Posted: May 25th, 2022
Nike could have avoided the downturn had it been more receptive to ongoing change. One of the things it could have done differently was to “periodically analyze the organizational environment and identify forces for change.” It is evident that Nike did not do this until it saw its sales slump. There were several underperforming divisions, and more importantly there were several untapped new product areas. An environmental scan would have allowed Nike to identify those much sooner, and perhaps respond more quickly. By being slow to respond to its external environment, Nike put itself in a more vulnerable position. Nike was forced in the to embark on revolutionary change, rather than evolutionary, because of its slow response. Ultimately, it could have adopted the revolutionary approach by being in tune with its environment, and by creating an organizational culture that was in general more receptive to change.
That said, even when Phil Knight recognized the need for change, he had trouble creating the motivation for change. Nike had a strong track record, and there were still many things that the company was doing right. As such, the designers in particular were resistant to change. They were set in their ways, believed their own hype, and essentially were slaves to organizational inertia. An organizational confrontation meeting — or a regular series of these during the revolutionary change described above, would have helped Nike be more open to change. One of the most important traits of an organizational change meeting is that it is forward-looking. The company and its people are challenged to look to the future, rather than to continually examine the past. The mindset of the Nike managers, the idea that they were successful in the past and that was good enough, was toxic for the company during this period. If these designers and managers had been continually thinking forward, they would have recognized the trends earlier, been more receptive to change, better embraced the company’s role as design leaders and possibly even pre-empted the arrival of some of the new competitors.
Ultimately, the issue for Nike was that it had such a long, sustained run of success that it had forgotten about being innovative. Its market power and its design talent were great in terms of ensuring that Nike was always the industry leader, but they failed to recognize at an organizational level that every company was aiming for them. So if there was a new trend or a new concept that Nike was reacting slow on, any niche in the market where Nike was assailable, these new companies were going to exploit that. Nike’s designers had essentially stopping working as hard — they got comfortable. Ultimately, this allowed other companies to do better than Nike and Nike then had to re-learn about being the best. The company was left with a change process that was more revolutionary, because it had to make up ground quickly, and fight back against the competition.
The organizational life cycle is a means of understanding where a company is. Nike had essentially settled into a mature stage of the cycle, where it was consistently profitable and held a dominant market share. But one of the things about the company life cycle, is that the theory does not allow for the renewal that actually occurs with many companies. There is not necessarily a flatline plateau, but a mature company can still find ways to innovate and grow. Nike was headed for decline at the point in time of the case. They were in that tired stage of maturity, and this was reflected in the organizational mindset. The reality is that they needed to renew themselves by thinking more entrepreneurially.. They needed to think a bit more like a growth company, when they are not necessarily one. But if they think like a growth company, they will be able to grow, and avoid the decline part of the company life cycle.
Mattel’s managers were slow to change their decision making for a couple of reasons. The first is that the company was generally in a mature stage, where profits were stable. The stability of the business and the fact that the customer and product had changed little over time basically attracted the types of managers who preferred that sort of environment. The organizational culture was a strong driver of the lack of change at Mattel and Barbie at the time; people were averse to change. In part, they had never experienced a threat as strong as the Bratz dolls before. Barbie’s dominance had been unassailable, and that bred a certain amount of complacency among managers, people who were already predisposed to conservative thinking.
There would have been several cognitive biases at work. First is the belief that because something worked before that it would work again. There would also have been a familiarity bias. These biases when put together oriented the managers to feel that they knew what worked, that they knew the customers, and the their knowledge of the old doll market was applicable in the new doll market. The reality was different, however, and their knowledge of the market was not as applicable as they might have thought.
One of the things that these biases convinces managers to do is to be lazy. They probably did not have enough information about the market to fully understand how the market had changed. The MGA people were doubtless scholars of the doll market, and they had to be, because they were taking on the champs. The thing is that the MGA people would also have known that Mattel had a certain amount of hubris with respect to its position in the doll market, and MGA knew that this hubris, the biases, and the conservative organizational culture were all weaknesses that could be exploited. MGA rightly understood that digital children are going to think differently and have different preferences than pre-digital children, and they designed a product and marketing strategy for that market, easily stealing market share away from Barbie.
Mattel faced basically an existential threat from Bratz. Mattel relied on Barbie for most of its profits, and this was not a market that had changed much over time. That is in part because the company had staked out a dominant position, and the consumers had not changed much either. The threat posed by Bratz was substantial, and Mattel could see itself being hit with losses and steep market share declines. Often, an organizational culture at a successful company exists in a state of blissful inertia until motivated to change. Usually, that motivation comes in the form of a competitive threat, and that is what happened with Mattel.
Thankfully, there were enough people within Mattel who were excited by the challenge, and made some radical changes. Maybe not all of the changes were particularly good, but the company moved fairly quickly once it realized that its major breadwinning business was at stake. It was important enough that the CEO spearheaded the changes, which always provides a certain motivation, but also the resource support needed to affect an effective organizational change. The legal action illustrates that the defense of Barbie was an all-hands-on-deck scenario for Mattel, indicating the power of existential threat to create organizational motivation for change.
The legal action also served to buy time. Conservative people working in a conservative organization might have the capacity for change, but often they need time to make the right sort of changes. When the first round of changes to the product flopped, the company did the right thing and sought to buy some time for the Barbie team to properly change its mindset, free itself from old biases, and start to foster a more innovative mindset. There were probably personnel changes during this period as well, to bring in new blood.
Normally a company that is not very innovation cannot simply become innovative on demand, which is probably why the whole killing Ken/Aussie surfer thing was a debacle. Innovation is one of the hardest things to nurture in a business. Mattel’s legal action to buy time helped the company to reshape its culture, and refresh the mindset. The process was always going to take years so management rightfully did what it needed to do in order to enable that organizational culture change to happen.
Barnett, C., Pratt, M.(2000). From threat-rigidity to flexibility — Toward a learning model of autogenic crisis in organizations. Journal of Organizational Change Management. Vol. 13 (1) 74-88
Buschgens, T., Bausch, A. & Balkin, D. (2013). Organizational culture and innovation: A meta-analytic review. Journal of Product Innovation Management. Vol. 30 (4) 763-781.
Chapter 10 & Chapter 11
Jiao, H., Alon, I., Koo, K. & Cui, Y. (2013). When should organizational change be implemented? The moderating effect of environmental dynamism between dynamic capabilities and new venture performance. Journal of Engineering Management and Technology. Vol. 30 (2) 188-205.
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