t

os
CASE: IB-106
DATE: 08/13/13

rP
NIKE:
SUSTAINABILITY AND LABOR PRACTICES
1998 - 2013

yo
"Our future depends heavily on innovation, collaboration, and transparency. Nike has learned the
value of these principles first hand through some tough lessons over the years. We were one of the
first companies to understand the challenges of global supply chains. We recognized quickly that
our own efforts to create change were not enough. It started us on a journey of partnering for
solutions.
op
Now is the time for bold solutions. Incremental change won't get us where we need to go. And it
certainly won't get us all there fast enough. Nor at a scale that makes a difference. We are moving
from an era of open innovation to one of systems innovation.”
1
−LAUNCH 2020 Summit, NIKE, Inc. President & CEO Mark Parker, April 2013
tC

A 15 -YEAR JOURNEY WITH NO FINISH LINE

In 1998 at the National Press Club in Washington, DC, Nike Co-founder, Chief Executive
Officer and Chairman of the Board, Phil Knight made the first public acknowledgement of the
“cloud that had been over Nike’s head” regarding issues that Nike had faced in its supply chain.
No

1
http://nikeinc.com/news/nike-nasa-u-s-state-department-and-usaid-seek-innovations-to-revolutionize-sustainable-
materials.

Debra Schifrin, Professor Glenn Carroll and Professor David Brady prepared this case as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Katie
Plichta proved some early research assistance.
Do

Copyright © 2013 by the Board of Trustees of the Leland Stanford Junior University. Publically available cases are
distributed through Harvard Business Publishing at hbsp.harvard.edu and The Case Centre at thecasecentre.org,
please contact them to order copies and request permission to reproduce materials. No part of this publication may
be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means ––
electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate
School of Business. Every effort has been made to respect copyright and to contact copyright holders as
appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at
cwo@gsb.stanford.edu or write to Case Writing Office, Stanford Graduate School of Business, Knight Management
Center, 655 Knight Way, Stanford University, Stanford, CA 94305-5015.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 2

He stated that “Nike had become synonymous with slave wages…”2 This moment was a pivotal

t
one for the company after enduring public protests in the late 1990s over issues such as unsafe

os
working conditions, wage rates, excessive overtime, restrictions on organizing, and
environmental impacts. Knight’s speech began Nike’s public 15-year journey of evolving from
its strategy of reactive supply chain crisis management to proactively taking steps to improve
sustainability from the top down and bottom up. (See Exhibit 1 for a timeline of key strategy
shifts.)

rP
Early steps included creating strategic relationships with governments, non-governmental
organizations (NGOs), and labor unions, as well as reaching out to some of the company’s
harshest critics. Nike also formed new models of collaboration, and in the early days of its
sustainability journey, the company helped found the Fair Labor Association (FLA), which
works toward improving labor conditions around the world. Nike also moved from only having a
Code of Conduct for factories, to monitoring its factories and collecting environmental and labor

yo
data.

Yet even with increased awareness, the broader footwear and apparel industry still lacked a set of
agreed upon standards and any transformative innovations in management. This situation led
Nike management to reflect more deeply about how to embed standards into its business model
as an integrated component of its business and growth strategy. Nike then started to invest in
op
more than just monitoring. It evaluated the impact of its practices and approach on relationships,
design, materials, products, manufacturing, and its processes.

Nike also began redefining sustainability, which evolved from a Corporate Responsibility (CR)
concern to an innovation and growth driver. Originating in labor, the scope of sustainability was
broadened to include the roles of all the environmental and social impact areas across the
tC

manufacturing value chain. The company regarded sustainability as a way to address global
trends that would impact its business, including: rising population; increasingly constrained
natural resources; technology and transparency advancements; increasing costs in commodities,
food, and agriculture; and rising consumer expectations. Nike’s top executives began asking
themselves how the company could create growth while removing itself from a reliance on
scarce resources and building a much more resilient supply chain.3
No

In 2009, Nike implemented many sustainability initiatives that had substantial impacts on both
Nike’s Oregon headquarters and across the global manufacturing base. Two key initiatives were:
moving its CR team further upstream in the corporate decision-making process, and developing
multiple indexes to rate its sustainability practices and those of its independent contract
manufacturers.
Do

2
Full quote: “The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse.”
Phil Knight, 1998 National Press Club speech.
3
Nike FY07-09 CR report,
http://www.nikebiz.com/crreport/content/pdf/documents/en-US/full-report.pdf.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 3

t
In 2013, although most observers and many activists agreed that Nike had made positive strides
to improve sustainability and safety policies and practices, some factory labor conditions still

os
raised concerns among some activists. Indeed, NIKE, Inc. CEO Mark Parker said the company’s
efforts to improve labor practices continued to evolve, and there was still much work to be done.
Nevertheless, when other companies received public scrutiny for unfavorable practices in their
value chain, comparisons were often made to the lessons learned at Nike. Nike’s actions also
took the company off the top of most activists’ target lists. By 2012-13 many labor activists had

rP
shifted their focus to problematic labor conditions in other industries and companies such as
Foxconn, which was a major Apple supplier in China, and the global attention to safety issues in
Bangladesh. Parker saw the overall successes Nike had achieved in its sustainability innovations
since the 1990s, and noted that the company was determining the best way to take those
innovations to scale at a systemic level.

