of steps you've taken, and your total NikeFuel points, a proprietary
metric of activity that Nike encourages you to share online. The FuelBand is
the clearest sign that Nike has transformed itself into a digital force.
"Nike has broken out of apparel and into tech, data, and services, which
is so hard for any company to do," says Forrester Research analyst Sarah
Rotman Epps.
The other innovation is the Flyknit
Racer, featherlight shoes that feel more like a sock atop a sole. Created from
knit threading rather than multiple layers of fabric, it required a complete
rethink of Nike's manufacturing process. The result is a shoe that's more
environmentally friendly and could reduce long-term production costs.
"Flyknit could turn the [shoe] industry on its head," says Nike
sustainability VP Hannah Jones.
To produce even one of these
innovations in a given year is a rarity for any company, especially one with
44,000 employees. But Nike CEO Mark Parker knows he can't just rely on
celebrity endorsements and the power of the swoosh when confronted by big-name
competitors such as Adidas and upstarts like Jawbone and Fitbit. "One of
my fears is being this big, slow, constipated, bureaucratic company that's
happy with its success," he says. "Companies fall apart when their
model is so successful that it stifles thinking that challenges it. It's like
what the Joker said--'This town needs an enema.' When needed, you've got to
apply that enema, so to speak."
Every CEO says this kind of thing
(minus the enema part). The difference is that Parker delivers. Last year,
Nike's annual revenue hit $24 billion, up 60% since he took over the reins as
CEO in 2006. Profits are up 57%, and Nike's market cap has more than doubled.
This story is about how he has achieved that growth, and how he has driven a
commitment to the company's culture. Nike is a business with much corporate
lore, that lovely, misty story of how a bunch of renegades with a waffle iron
bucked the system and revolutionized an industry. But a close examination of
the development of Flyknit and the FuelBand, based on interviews with top Nike
executives, current and former designers, engineers, and longtime
collaborators, reveals four distinct rules that guide this company, that allow
it to take big risks, that push it to adapt before competitors force it to
change.
What makes Flyknit so truly
disruptive is that it isn't a shoe--it's a way to make shoes. As the team
members who spent four years developing the technology like to say, they're
"breaking the sewing machine." The old Nike model involved cutting
rolls of prewoven material into pieces, and then stitching and assembling them.
But with Flyknit, a shoe's upper and tongue can be knit from polyester yarns
and cables, which "gets rid of all the unnecessary excesses," says
Ben Shaffer, studio director at the Innovation Kitchen, Nike's R&D center.
The Flyknit Racer, one of the first shoes in the Flyknit line, is 5.6 ounces,
roughly an ounce lighter than its counterparts. Nike uses only as much thread
as it needs in production, and the shoe can be micro-engineered--tightened
here, stretched there--to improve durability and fit.
Parker clearly has big expectations
for Flyknit, telling shareholders it "is one of those technologies that
has incredible potential, not only within running, but across multiple
categories." That's a massive bet given Nike's dominance of the
athletic-shoe business, where, for example, it owns half the running market and
a whopping 92% of the U.S. basketball shoe business. And Nike has gone all-in
on that bet, building a whole new manufacturing process around the product.
"Does this change our business model in some cases, or our supply chain?
Absolutely," Parker says.
Shaffer shows me some of the 195
major iterations the Flyknit went through as we tour the Kitchen. Some appear
as rudimentary as a ballerina's slipper. The prototype that marathon runner
Paula Radcliffe marked with scribbles now looks like a rejected Project Runway
design. Nike's ambitions for Flyknit can be seen in the trays full of feet that
live in tall carts around the Kitchen. The disembodied wooden lumps--most
generically sized and others made by scanning some of the actual feet of the
thousands of professional athletes that the company sponsors--are all waiting
to be fitted, like Cinderella, with the perfect prototype shoe.
"Flyknit is a platform,"
Nike's Jones says. "We're reimagining the upper, the bottoms--the whole
caboodle." In addition, as materials such as rubber become harder to come
by because of overharvesting or climate change, "we're going to be able to
navigate the volatility of these resources," she adds. Then, perhaps
reminded of the fierce competition Nike is in with Adidas over knit shoes, Jones
stops short and wavers, "I can't say anymore."
Before the FuelBand, a product
called Magneto was, briefly, Nike's next big thing. You'd tape magnets to your
temples and then clip futuristic eyewear onto them. "Perhaps we went too
far with that idea, because we actually started to make it," admits global
brand EVP Trevor Edwards. Parker decided the product was impractical, and he
killed it.
