Introduction

Nike was founded under the name Blue Ribbon Sports in 1964. In 1972 the first pair of sports
shoes was sold and experienced enormous growth and achieved a 50% market share within
the sports shoe market in the US only eight years later. After sluggish focus and growth in the
1980ies, Nike experienced strong growth in the 1990ies and cemented the position as global
recognizable brand. The increased international focus created strains on the supply chain,
which was consider inadequate to cater efficiently to the organization and the rapid changes
consumer demands.

As a consequence of the afore mentioned supply chain problem Nike faced inefficient
inventory management, problems in flow of goods and poor demand forecasting capabilities.
In addition, Nike was facing though competition in Asia, which as a region performed worse
than expected. Given this it is clear that both external, internal and situational factors were
the catalysts behind the Organizational Buying Behaviour (OBB) of Nike catalysing the
mammoth project of implementing global supply chain management (SCM) software and an
integrated ERP system.

Failure factors for the first NIKE-i2 ERP-SCM implementation

Using conventional project management measurements, it is clear the implementation of i2
was a colossal failure. I analyse the failure using a combination for factors from the OBB and
analysis based on the five-phase implementation framework. Nike states a clear vision of
what they want to achieve with the i2 implementation: “Achieving greater flexibility in
planning execution and delivery processes…. looking for better forecasting and more
profitable order fulfilment”. However, I believe Nike overall underestimated the SCM project
as I see some indications that the main focus and resources were on the general ERP
framework and implementation of the Single Instance Strategy (SIS). As a consequence, the
project management turned out to be weak. The lack of prioritization of the SCM project is
also visible in the lack of external consultancy services obtained.

Both project management and appropriate usage of external consultants are evaluated as key
critical success factors for successful implementation of large-scale IT projects. So, I see the
project being initiated on the wrong foot, but would consider phase 2, 3 and 4 as the phases
where the project fell apart. I strongly believe external consultants with expertise knowledge
would have challenged a number of the technical issue and decisions made by the project
management. The implementation of i2 on the legacy system is such example.

SIS required a large degree of integration and data migrations, so deploying the SCM software
on the legacy system instead of as part of the SAP ERP is a strategic mistake. This specific

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decision later proves unwise when Nike begins to experience large problems in data
integration as formats and outline of i2 didn’t match the other systems. Also, in the data
specification and parameterization external experts would have stepped in and limited the
vast number of customization enquiries from Nike.

I believe this specific problem has its roots in the inadequate blueprinting of Nike. The missing
blueprinting –the realignment of the long-term business strategy with capabilities of the
software – is not uncommon as it is estimated that 51 percent of failing IT projects, fail due
to lack of understanding between IT and business departments” I believe there is evidence of
that happening in this case as well. The fundamental idea behind the SCM software in terms
of demand planning did not fit well with the business strategy of Nike.

Nike used a bottom-up demand process where the retailers committed to an order in advance
before manufacturing. With i2 Nike changed this core process as the demand now was
forecasted using a top-down approach. The combination of the changed process and lack of
proper data integration lead to duplicated orders and overproduction. As the original i2
software did not support the many SKUs of Nike, heavy customization was required, which in
turn diluted the quality of the software as the specifications were unclear.

McAfee of Harvard Business School has said: “What Nike and i2 Technologies Inc. began
experiencing the problem actually is not the software itself… The culprit there was
misspecification” Further on the subject of customization, Nike had great difficulties
balancing customization with speed-to-market. I believe the external factors of significant
competition, changing market place and resulting disappointing financial performance in
growth markets lead Nike to rush the implementation and interfered with normal OBB.

The rushing meant that a guideline, templates and implementation methodology was
discarded by Nike with the argument that the i2 provided material was too rigid. In general, I
would argue that Nike required technology that was not sufficiently available at the time. This
pushed i2 to enter unknown software-territory and program-to-order disabling sufficient time
for vendor/developer testing. The criticality of this was further boosted due to lack of testing
from Nike, which clearly illustrates faults in phase 4 of the implementation as well.

Lastly, I find evidence that a global ERP and SCM software potentially would be difficult to
manage successfully at the time due to the structural issue of underdeveloped bandwidth
infrastructure, which could indicate Nike required a technical solution which was not
complete available in 1999. As the SCM software required a big-bang implementation, the
mistakes mentioned above considerably increased the risk of failure. So due to urgency Nike
selected to implement a highly customized solution discarding advice from the vendor,
avoiding third party/external consultations, neglecting testing and proper training of end-
users.

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As Steel says “Could we have taken more time with the roll-out? Properly. Could we have
done a better job with software quality? Sure. Could the planners have been better prepared
to use the system be it went live? You can never train enough!”

Evaluating the role of i2 in the process

In believe both companies are to be blamed for the failed implementation. Looking isolated
at i2’s role, I believe both tactical and strategic mistakes were made. As a vendor i2 had a
responsibility to work together with Nike to create a common understanding of the capability
of the software and the business management impact.

