Looking Back on Nike’s Evolution from Startup to Global Enterprise

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0:20Welcome to HBR on Leadership. These episodes include case studies and conversations with the world's top business and management experts, hand-selected to help you unlock the best in those around you. I'm HBR Executive Editor, Alison Beard. What does it take to start and build one of the world's most recognizable consumer brands? In the case of Nike, it was the inspiration of an entrepreneurship class, a business partnership rooted in running, and the creative use of a waffle iron. In this IdeaCast episode from 2017, HBR editor Dan McGinn speaks with Nike co-founder and chairman emeritus Phil Knight about creating a culture of ongoing innovation and how he passed the baton to his successor, Mark Parker.

1:02Knight is the author of the book Shoe Dog, and he started the conversation describing how he came to team up with his former track coach, Bill Bowerman, to begin designing and selling shoes. The shoe is the one piece of equipment that really matters to a runner. There's no ball involved. There's no racket. There's no helmet. And Bowerman was obsessed with it. He believed, you know, an ounce and a pair of shoes was the same as 1 ,000 pounds in the last five yards of 1 ,500 meters. So he was obsessed with it, and it got me quite interested in it. Sounds like as far back as the 50s, he was sort of tinkering and experimenting with all kinds of weird shoes.

1:41You had to wear some of these as one of his runners? Yes. In about my senior year, he had begun to believe that shoes should be lighter than the shoes that were coming in from Adidas and Puma, the two main suppliers in running. And so he began to make some shoes in his home workshop. And he didn't want to try them out on his Olympic athletes. He tried them out on me. And so it got me quite focused on the shoes. What was the weirdest pair of shoes he ever had you wear? Well, it was probably a pair of goatskin shoes with a very thin plate. You could feel the spikes through the thin plate, but it was very lightweight and it was very odd looking.

2:18But it was light and it worked okay. Some of this must have cost you some time, I would think, in races. Was there ever tension in the fact that he's making you wear these things and they might be hurting your performance? He had me convinced it wasn't hurting my performance. And that came home to register very strongly when Otis Davis won the conference championship wearing a pair of Bowerman's homemade shoes. You began to believe in them. Now, your fascination with shoes and the idea that there might be a business there, that's something you thought about at Stanford during business school? That's right.

2:50I took a class in entrepreneurship and took the running shoe idea with the thought that why are shoes, why are the quality running shoes made in Germany? That's not a place to make shoes. and why aren't they made in Japan, which was, you know, very much more economic as far as the stitching, which is the most expensive part of a shoe. So I used that as sort of a thesis of the paper and the professor liked it and that's the way it began. And it seems like when you began, the idea was mostly about importing as opposed to putting your own design ideas into it. Is that true? Yeah, it was, yes. It was mainly focused on economics and manufacturing.

3:27So after Stanford, you went on a sort of a whirlwind tour and ended up talking sneakers in Japan. How did that come about? Well, I had written the paper, the Japanese ought to be able to make inroads into the German shoe market, just as the Japanese had made inroads into the camera market. Picked out a sequence of factories that I was going to call on, and the first one was a Nitsuka Company Limited in Kobe, and I called on them and got a great response, and I ordered some samples, and away we go. So eventually you sent a couple of them to your old coach. He was one of the first people you shared them with.

4:01Why did you do that? Well, obviously he was by that time really recognized as one of the best distance coaches in the world. And so I thought if I could get him to approve the shoes, to buy a few pair of shoes, that would be the ultimate endorsement. And that's see if I can get Bowerman to buy a few pair. So celebrity endorsements have become, you know, a driving factor in athletic shoes and athletic gear of all sorts. You didn't really think of him as more than that in the beginning? This was just about getting him to sign on and say these were the right kind of shoes? Well, the endorsements, they were already out there long before I ever got in the game.