Moreover, Parker knew the changes Nike made would have a global impact. A company with

yo
revenues of $25.31 billion (up 8 percent from the previous year) as of May 31, 2013, Nike had
approximately 48,000 employees, and sourced Nike products in 914 contracted factories, which
employed over a million factory workers globally. (See Exhibit 2 for Nike financial statements.)

EVOLVING NIKE’S SUSTAINABILITY STRATEGY

Nike voluntarily released its first CR report in 2002,4 and with the release of its second CR report
op
three years later (covering FY04)5 the company began a new era of transparency. In 2007, Nike
published its third CR Sustainability Report (covering FY05-06).6 Despite the positive changes
enacted by that date, Parker and the rest of top management wanted wider-scale more impactful
change.7 Accordingly, Nike initiated a deep internal culture change geared toward rethinking its
sustainability strategies and approach to best affect change through areas it controlled and areas
tC

it influenced.

2009 Company Reorganization

In 2009, Nike’s Corporate Responsibility organization underwent a review commissioned by

Parker that eventually was folded into the broader company-wide reorganization that took place
during that same year. The review took five months and led to core changes implemented across
No

the company. The changes addressed key areas including governance, accountabilities,
incentives, and checks and balances both upstream (within Nike) and downstream (in contracted
factories).

4
Nike FY01 CR report,
Do

http://www.nikeresponsibility.com/report/uploads/files/Nike_FY01_CR_report_original.pdf.
5
Nike FY04 CR report, http://nikeinc.com/system/assets/1836/Nike_FY04_CR_report_original.pdf.
6
Nike FY05-06 CR report,
http://www.nikeresponsibility.com/report/uploads/files/Nike_FY05_06_CR_Report_C_original.pdf.
7
From intro of Mark Parker's letter in Nike’s FY05-06 CR report,
http://www.nikeresponsibility.com/report/uploads/files/Nike_FY05_06_CR_Report_C_original.pdf.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 4

t
As mentioned earlier, Nike developed multiple indexes to rate the sustainability of the materials
it used and the environmental impact of the production process. The indexes also evaluated

os
contract manufacturers’ compliance. After the review and reorganization of the Corporate
Responsibility organization, these indexes were more broadly disseminated throughout the
business to serve as tools to educate designers, developers, and suppliers, as Nike aimed to have
the indexes positively influence all sustainability decisions. With leadership commitment to
establish goals and targets and the implementation of the indexes across the organization, Nike

rP
achieved tangible success in all these areas.

Moving Corporate Responsibility Upstream in the Organization

A critical step Nike took to increase the impact of its sustainability program involved moving the
CR division to be aligned strategically in the organization and developing guidance tools for its
early product creation decision-making process. (See Exhibit 3 for organization chart.) The 2009

yo
reorganization provided Nike the opportunity to examine accountabilities for sustainability and
to identify stages where tools could affect decisions positively. CR no longer played an after-the-
fact policing or monitoring role. Instead, alongside the product teams, CR addressed
sustainability issues much earlier in the design and production process than it had previously
done. To make that a reality, Nike shifted the focus of its 130-person CR team to a new
Sustainable Business & Innovation (SB&I) team. It moved from reactive monitoring and
management to a renewed emphasis on monitoring in order to address the root cause of
op
sustainability and labor problems, creating new business models, innovating sustainability
solutions into the business, continuing to put workers at the heart of supply chain innovation, and
being more forward-looking by working in closer partnership within the Nike business functions.

Parker said he wanted environmental, social and labor impact to get greater priority in strategic
tC

decision making.

Initially CR was a department that was set up to say, “We need to deal with some
of these issues.” It was not integrated into the business. Then we developed a CR
committee from the board perspective. CR moved from being a department with a
narrow mission that was more about policing and controlling and making sure we
are doing the right thing, to being integrated into the business and actually helping
No

us create greater potential for the company itself. The whole effort around
sustainability was borne out of that. I knew that if I put sustainability into the
critical path, it had a much higher likelihood of being pulled into the business, as
opposed to coming in as an afterthought.8

Nike Vice President of SB&I Hannah Jones added: “It used to be that we were at the end
of the pipeline, watching as things that had been made came out. We were then applying
a kind of rearview mirror to them and saying ‘Well, that is not very good – but it is too
Do

late.’ We were introspecting too late in the process.”

8
All quotes are from case author interviews unless otherwise noted.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 5

INNOVATION

t
os
Parker said making Nike a more sustainable company also made it a more innovative company.
He saw sustainability efforts as an opportunity to create disruptive innovation and make better
products and be more profitable. He said the attention around Nike’s labor practices and
sustainability in the 1990s created an awakening within the company and created a greater
awareness of the impact the company was having.

rP
We saw that we not only have a responsibility, but an opportunity to innovate in this
space as well. So the whole concept of innovation in the early days was more on product,
but became something that we looked at as having an impact on the entire business—and
the supply chain was certainly a piece of that. Then we started to go on the offense
around applying innovation to some of the challenges that we saw in the supply chain.
Certainly in the area of sustainability—in terms of constrained resources or

yo
manufacturing methods that were dated. Factories were just sitting there waiting for
innovation to come in and take centuries-old manufacturing methods to modern solutions.
In doing so it creates better outcomes for the factories, for the workers, for Nike, and for
the consumers. Better results and better product, which leads to more innovation.