That sounds like an obvious call,
but Parker reputedly approved Flyknit after being shown only a tube sock
stitched to a rubber sole. Early on, great ideas can resemble bad ones: They
both sound ridiculous. "Steve [Jobs] had a good bullshit meter, but also
an open mind," Parker says. "It's that bullshit filter that says,
'Really? Is this really compelling?' We kill a lot of ideas."
Parker says he often feels like Tom
Hanks in Big--a kid at a toy company whose job is to approve only the
products he has fun with. In the FuelBand, Parker saw what athletes would
instinctively value. As a "smart" version of the already popular
Livestrong bracelet, the FuelBand would give users their own digital coach to
motivate them. They could connect with other users and with their friends and
family via social media to cheer them on, whether it's to lose weight or train
for a marathon. Nike would benefit from this community, thanks to the ongoing
connection with its customers, as well as every user promoting Nike with each
post or tweet of their activity report. Plus, people were already comfortable
with wearing a silicone wristband, unlike, say, face magnets.
As if to prove the point, when
Parker and I meet, he's wearing a FuelBand on each wrist--exactly double what
any user needs. "I don't normally wear two," he says, beaming,
"but I have to admit, I'm obsessed." The company is now working to
extend that obsession to others. In December, Nike partnered with the startup
mentoring firm TechStars to woo entrepreneurs to launch companies that will
build on top of Nike's digital platform. Nike has already announced games built
on Fuel points.
This three-steps-ahead thinking is
important for any product. Flyknit is not only valuable because its technology
will help Nike make all kinds of lighter, better-fitting shoes, but also
because it fits into the company's global growth initiatives. With Brazil
hosting both the 2014 World Cup and 2016 Summer Olympics, Sterne Agee analyst
Sam Poser believes Flyknit will help Nike reorient how it makes and sells shoes
in such an important international market. "The duties importing from
China [where Nike does much of its manufacturing] to Brazil are absolute
craziness--way too cost-prohibitive, and the [manufacturing] in Brazil is so
expensive," he says. "But Flyknit is much less labor intensive. If
they can go into Brazil and set up [knitting] machines, they win." Poser
goes further, imagining that Flyknit will one day allow customers to digitally
personalize shoes to match the exact shape of their feet.
Great ideas have something in common
with bad ones: Early on, they both sound ridiculous.
Parker wouldn't be blamed if he had
passed on Flyknit after seeing a modified tube sock, but if Nike doesn't bet on
crazy ideas, its rivals will. "They're like sharks," says Poser.
"If they stop swimming, they die." Adidas, also after four years of
research, launched its Primeknit line only months after Flyknit's. Nike then
dragged Adidas to court over patent-infringement claims related to knit
technology.
Stefan Olander has barely ushered me
into his neatly arranged office when he invokes FuelBand lore. He has an early
prototype at the ready, the very one that his team used in 2010 to pitch the
idea to CEO Mark Parker. "We pulled up [our sleeves] and revealed
this," he says, sliding his fingers over the white leathery Velcro
bracelet marked with green calculator-like numbers. "Mark is so consumer-driven
that instinctively he said, 'Go do this now.' His first question was, 'How fast
can you build this?'"
FUELBAND
Nike embedded 120 LED lights into the FuelBand, modeling the display after a retro scoreboard.
Nike embedded 120 LED lights into the FuelBand, modeling the display after a retro scoreboard.
FLYKNIT
Knit threading and supportive cables (think suspension bridges) allow the Flyknit Racer to weigh just 5.6 ounces.
Knit threading and supportive cables (think suspension bridges) allow the Flyknit Racer to weigh just 5.6 ounces.
The tale is burnished to a high
gloss, which is a shame, because an idea as big as the FuelBand does not get
cooked up in a single lab. It doesn't become a sophisticated, beautiful product
just because Parker admired a leathery wristband. Nike doesn't like to discuss
the gritty details of how something like the FuelBand gets made, but the real
story shows how messy true innovation is.
In a world of rapid disruption,
companies no longer must--or can--own all the skills required to thrive. Just
as Google needed Android to attack mobile and Apple needed Siri to give it a
foothold in search, successful businesses need to constantly evolve, either through
partnerships, new talent, acquisitions--or all three. "You can't have a
barrier or restriction," says lead Nike engineer Aaron Weast. For the
FuelBand, Nike had to open its doors.
The FuelBand's road to reality began
in March of 2010, when a three-person Nike team flew to San Francisco to share their idea with the
industrial design firm Astro Studios. "They had this
concept of a tennis sweatband with an electronic watch," Astro design EVP
Kyle Swen recalls, as he sits in the same third-floor conference room where the
meeting took place. "They wouldn't even leave us the pitch; it was super
confidential." Nike also consulted engineering firms Whipsaw and Synapse, and longtime digital
marketing agency R/GA.