If the client was not adequately knowledgeable about the product delivered i2 should have
made a point of this in the RFP, by stating that a certain level of technical knowhow and
expertise was expected and required from the client as well, to secure a smooth
implementation. Such point – or clause – would have created the necessary awareness at
Nike and would have secured the necessary focus from Nike before engaging in the
implementation. We learn from the case that Nike when they started working together with
i2 already had tried several other solutions without being successful, which further underlines
my point.

Philip Kotler describes a common pitfall in B2B transactions as the B2B market is dominated
by fewer buyers than on the consumer market, which can provide an undesired purchasing
power to large corporations. In addition, Nike was on the forefront of the technology
required, which eventually meant i2 was pressured to provide significant more customization
to the software. The fact that the customization widely exceeded the 10-15% maximum
customization recommendation from i2 illustrates the negotiation and purchasing power
Nike had over i2.

I sincerely believe it was a tactical mistake from i2 to allow to the large degree of
customization. i2 added further to the tactical mistakes by not highlighting potential issues
with running the i2 on the legacy system hindering data integration effectually diminishing
the usability – and in turn satisfaction – of the software. During the implementation phase i2
made another tactical mistake by not being close enough to Nike and co-manage the process
or the rollout. To rollout without proper/any testing and training was a huge mistake
committed by Nike, but i2 should have intervened.

I believe project management on both sides was weak, which allowed for these mistakes
caused by poor communication and lack of managing expectations. Unfortunately for i2 the
number of tactical mistakes converted in a strategic issue damaging the reputation of i2, when
Nike publicly assigned the blame of the failure to them. i2 had in the cooperation with Nike a

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unique opportunity to position itself as a world leading SCM software vendor as the project
was ground-breaking in terms of size and complexity.

However, instead of gaining this competitive advantage the failed implementation, the public
statements by Nike and the following class-action lawsuits from the Nike shareholders
labelled i2 as incompetent. i2 severely miscalculated the tactical benefits of pleasing the client
versus the strategic gains of completing the project successfully. I believe i2 was too focused
on the short-term completion, which made them cut corners and discard own
recommendations in order not to have a conflict with the client.

Overall, I find it unfair to blame i2 entirely. After all, the vendor selection is always the
responsibility of the buyer and proper evaluation and testing of the product for its
functionality would have averted this kind of failure. “Implementing a supply-chain
management solution is like crossing the street; High risk if you don’t look both ways, but low
risk if you do.”

Nike’s SAP module Apparel and Footwear Solution Strategy

In my opinion Nike took a chance when start using AFS. Being one of the first users of the AFS
software, could potentially have been a risky endeavour as software in the initial stages can
be prone to bugs and other dis-functionalities. However, Nike implemented the AFS to
perfection, which meant that the risk was very well handled. Especially the meticulous testing,
seeking external consultancy service and skeleton roll-out stands out as key steps for the
success of this specific project.

To analyse if it was a good strategy we need to analyse Nike’s financial performance against
the main competition. The aim is to analyse if Nike after the implementation of AFS was
performing more efficiently – measured on key financial parameters – hence creating a
competitive advantage. I find clear evidence that is the case. I believe Nike created a
competitive advantage by being a first-mover in the usage of AFS. Nike had the key objective
to manage and turn the inventory faster and more efficiently. In my research I find that in
addition to turning the inventory 4. times versus 3. 5 of the competition, Nike has significant
less cash tied up in inventory – $2. 7bln versus $3. 4bln – which is remarkable as Nike produces
a larger revenue than Adidas. A final point showing great operational efficient at Nike, is the
ability to create a cash flow from these activities, where Nike in 2011 generated $1. 8bln in
cash versus the competitors $1. 6bln. The competitor’s gross profit margin only exceeds
Nike’s in 2011 after Nike has clearly outperformed on this factor as well throughout the time
period being analysed.

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It could be an indication that the competitors are closing in on Nike’s competitive advantage
in the areas of software implementation. I believe it was a good strategic decision to be an
AFS first-mover. Nike handled the implementation very well and thereby managed to balance
the risk and reward to the benefit of Nike against the competition. We see that Nike
has outperformed Adidas in terms of gross profit margin continuously with exception of the
last year in the analysis. I argue that the outperformance is based on primarily the relative
efficiency of the supply chain.

The main indication of Nike’s superior supply chain is the inventory and inventory turn rate.
We see below that Adidas has significantly higher holding of inventory relative to Nike and
that Nike turns its inventory faster. In more efficient supply chain and hence business
operation is reflected in the ability to generate cash from the operating activities. Nike
evidently creates a larger cash flow than Adidas. The financial markets also recognize Nike’s
competitive advantage as the stock shows a significant better performance than Adidas.
(+171% vs. +86%, 2007-)