LABOR PRACTICES
op
Knight’s 1998 speech to the press club and Nike’s subsequent actions did not silence all the
critics. For example, a 2001 report by the human rights nonprofit Global Exchange said that
some of Knight’s promises had not been kept—most prominently in the area of bringing in
independent auditors.
tC

By 2013, however, many former critics agreed that Nike had made substantial strides in terms of
safety and getting many harmful chemicals out of the factories. Nike had a Health, Safety and
Environment team that conducted factory audits and provided relevant training.

But both Nike and activists said there was still work to do. CEO Mark Parker observed, “We’re
on a road, a path here. We’ve made lots of improvements. I’m proud of the work that we’ve
done. At the same time, I’d be the first to say we have a lot more to do.” He reflected what
No

management was learning at all levels: some barriers remained in the supply chain because of the
complexity of the issues. According to Chief Operating Officer Eric Sprunk, whose team
managed sourcing and worked with contracted factories to measure and evaluate performance,
“Labor [in contracted factories] is a challenge. We invest in strong programs, management
capability training and create some incentives for going beyond compliance. But we can still see
that even with all of the ‘right’ elements in place, there are systemic problems that continue to
arise.”
Do

Activists continued expressing concern about wage rates and excessive overtime. While Nike’s
independent contract manufacturers’ were upholding Nike’s standards of paying at least country-
specific minimum wages, critics argued that was insufficient for workers to fulfill their basic
needs. Activists argued that Nike’s independent contract manufacturers should pay a higher
“living wage.” However, one problem was that there was no specific definition of the term
“living wage” across the industry. The nonprofit Fair Labor Association (FLA) came up with the

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 6

“fair wage” terminology, but there was a lack of consensus across the industry about an

t
acceptable common definition. In 2012, Nike’s Code Leadership Standards for contract factories

os
committed contract factories to develop and put in place a process toward wages and benefits
that would meet workers’ basic needs, including some discretionary income.

Jones said: “Artificially hiking up wages can have unintended consequences if it’s not
competitive. It can move production out of a country rather than helping workers. It can result in

rP
factories closing down or eliminating jobs. It has also been shown to have a nearly immediate
impact on related costs of housing, food and other necessities so workers are not realizing real,
lasting change in their quality of life. So, we’re looking at that equation as a whole, because it
fits with how we see the future of manufacturing.”

Sprunk further supported the notion that paying higher “living wages” was not the easy answer it
seemed. If it were, he said, “everyone would have done it by now. Increasing wages has been

yo
seen to also decrease employment or provide fewer hours of work which could create negative
ripple effects for primary or sole-income earners.” However, many activists disagreed, arguing
that raising wages would have a positive impact on local communities and help to decrease
poverty levels.

Steve Castellanos, Nike’s lean enterprise director whose team worked directly with factories and
op
factory groups in addressing sustainability, said improving labor practices went beyond the wage
issue, and it was critical that workers felt respected through empowerment and how they were
compensated. To that end, Nike put many of the contracted factories that it does business with
through human resource management (HRM) training and worked with factory owners to convey
the business value of a well-treated, empowered and engaged workforce. Castellanos added that
trainings were one of the ways Nike was trying to move away from just policing the factories:
tC

The longer you stay in a policing formation and function, it is a self-fulfilling

prophecy. You could build an organization of hundreds of auditors and
policemen—but if you don’t ever start to develop skills and competency—then it
will always be a policed kind of supply chain. For growth companies, that is a
losing proposition: when you put police in place, you lose money. It is to our
advantage to grow capability with our factory partners.
No

Parker concluded that good HR planning not only helped workers but also led to factory
improvements and innovation. Nevertheless, some critics said that HR trainings were not very
effective in addressing continuing labor challenges.

Jones said Nike had productive partnerships with NGOs across the board, but there were some
with whom Nike would never see eye-to-eye. “I think that is OK. I think they [the NGOs] are
extremely important for the ecosystem of change. If we are learning and growing, we are going
Do

in the right direction.”

Fair Labor Association (FLA)

The FLA, a nonprofit that works with companies, universities, and other organizations to
improve worker conditions around the world, was an important player in the footwear and

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 7

t
apparel industry. It carries out due diligence and independent assessments in Nike contract
factories; it also provides training for factory workers and management. However, Jones said the

os
FLA walked a very important tightrope:

And it is the right one. FLA works to be as independent as it can be, and as
authentic as it can be in pushing and driving for higher standards, while also
collaborating with companies. But I think this notion of uncomfortable

rP
collaboration is part of the solution. It is how you create scaled approaches
through voluntary standards in the absence of adequate legal standards.