This team of outside partners
created hundreds of prototypes, imagining concepts for displays that resembled
an Amazon Kindle screen; bands that fully illuminate with color; ones that fit
over your leg or upper arm; and even a fastening system modeled after a gas
nozzle.
"Everything was custom, custom,
custom," says Astro designer Anh Nguyen.
Olander played the shepherd.
"You will never get good work out of anyone if you hand over a brief and
go, 'We have no clue what we want, but why don't you just do it for us,'"
Olander says. During the FuelBand's development, for example, Nike's specific
requests to partners included its red-to-green color scheme; the idea of Fuel
points, which Olander felt would encourage competition among users regardless
of their sport; and a dead-simple interface without excessive metrics. The team
learned that last insight from its experience with Nike's earlier digital
products, for which 30% of users turned off calorie tracking.
Nike's role was between a coach and
a traffic cop. Nike designer Jamian Cobbett describes it as an "ebb and
flow." Astro's Swen relates how engineers from other parts of Nike's
assembled team would see what the designers had in mind: "They were like,
'No fucking way,'" he says, laughing. "But that's innovation: full
throttle, hit the brakes; full throttle, hit the brakes." The effort produced
several breakthroughs, such as when Whipsaw embedded 120 LED lights in the
bracelet (to look like an old-time scoreboard) and Synapse developed a curved
lithium battery. Both are key features of the final product.
R/GA was tasked with the interactive
experience and toyed with making Fuel points spendable. "We had
conversations around racking up points and spending them on Nike socks,"
says Ian Spalter, who was then R/GA's product design VP and who now serves a
similar role at Foursquare. The agency tinkered with tabulating Fuel points in
aggregate for public causes--the digital equivalent of charity runs. Several
sources say Nike considered selling FuelBands synced in pairs (so spouses or
best friends could track each other's progress), and it even explored using the
system to create campfire moments--that is, lighting up all the FuelBands in
the world at a particular time to connect with its community, such as when the
Olympics commenced. In the end, the pull of getting a small shot of electronic
serotonin from checking your progress all the time, the same way many people
incessantly refresh email and social media statuses, proved more than
addictive. "There's something about dipping into feeds," says Nick
Law, R/GA's chief creative officer, "whether it's fantasy football, Twitter,
or Instagram."
As the product rounded into shape,
"editing [then] becomes critical," Parker says. Olander adds,
"It was like, 'What if we know your heart rate and have galvanic skin
response, or add a gyro and magnetometer? We could know everything.' But who's
going to do all that stuff? It's this interaction between design and
engineering that keeps the experience refined."
And during that process, "Nike
was the ultimate creative director," says Spalter. "What's more
important--the people who cook up all the options or the people who curate and
make the decisions? For a company of Nike's size, they keep the number of
editors to a pretty damn short list."
I am sitting in a Winnebago, parked
in the middle of the Innovation Kitchen. The team purchased it on Craigslist
for $750 to use as a conference room. There's plenty of meeting space
elsewhere, but as legend has it, Nike cofounder Phil Knight first sold shoes in
the back of an RV like this one. So here we are.
Nike's campus is full of odd
talismans like this, a living museum of itself, a container of legends and oral
histories. The waffle iron that cofounder Bill Bowerman ruined making rubber
soles in the 1970s? It's enshrined on campus like the Liberty Bell. In fact, with
so many bits of lore around, anything can be mistaken as symbolic. The clock
inside the Winnebago reads 2:59 even though it's barely past noon. My PR
handler makes a point of asking about the significance of the clock's time.
"I don't even know," Shaffer says, "but there's always something
superdeep in things like that." Adds my handler, "That's the kind of
detail people obsess over here--little things like this have a story behind it.
Or, well, maybe it just means the battery is dead."
If Nike treats its past with
reverence, it represents its present in a different but equally honed way: as
"top secret." In Parker's office, he shows me a pink running shoe
that he says will reinvent Nike's manufacturing processes yet again. (It fuses
Flyknit technology with a new, peculiar honeycomb-like sole.) "You might
be the very first person outside of Nike to see this," he says.
In fact, I'm repeatedly dipped into
the company's inexhaustible supply of secrets--so much so that I wonder if Nike
labels ideas "secret" the way the government broadly labels files
"classified." Inside a garage on the outskirts of campus, behind a
day-care center and a security firm, with its door simply marked "A,"
I witness two toned athletes lunging in front of a pair of Xboxes. This is the Sparq
performance center, which was key to developing the analytics behind the
FuelBand and other digital Nike products. At one point, Sparq performance
director Paul Winsper insists, "We don't want anybody to know about
this." And as I enter the Zoo, another of Nike's "secret"
facilities, an engineer confides, "Sometimes you want to be nice and hold
the door for someone behind you, but you just never know."