4:36But I thought of it more as basically an approval of the quality of the product more than the endorsement. Endorsement, I was more interested in. If we get a Bowerman to sign off on it, could we ever get Burleson to wear a pair? That's kind of the way I thought about it. How did it evolve to be an actual deal, like a partnership? Well, when I sent the shoes down to him, he said, let's get together for lunch. And I said, by all means, and went to the lunch still hoping that I'd get an order. And it turned out to be more than that? Much more than that. He said, how about letting your old coach in on this, which pretty near floored me.

5:09But I thought about it for about 30 seconds. And I said, what better partner to have? So there's no downside of this in your mind? No, absolutely none. Of the various ideas he had when the shoes were still coming over from Japan, what were the most important things he added to the design and the innovation? Well, in the early years, the factory had what they called a high jump shoe, which had a unique cushion in it. They called it the spring up, which was supposed to give the jumper more spring. It really didn't do much of that. But when we looked at it, he said, you know, that is an innovation for a running shoe to give a layer of cushion between the outer sole and the upper.

5:52And so he tore it apart and rebuilt it as a running shoe and sent it off and said, make it like this. And that's a shoe we call the Cortez. It was really kind of the first major breakthrough in running shoes in 50 years. And it's still an important shoe in the line. And much of the idea for it came from him? Basically all of it. Hmm. Where did the waffle iron come into play? Almost 10 years later, we were distributed for Tiger Shoes, and then we set up our own line, Nike, after we had a breakup with the original manufacturer. And he had come up, he had done some other innovative things with Tiger, including, you know, picking a nylon for the upper rather than just a leather.

6:32And so we said, what we really need in this new company, in this new brand, is really another breakthrough in shoes, something good. So we had a meeting up in Portland, Bob Waddell and I and Bill Barman, and we said, you know, there hasn't been an outer sole innovation. We had a midsole innovation, but we'd never had an outer sole innovation in running shoes forever. So driving home to Eugene, he got to thinking about it, and he couldn't come up with anything. But then his wife had waffles the next day. He said, maybe. And it worked. Ultimately, it worked. The original waffle iron, which is now in a trophy case here, stuck because he didn't have a catalyst in it and it couldn't release it.

7:10And it got stuck. And his wife was really mad because it cost her$12.95 to get a new waffle iron. In the 60s and then the 70s, you faced a ton of financial issues. You were constantly dealing with banks that wouldn't lend you money. You had very complex negotiations and even lawsuits with Japanese suppliers. How involved was Bowerman with those aspects of the company? He wasn't personally involved, but he was quite aware of it. And he was always there for support. He was obviously in the major lawsuit against Anitsuka. He was a key witness. He was always totally supportive and always fully informed, but I was the one getting us into trouble.

7:49What did you two disagree on? Oh, almost nothing. He basically left the day-to-day and the operations to me, so I didn't have any trouble with him that way. And so his role was mostly to work on innovation, and he was good at it, and I was quite happy with that arrangement. So by the mid-1970s, the company was now Nike, and you built a facility up in New Hampshire. So that's where Mark Parker was first hired into the company. Tell me about the first recollection of him you had. Well, he was very likable. We're always looking for promising young talent. Ultimately, the company is going to be what its people are.

8:29And he was completely dedicated to getting better shoes, and we were glad to have him on board. How important was it that he'd been a collegiate runner? Very. I think in the early days, almost all the employees were ex-runners or still runners or hoped for to be even better runners. But they all had a touch of that. And I think that's what made them so absolutely dedicated to building a better shoe because they knew how important it was. Some businesses think that a good business person can work in any kind of company. You think of a company like Procter & Gamble where it doesn't matter if you're marketing cake batter one day or potato chips the next day.

9:11The theory is you don't need to have any particular passion for the product. Do you disagree with that? Pretty much. You know, I do believe there is such a thing as a good general manager that can go across industries and categories. But for the most part, I think you really have to have a passion for the business you're in. I consider myself a pretty good businessman, but I get fired at Microsoft. You just don't get interested in the technology? It's completely above me. Now, obviously, they were on different coasts in those early years, but did Bowerman and Parker develop much of a relationship in the early days?