The FLA was helping to create a common labor standard for minimum requirements across the
industry, including many that shared the same manufacturing facilities. Nike and Adidas were
both involved with the FLA in the early 1990s, but Nike said that the two companies were doing
most of the “heavy lifting” at the time and they wanted other brands to join. This was especially

yo
important as Nike strove to reduce the complex process that factories had to undertake to manage
expectations for the multiple brands they did business with.

Labor Targets and Performance

The impact of FLA-type monitoring was debatable. Analyzing data provided by Nike, MIT
Professor Richard Locke found that “notwithstanding the significant efforts and investments by
op
Nike and its staff to improve working conditions among its suppliers, monitoring alone appears
to produce only limited results.” Locke concluded that more comprehensive efforts were
needed: “when monitoring efforts are combined with other interventions focused on tackling
some of the root causes of poor working conditions ─ by improving the ability of suppliers to
better schedule their work and improve their quality and efficiency ─ working conditions appear
tC

to significantly improve.”

Accordingly, Nike made progress in labor issues in a select group of focus factories that Nike
targeted to participate in the HR Management program in FY05/06. (Focus factories were chosen
based on volume of production and location.) That progress included: implementing
management training programs and freedom of association education programs; completing
surveys using a statistically relevant sampling of employees; and promoting multi-brand
No

collaboration on improving working conditions in the global factory supply chain. (See
Exhibit 4 for details on labor targets and performance.)

INDEXES—MEASURING SUSTAINABILITY

To inform innovation opportunities and improve sustainability, Nike created indexes that
measured sustainability in the design and production of its products. The indexes also created
metrics for measuring the relevant impacts of product waste, water, chemistry, labor and energy.
Do

(See Exhibit 5 for list of indexes and explanations.)

Considered Index (CI)

The Considered Index was an overall index that evaluated and rated specific products on an
environmental sustainability scale, including the impact of waste, water, energy, and chemistry.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 8

t
The Considered Index included scores from the Materials Sustainability Index (MSI), the
Footwear Sustainability Index (FSI), and the Apparel Sustainability Index (API).

os
Materials Sustainability Index

About 60 percent of the environmental footprint of a pair of Nike shoes is in the materials used
to make them. The top-volume materials used in Nike brand footwear and apparel were:

rP
polyester, rubber, ethylene vinyl acetate (EVA) foam, cotton, synthetic leather, and leather. For
every material, Nike had identified options that were less impactful on the environment,
including new greener chemistry formations and organics for grown materials. (See Exhibit 6
for details on sustainable materials and 2011 progress.)

To begin to understand and measure the impact of all these materials, Nike developed the
Materials Sustainability Index (MSI). The index rated all 47,000 materials that Nike could use in

yo
its production. Materials could get up to 100 points and could also get negative points. Points
came from evaluation of base materials, environmental considerations such as the use of recycled
or organic materials, and environmental impacts related to material vendors such as those
participating in the Nike Water Program. Nike tracks the water footprint of the entire value
chain, from raw materials to consumer disposal of product, which represents about 200 billion
gallons of water annually. However, only about one-tenth of that volume is likely related to the
manufacturing process used to make materials for Nike or affiliate branded products. In FY11,
op
more than 500 vendors took part in the Water Program, which had a separate set of scores for
water usage compliance. (See Exhibit 7 for an excerpt from the Materials Sustainability Index.)

In 2010 Nike opened up its environmental and footwear design tools and shared the data with the
Sustainable Apparel Coalition (SAC), representing around a third of the world’s apparel
production. In 2012, the SAC adopted Nike’s MSI data as the basis for the Higg Index—a tool
tC

designed to create an industry standard for the sustainable materials assessment. In 2013, Nike
took the same data and developed a mobile application called “MAKING” to inspire the global
design community to make better material choices.9

Footwear Sustainability Index (FSI) and Apparel Sustainability Index (ASI)

No

FSI and ASI measured sustainability of specific Nike products (shoes and apparel respectively).
The Footwear Sustainability Index scores came from the Materials Sustainability Index score,
and scores related to the major impacts from manufacturing footwear (waste, solvent use, and
energy use). Apparel Sustainability Index scores came from the Materials Sustainability Index
score and the waste score.

Manufacturing Index
Do

The Manufacturing Index (MI) was a tool for Nike to evaluate factory performance along a
balanced scorecard. MI added sustainability as a metric to the three traditional supply chain

9
For more details see: http://nikeinc.com/news/nike-releases-environmental-design-tool-to-industry and
http://nikeinc.com/news/nike-unveils-new-app-to-help-designers-invent-better.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 9

t
metrics that already existed: cost, delivery, and quality. Each of the four metrics counted for 25
percent of the overall MI score. Based on the MI, each factory was given a color rating that

os
reflected its success level in meeting standards. (See Exhibit 8 for metrics roadmap and color
ratings descriptions.) Red indicated the factory was unsuccessful and immediate action was
required. Yellow indicated the factory had inconsistent performance and was below minimum
standards, bronze put the factory in good standing, and silver and gold indicated the factory
exceeded standards.

rP
Based on these ratings, factories would be eligible to receive sanctions or incentives. Sanctions
included potential reductions in orders or consideration for removal from the source base.
Incentives included priority consideration for orders. (See Exhibit 9 for list of sanctions and
incentives.)