All of this surely has some level of
truth: Nike doesn't want full details of its R&D leaked out, nor does it
want, say, some Adidas employee wandering in to snap photos. (Ahem: "Hell
would freeze over before we copied a product," Adidas design lead James
Carnes tells me.)
But like an action movie, the story
isn't built to withstand serious inquiry. I'm told, for example, that only a
few dozen employees have access to the Zoo and the Innovation Kitchen. Yet
there are clearly more than a few dozen employees inside both, which, mind you,
are on the first floor of the Mia Hamm building, behind only slightly tinted
windows through which passersby can clearly see from the campus sidewalk. At
one point when I walk by, a door to the Kitchen is propped open, unsupervised.
So what's with all the hush-hush?
Culture. Employees internalize their own stories--that their work is imbued
with a value worthy of secrecy, vaulting Nike into the lofty heights of
philosophical (and sometimes self-important) corporate cultures alongside only
Apple and Disney. When I bump into Nike coach and three-time New York City
Marathon winner Alberto Salazar, in between the campus's Olympic-size swimming
pools and sky-high climbing walls, even he tells me, "This place is like
Disneyland."
That cohesive culture begets
tangible benefits, such as talent retention. At Nike, you're a rookie if you've
been at the company for less than a decade. Workers quote the company's maxims
like the Ten Commandments. More than a dozen tell me, independently and
unprompted, "Be a sponge" and "If you have a body, you're an
athlete." "We can almost finish each other's sentences," Parker
says. "But not in a drinking-the-Kool-Aid, cultlike way."
That self-image is infused into
every marketing message and product release, and transferred to a public eager
to finally be let in on the secret. The more exclusive the presentation of
those products and brands, the more they are desired. Parker borrowed more than
a bullshit meter from Steve Jobs. No wonder consumers and media line the block
for both Apple and Nike product launches.
"There's a halo effect of being
seen as an innovative company," says Forrester's Sarah Rotman Epps.
"It's hard to overstate how important it is that Apple CEO Tim Cook is
seen wearing one of your products onstage at an Apple event," as he was
with a FuelBand during the iPad Mini launch last October. Never mind that Cook
sits on Nike's board. The cool kids are sitting at the same table, and you're
invited.
After leaving that secretive garage
on the corner of campus, the one labeled A, I'm told I won't be able to locate
it again. It's that hidden, my handlers say, like a witch's cabin that vanishes
into the woods.
It seemed like a challenge. So the
next day, I go hunting. I search in the rain for 45 minutes, down endless
little roads. Finally, there it is--unguarded, intact, no laws of physics
denied.
Another Nike myth busted? Perhaps.
But I can't go in; the garage is empty. The lights are turned off. The building
is there, but the ideas inside are gone. The secret is kept.
For
nearly a decade, tennis star Serena Williams has been one of Nike's most
visible athletes. (In March, in fact, her core workout will be released on the Nike Training Club app.) But she's also a
serious entrepreneur: Her clothing line Signature Statement is on HSN.com, and her
business investments range from skin care to tech startups to part ownership of
the Miami Dolphins. And she credits Nike for setting her business standards.
1/Always offer something new
"You look at where Nike
started, from the '80s until now, and it's such a huge difference,"
Williams says. "I wonder, like, how were athletes able to play back then?
Every time I turn around there's something new--pants with ventilation,
seamless fabric. They actually invent fabrics, which is really cool for me,
with my fashion background. I always use them in my line. I'm like, 'So what
are the colors for next season?'"
2/The invisible is as valuable as
the visible
"When I first came to Nike I
said, 'I don't care how I feel; I just want to look good.' And they said,
'We're going to make you look good, and we're going to make it comfortable.'
Last year at the French Open, my dress was almost like a Herve Leger [bandage]
dress, really tight fabric. But I was able to perform, I was able to move. It
was really functional, but it was also bringing design and style."
3/Consider yourself an underdog
3/Consider yourself an underdog
"I'm not disrupting my brand
enough. I need to do it more. Nike always tries to improve. They never say,
'I'm No. 1, and I'm happy.' They always say, 'How can we get better?' Beyond a
company, beyond entrepreneurship, you can really take that attitude in your
life, like, I want to be a great mother, or a great student, or a great doctor.
What can I do to be better?"
--As told to Whitney Pastorek
http://www.fastcompany.com/most-innovative-companies/2013/nike?partner=newsletter
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