9:45When you're presenting shoes to Bowerman, there was always a certain amount of tension in the air. And Bowerman's attitude was that Nike makes the worst shoes in the world except for everybody else's. And so it could always be better. So it was never really kind of good enough. And so it was always the student presenting to the professor sort of relationship, even for me. That sounds like it must have been frustrating. It was for some people. That's a true statement. but it was not for Mark Parker and it was not for me. Do you recall a moment when you first said to yourself, gosh, this guy might be more than a designer.

10:22He could have the potential to be more broadly involved in running the business. Yeah, I don't remember the exact time, but he came back with some shoe ideas. And it was quite clear that he was thinking more broadly than just in terms of the shoe. He was also thinking of the marketing aspects and the general management aspects of it. and he said, this could be a rising superstar. You know, your own background, having an MBA, having spent years as an accountant, you have sort of a very foundational grounding in business. Was it a concern that, hey, this guy's a designer, he doesn't have that kind of business training, maybe there is a limit to how much responsibility he could assume?

11:01It wasn't a concern, but it was the way we thought of him originally. It's absolutely a fair assessment of how he was looked at in his early stardom, I guess. He was on his way up, but we thought it was sort of a limitation that could be head of design or something like that. And it was only after we got to know him a little bit, hey, this guy's half businessman, half designer. Those combinations are few and far between. So it sounds like it was a process where you sort of recognized a natural talent that you didn't know he had. But was there any sort of cultivation or training or did you do anything intentional to try to develop that side of him?

11:38Well, our training program was, we got a problem, go fix it. We were growing really fast in those early days. And we had really demands for people that kind of outran what we saw as our capability. So we were always pushing people beyond their limits. And so we didn't really have a training program per se, but we had to throw them into general management problems and general management responsibilities, and he always handled them well. So that was basically his training program. It was on-the-job training by crisis. Now, I want to jump back to Bowerman. So he died in 1999. Was he active with Nike right up until his death?

12:21He had backed off quite a bit, about, I would say about three or four years before that. He would literally, six months before he died, he came out. We had an all-hands meeting where all the company employees got together, and we had an interview with Bowerman on stage. So he was still involved, absolutely. And he seemed to be in good shape, and he seemed to enjoy the meeting. He always had this sort of quirky sense of humor. And he got a few of those jokes in and told about his role in the company and what he saw in the future and gave us a blast on how bad our shoes were. And it was sort of typical Bowerman that everybody enjoyed.

12:59So even in 1999, he thought Nike shoes were terrible. Absolutely. By 1999, when Bowerman died, you'd been running the company that was now Nike for 37, 38 years or so, pushing close to 40. At what point in all this did you start to think about succession and a time when you might not be the CEO? We've always, since we've been a public company, we've always had what I considered a really good board of directors, so that they've always pushed me on succession plan. What would happen if something happened to you, et cetera, et cetera. I really didn't really start thinking about it till I was right around 65 years old.

13:36And it wasn't the number after my age, but it was the fact that I was beginning to lose energy and that the company really needed, you know, a more active CEO than what I was able to give. And that's when I began to think about it seriously. So your first move at succession was with Bill Perez from Wrigley in 2004. Tell me about that. Well, we thought the company would benefit from a look from the outside. Whatever my idiosyncrasies were, the company worked around them and didn't even know there were idiosyncrasies anymore. And we thought that we could benefit from somebody from the outside. So we interviewed several high-profile people and ultimately picked Bill Perez.

14:17What happened? It didn't work. It didn't work. Bill Perez and I had had long talks And one of the things that I warned about is that Nike is a unique culture. And it's not for everybody. Some people adapt to that culture and some people don't. And he didn't. You know, we talked earlier about whether somebody really needs to love athletic footwear to succeed at a company like Nike. Was that part of the issue that he came from outside the industry and doesn't seem any evidence that he particularly likes sneakers? That was something that didn't help. Yes, I think that's true. But I do think over and apart that Nike is a unique culture and that he really, it was so different from his culture.