An additional goal was to track and measure performance against the index to see the number of

yo
innovations that would come out of it. However, Parker noted that performance would always
come as the first criterion, and these efforts had to serve that goal as well.

Sourcing & Manufacturing Sustainability Index

A component of the Manufacturing Index was the Sourcing & Manufacturing Sustainability
Index (SMSI), which also had ratings of red and yellow (below baseline compliance), and
op
bronze, silver and gold (at or above baseline compliance). The main scoring measures for SMSI
were Health, Safety, the Environment Audit, and the Labor Audit.

SUSTAINABILITY PROGRESS

By 2011 Nike and the independent contract manufacturers it worked with achieved these results:
tC

reaching baseline Considered Index standards for new footwear, increasing use of
environmentally preferred materials (EPMs), minimizing use of solvents, and reducing waste.
They had also made progress on longer-term targets: having all new Nike-brand apparel reaching
baseline Considered standards by FY15, further increasing use of EPMs, and improving
materials use.

Targets for FY20 included: eliminating all hazardous materials in its products and supply chain
No

and sourcing only from factories that achieved at least a bronze rating on the Manufacturing
Index. (See Exhibit 10 for details of Nike sustainability targets and achievements.)

PRODUCT DESIGN PROCESS

Nike got its designers to start thinking about sustainability and labor issues upstream in their
design process. Designers incorporated the Considered Index (described above) into their design
decisions. This allowed them to see the impact of choosing among all available materials, such
Do

as environmentally friendly content like recycled polyester, rubbers, and cottons, and gave
higher scores for using more sustainable materials. Designers received color scores; and the goal
was to reach bronze, silver or gold. Jones said, “Because Nike is Nike, it got competitive. So we
made it a race, and said ‘by the way, let us make sure that everyone hits bronze footwear by
spring 2011,’” which they did.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 10

t
The Considered Index came from an environmental team with deep scientific knowledge,
including chemists and engineers, who began working with designers and educating them about

os
the environmental impacts of their choices. For example, designers might want to use cut up tires
as material in a shoe, not realizing the extent of the negative impact that those materials had on
the environment. Parker said that getting designers to think along sustainability lines was not an
easy process.

rP
A lot of it comes down to making designers more aware of the decisions they are making.
And that is the whole idea of the Considered Index; making sure designers understand the
impact of every decision they make in creating products, whether it is the material that they
choose, the method of manufacturing, or where they source materials.

Designers could still choose the materials they wanted to use; but their score would be adjusted
accordingly.

yo
Green Products

Nike began selling green products in 2005, which were aimed at a niche market. Parker
acknowledged that while its early green products delivered internal lessons for Nike, the
company needed to move from creating low-performance to high-performance sustainable
products and from creating separate products or lines to embedding sustainability into core
op
products. The first example of this was the Jordan XX3, which was released in 2008 to positive
reviews. The shoe eliminated chemical adhesives, used more environmentally preferred
materials, and reduced toxic chemicals and waste.

Nike Flyknit − A Breakthrough Product

tC

In 2012 Nike released another sustainability breakthrough, the Nike Flyknit running shoe—an
innovative shoe designed for high-level athletes that was widely worn in the 2012 Olympics. The
bright green shoe was a common sight on the podiums as U.S. athletes in many sports accepted
their medals. Parker explained that Nike Flyknit production techniques had a reduced
environmental impact, which led to a lighter product and produced a better shoe.
No

Producing the Nike Flyknit was significantly more sustainable because new technology allowed
Nike to make the upper section of the shoe with less waste, using a specialized yarn to knit
together a sock-like feel, which covered the top of the foot and the toes. There was also a
considerable reduction of waste in its production of the upper section, by an average of 80
percent compared to more typical upper section for running shoes. Nike Flyknit was quickly
becoming a platform for many other new Nike shoes.

Parker said the success of the Nike Flyknit was as an example of dismantling an old mental
Do

model that said sustainability hurt performance and aesthetic. Moreover, the company believed
that the focus on sustainability led directly to the Nike Flyknit innovation. Looking back, Sprunk
noted “we had a couple of breakthroughs, literally, where going at it from a considered design or
sustainability perspective resulted in a solution we would not have gotten to without that filter.
And, then once we saw sustainability as a catalyst for innovation, around 2003-4, we’re off to the

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 11

races.” Of Nike Flyknit, Sprunk said, “It’s the highest performance shoe that we have….with a

t
considerable reduction of waste.”

os
RELATIONSHIPS WITH MANUFACTURERS

In the early years of its sustainability journey, Nike offered suppliers training programs, and it
worked to create an infrastructure that lined up with what the company was thinking in terms of

rP
sustainability. And consultants were also brought in to help factories make these shifts.

Nike’s continuing goals included developing a strong relationship with its contract factory base
for innovation and quality reasons, which also meant bringing the benefit of sustainability into
the factories’ operations. Nike recognized that the relationship between a brand and a supplier
was often transactional, and that a brand would get what it measured. Therefore, if a brand
measured cost, quality, and delivery but not sustainability, then sustainability would get token

yo
attention from the supplier. Hence, the inclusion of sustainability into a supplier’s balanced score
card would facilitate suppliers’ understanding of the importance of sustainability.

Nike not only looked at sustainability in the production process itself, but at the local
environmental impact as well—with a special focus on avoiding polluting local water supplies.
Nike said this was positive not just for the community, but also for Nike’s independent contract
factories as these practices helped attract local workers.
op
Parker said that although many factories were much more developed than 15-20 years ago, some
remained outdated, which made it hard to make the kinds of changes that were necessary. Nike,
which shared many factory facilities with other global brands, was putting a high priority on
working to transform relationships between buyer and supplier, leading to joint investments in
tC

innovation and a shift to contracted factories that incentivized changes to benefit workers.

Choosing Suppliers

Nike looked at several criteria for deciding whether to contract with a manufacturing facility in a
location or country including: equity, poverty levels, law, and corruption. Around sustainability
and labor practices specifically, Nike looked at whether a country had a general environment for
No

compliance—for example, if the country invested in labor inspectors.

Nike’s approach to ratings and scoring changed from the A to E letter rating system in
FY12 when it introduced and implemented the MI into a single dashboard rating that grouped
factories as gold, silver, bronze, yellow, or red. Metrics for sustainability compliance were part
of a supplier’s balanced scorecard, which had ratings of A to E (an E rating meant the facility
had not been audited in the past 18 months or more). (See Exhibit 11 for factory ratings and
trends under the former rating system.) D scores could prompt Nike to drop suppliers. When
Do

Nike did make a choice to divest from a factory, it was not sudden nor without ample notice.
Divestment was transparent and included a factory transition plan. Jones said this was
problematic from a business perspective and left significant capacity on the table. However, she
said Nike had to be consistent with suppliers or they would argue about the ratings and which
factories were dropped. Parker said Nike had to put its money where its mouth was in making

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 12

t
these decisions, and it was a critical shift for the company. This was also leading Nike
management to think about sourcing with fewer partners.

os
Influence on Manufacturers

Sprunk described Nike as a “high-touch and influential partner,” but he noted that the company’s
level of influence varied depending on the length of the relationship, production volumes,

rP
product type, and what percentage of a factory was dedicated to Nike. If it was a small
percentage of a factory’s production, Nike needed external partners and key stakeholders to
make a real impact.

Nike faced more challenges in influencing factories that focused on apparel, as that industry was
much more fragmented geographically—in scale of operation and in ownership. The barriers to
entry were much lower than for footwear, as making just the bottom of a shoe required tooling,

yo
cutting, steel, etc. Nike was looking to find new footwear and apparel manufacturers, and it saw
this as an investment in the future.

RELATIONSHIP WITH CUSTOMERS

In the beginning of 2013, Parker did not see demand for sustainability from Nike’s consumers
yet. While it was important that customers did not go into stores with a negative perception of
op
Nike’s environmental and labor practices, Parker did not think customers would be willing to
pay more for a sustainable product, nor were many aware of what Nike was doing. The view
within Nike was that consumers looked mainly for the performance quality in athletic shoes.
Parker said that this situation was fine with him:

I have been reluctant sometimes to bang that [sustainability] drum too loudly. We have
tC

more challenges and more work to do. I prefer a quiet, surgical approach to engaging
others, making a real difference, and then taking that to scale. Some customers care about
sustainability—some do not or have never heard of it. But consumer awareness will
become a bigger factor over time, and customers will begin to expect sustainability. How
long that will take to become meaningful, it is hard to say. But our motivation for driving
sustainability into the business was really looking at the advantage it would give us in
No

terms of business potential. It was an opportunity to make Nike a better company and less
about making Nike a better brand. We think the brand piece will come along from a
consumer standpoint.

Parker said that part of facilitating consumer awareness about sustainability came from education
and providing transparency and data so customers could make better choices.

NIKE AS A CATALYST IN THE SECTOR

Do

Parker pointed out Nike’s role as a catalyst and innovator in the sector:

We see our ability to bring awareness to an issue that has such a profound impact on
socioeconomic development of the world. I have seen how much of an impact Nike can
have. Not only in terms of what we do to improve our business and our ability to grow in

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 13

t
a resource-constrained world, but to actually influence and inspire others at a corporate
level around the world. So for me it has been an enlightening decade just to see the

os
impact that we can have not just with our own footprint, but to bring others along with us.

He added that smaller brands, or those at the beginning of their sustainability journey, were
aware of sustainability and labor issues but did not have resources or the understanding of how to
develop a program. So even in the early days, Nike began sharing knowledge with them,

rP
including some auditing data, which meant the other brands did not have to create or run their
own programs.

Nike top management said that a greater focus on workers would occur when the industry found
ways to help every player in the global manufacturing system take responsibility for their role
within that system. At that point, they said, the players could work constructively together in
changing the dynamic of their systems thinking and reframe the business model—placing

yo
workers at the heart of the innovation conversation and valuing them as core contributors to the
business. One of the ways Nike contributed to this effort was by developing new tools to share
with those in the industry to help create a different model, which the company said would
improve worker conditions while creating a more resilient environmental and business model.