14:59When we're working really well, it's a very collaborative atmosphere here, very kind of team oriented, like from the athletic field. He was more used to strict boundaries between positions and strict responsibility for that little box on the organization chart. that was just different on who we were, and we didn't want to be like that other company. So how did Bill come to leave the job, and what was the process that led to Mark becoming CEO? Well, I made the decision that this was not working and was not going to work, and if allowed to continue for another six months, it was going to be detrimental.

15:40So I recommended to the board that we make a change, that we terminate Bill Perez and put Mark Parker in the CEO's job. Did you resolve to be more hands-on in this period than you might have been? Did you think that instead of a chairman who shows up every once in a while, that you needed to be a more active chairman in those first years? Kind of just the reverse. With Mark, I had a few meetings and realized that we were sort of on the same wavelength and could kind of, after all these years together, finish each other's sentences. So I didn't have to meet with him very often. I read somewhere that it's not unusual for you to go a month without talking to Parker.

16:18That seems really extraordinary for a founder chairman to go a month without talking to the CEO of the company. How do you manage that and why do you do that? There may have been a time or two when it's been a month, but I talk to him whenever I want, or he calls me at the same time. So I don't know. There isn't such a thing as a regular scheduled meeting. There wasn't back 10 years ago and there isn't now. It's just kind of as necessary. And I wander, I walk around the company with access to anybody I want, so I know what's going on. When you look at Parker's track record as the CEO, from a financial standpoint, it's been fairly extraordinary.

17:01From a brand, strength of brand standpoint, it's been extraordinary. At the same time, he's noted for being able to admit a mistake when he makes one, whether it's an acquisition that doesn't work out, whether it's the foray into golf that you've undone. What is it like when he tells you that a project that Nike has spent, in some cases, probably billions of dollars on, was a mistake and he's going to undo it? How do you respond to that? Favorably. There's no such thing as a perfect manager and then nobody bats a thousand. And one of the real nice things about him and what I like to think is the culture of the company, it's open and honest.

17:39As a general rule, not just Mark Parker, but anybody in the company, You don't get in trouble for making mistakes. You get in trouble for covering up mistakes. So I'm quite comfortable with that process. Mark is now in his 60s. You're, I think, in your late 70s. Is it hard for two gentlemen of your age to run a brand that's so youth-oriented? Better not be. As I said, Nike is young and irreverent, and I'm neither. But we both have a lot of respect for the consumer, and I think we know who he or she is. and we better have that consumer in mind at all times. And I think we have the average age of an employee at Nike is still right around 30 years.

18:20So I think we're okay there. Do you continue to believe that the Nike culture is so unique that the next CEO has to be coming from inside? I think the next CEO from Nike will come from the inside. As you think back on the way your products have evolved over 40, 50 years now. What do you think Bill Bowerman would say if he saw a self-lacing pair of shoes that cost$720? First thing he'd say is, humph, a gimmick. And then he'd pick them up and look at them and try them on and say, hmm, I want to take these home and think about them. And then he'd come back with an improvement. You think he'd still hate Nikes and say they're terrible?

19:04I didn't say he hated Nike. I just said he thought they're the worst shoes in the world except for everybody else's. And I think he'd still think the same, yes.

19:16That was Phil Knight. He's the co-founder and chairman emeritus of Nike and the author of the book Shoe Dog. He was interviewed by HBR editor Dan McGinn in 2017. HBR on Leadership will be back next Wednesday with another hand-picked conversation from Harvard Business Review. If this episode helped you, please share it with your friends and colleagues and follow the show on Apple Podcasts, Spotify, or wherever you listen. While you're there, consider leaving us a review. When you're ready for more podcasts, articles, case studies, books, and videos with the world's top business and management experts, find it all at hbr.org.

19:50This episode was produced by Mary Du. On Leadership's team includes Maureen Hoke, Rob Eckhart, Erica Truxler, Ramsey Gabaz, and Anne Bartholomew. Music is by Koma Media.

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