CONCLUSION
op
By 2013 Nike had made significant strides in sustainability and had high-profile success with its
green products, especially Nike Flyknit. In terms of labor, Nike executives said the company still
had work to do, but was continuing to seek collaboration with critics, governments, factories in
its supply chain, and others in the industry to push for more progress. Looking forward, the
company was asking how it could scale its sustainability initiatives in a way that balances people
tC

planet and profit—without compromising product innovation and performance.

No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 14

t
Exhibit 1
TIMELINE OF KEY SHIFTS

os
 1998: RISK MANAGEMENT - National Press Club Speech/Nike criticized for business
practices.

 2001: MONITORING - First CR report/Maxims created, including “Do the Right

rP
Thing.” Knight endorsed United Nations Global Compact (UNGC) principles, a set of
generally-accepted social accounting principles, and a means of monitoring performance
against those standards.

 2004: COLLABORATION & TRANSPARENCY - Announcement of publishing online

the names and addresses of all factories making Nike branded product. Key collaboration

yo
era.

 2006: INTEGRATE SUSTAINABILITY - Corporate responsibility is a future business

driver. Integrate and embed: materials, design, manufacturing, product, and process.

 2009: REDESIGN/CO-DESIGN - Rewire and rename to Sustainable Business &

Innovation: redesign/codesign.
op
 2011-12: DISRUPTIVE MODELS - Disruptive models, innovation pipeline.

 2012-13: SYSTEM INNOVATION.

Source: Nike 2001 Responsibility report,

tC

http://www.nikeresponsibility.com/report/uploads/files/Nike_FY01_CR_report_original.pdf.
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 15

t
Exhibit 2
NIKE, Inc. Financial Statements

os
Consolidated Balance Sheets

rP
yo
op
tC
No

Source: Nike 10K.

Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 16

t
Exhibit 2 (continued)
NIKE, Inc. Financial Statements

os
Consolidated Statements of Income

rP
yo
op
Source: Nike 10K.
tC
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 17

t
Exhibit 2 (continued)
NIKE, Inc. Financial Statements

os
Consolidated Statements of Cash Flow

rP
yo
op
tC
No
Do

Source: Nike 10K.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 18

t
Exhibit 3
Nike Organization Chart 2011

os
rP
yo
op
tC
No

Note: VP SB&I = Vice President of Sustainability, Business and Innovation.

Source: Nike.
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 19

t
Exhibit 4
Nike 2005 Labor Targets and 2011 Achievements

os
 Implemented Human Resource Management training programs in 79 percent of focus
factories (76 of 96). Covered 94 percent of footwear volume and 43 percent of apparel
volume.

rP
 Implemented Freedom of Association education program in Nike brand contract
factories in 79 percent of focus factories (76 of 96). Covered 94 percent of footwear and
43 percent of apparel.

 79 percent of focus factories completed statistically relevant sampling of employees

(more than 25,000 workers of 422,000 took part).

yo
 Promoted multi-brand collaboration on improving working conditions in the global
supply chain by sharing 39 percent of Nike FY11 audits through Fair Factories
Clearinghouse.

Note: Nike Focus factories are factories Nike targeted to participate in the HR Management
program in FY05/06, based on volume of production and location.
op
Source: Nike Sustainability Business Report FY10-11,
http://www.nikeresponsibility.com/report/files/report/NIKE_SUSTAINABLE_BUSINESS_REPORT__FY10-
11_FINAL.pdf.
tC
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 20

t
Exhibit 5

os
Nike Sustainability Indexes

Evaluated footwear and apparel against environmental

Considered Index (CI)
impact of waste, water, energy and toxins.

rP
A component part of the FSI and ASI and evaluates
materials and material vendors against environmental
impact metrics: (up to) 50% base materials, 24% other
Materials Sustainability Index
environmental criteria (use of recycled material and
(MSI)
organic content, etc.), 26% environmental indicators
related to material vendors (participation in Nike Water

yo
program, etc.).
An evolution of the CI, it incorporates MSI scores and
improved Footwear product evaluation metrics: 40%
Footwear Sustainability Index
Materials Sustainability Index score, 30% Manufacturing
(FSI)
Waste score, 20% Manufacturing Solvent score, 10%
Manufacturing Energy score.
An evolution of the CI, it incorporates MSI scores and
op
Apparel Sustainability Index improved apparel product evaluation metrics: 60%
(ASI) Materials Sustainability Index Score, 40% Manufacturing
Waste score.
Measures contract factory performance on a balanced
scorecard including cost, delivery, quality and
Manufacturing Index (MI) sustainability (25% each). Points (out of 100) lead to
tC

ratings: red (<60), yellow (60-69), bronze (70-84), silver

(85-94), gold (95-100).
Measures sourcing and manufacturing risk at country
Country Risk Index (CRI) level: political, social/compliance, economic,
infrastructure, and climate.
Source: Nike.
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 21

t
Exhibit 6
Material Options and Progress

os
2011

Polyester: better options include recycled polyester (used in 31.5 million Nike garments – up
from 3,400 in FY04).

rP
Rubber: better options include new rubber formations (used in 30 percent of finished rubber
compounds).

Ethelyene vinyl acetate (EVA) Foam: already scored well on sustainability criteria.

Cotton: better options include organic cotton (in FY11 used more than 7 million kg).

yo
Synthetic leather: better options include those that reduce or eliminate solvents.

Leather: better options include leather processed at facilities rated by the Leather Working
Group.

Source: Nike, http://www.nikeresponsibility.com/infographics/materials/index.html.

op
tC
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 22

t
Exhibit 7
Materials Sustainability Index Scoring Framework (Excerpt)

os
100 points possible – Higher is Better

rP
yo
op
tC
No
Do

Source: Nike Materials Sustainability Index, July 2012.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 23

t
Exhibit 7 (continued)
Materials Sustainability Index Framework

os
rP
yo
op
tC

Source: Nike.
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 24

t
Exhibit 7 (continued)
Materials Sustainability Index

os
Refresh/Framework Summary

rP
yo
op
tC

Source: Nike.
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 25

t
Exhibit 8
Manufacturing Index: Metrics Roadmap

os
Rating Criteria (25 points each)
Product issues, defective
Quality rates, manufacturing

rP
processes.
Delivery precision, planning
Delivery
precision.
Cost competitiveness, cost
Costing
accuracy, cost timeliness.

yo
Lean implementations,
Sustainability environmental/energy, labor,
health and safety.
Score Results
Unsuccessful: Immediate
Red (<60 points)
action required.
op
Inconsistent: Below
Yellow (60-69 points)
minimum standards.
Meets minimum standards (in
Bronze (70-84 points)
good standing).
Industry leader: exceeds
Silver (85-94 points)
standards.
tC

Global role model: far

Gold (95-100 points)
exceeds standards.
Source: Nike, http://www.nikeresponsibility.com/infographics/materials/index.html.
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 26

t
Exhibit 9
Manufacturing Index: Sanctions and Incentives

os
Sanctions
1. Performance issues reviewed and managed by applicable product engine/sourcing
team.
2. Escalated to senior leadership.

rP
3. Potential imposition of one or more sanctions (including reduction in orders).
4. Consideration for removal from source base.

Incentives
1. Public recognition.
2. Access to leadership/resources.

yo
3. Priority consideration for orders (assuming sourcing requirements are met).
Source: Nike, http://www.nikeresponsibility.com/report/content/chapter/manufacturing.
op
tC
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 27

t
Exhibit 10
2005 Sustainability Targets and 2011 Achievements

os
Considered Index

 97 percent of new footwear products reached baseline Considered Design Index

standards.

rP
Materials

 Increased use of Environmentally Preferred Materials by 22 percent – measured by an

average EPM score of 69 in FY07 to 84 in FY11.

Climate Stability

yo
 Reduced absolute carbon dioxide emissions by 6 percent from FY08 to FY11 – despite a
20 percent increase in production (did not publicly announce target).
 Maintained current petroleum-derived solvents (formerly called Volatile Organic
Compounds), representing a 95 percent reduction from the 1995 baseline.

Waste
op
 Achieved a 21 percent reduction in grams of waste generated per pair (gpp) of footwear.
 Achieved a 23 percent weight reduction in its shoebox (2011 goal 30 percent).
 70 percent less solid waste was sent to landfills and incineration (2005-2011), despite a
50 percent increase in production.
tC

Longer-term targets

 Have 100 percent of new Nike brand apparel product reach baseline Considered
Standards by FY15:
o Achieved 16 percent by 2011– outpacing ramp-up schedule to the FY15 target.
 Have 100 percent of Nike brand equipment product reach baseline standards by FY20;
o Achieved 24 percent by 2011.
No

 Increase use of EPMs to 20 percent by FY15

o Achieved 9.8 percent in 2011.
 Energy reduction: 20 percent reduction in CO2 emissions per unit (2011 to 2015).
 Toxics: achieve zero discharge of hazardous chemicals for all products and pathways in
supply chain by 2020.
 Water use reduction: improve efficiency by 15 percent per unit in apparel materials
dyeing and finishing and footwear manufacturing (2011 to 2015).
Do

 Source from factories that achieve at least Bronze on the Sourcing & Manufacturing
Sustainability Index by the end of 2020.

Source: Nike, http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance.

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Nike: Sustainability and Labor Practices 1998 - 2013 IB106 p. 28

t
Exhibit 11

os
Factory Ratings and Trends

Nike Inc Nike Brand Nike Affiliates

Rating FY10 FY11 FY10 FY11 FY10 FY11

rP
A 6% 4% 7% 5% 4% 3%
B 33% 45% 45% 52% 14% 32%
C 25% 37% 27% 34% 22% 43%
D 7% 5% 4% 2% 14% 11%
E 29% 9% 17% 7% 46% 11%

yo
Source: Nike, http://www.nikeresponsibility.com/report/uploads/files/ContractFactoryRatingsAudits.pdf.
op
tC
No
Do

This document is authorized for educator review use only by SHAJI JOSEPH, Symbiosis International University (SIU) until Jul 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860