5-2 Milestone III Draft of Continuous Improvement IV

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QSO-415 Trends in Operations Management 5-2 Milestone III Draft of Continuous Improvement (Section IV) April 2, 2023 Leif Dyer

The trend toward sustainable operations in business is driven largely by changing perspectives about our world and how we treat it. Our understanding and appreciation for the limited nature of our natural resources and the impact that our consumption is having on our planet is growing. More and more, the global community expects businesses to explore strategies that simultaneously meet current resource needs and objectives while preserving the interests of future generations. The trend for sustainable operations can be leveraged to further compound the existing strengths of an organization. A Nielson survey indicates that millennials are twice as likely than baby boomers to change their habits to reduce environmental impact. Generation Z, in many instances, is even more concerned about sustainability (Rafi, 2022). Together, these two groups represent just over 40% of the U.S. population (Duffin, 2022). A focus on sustainable operations can impact an organization’s brand recognition and value and provide a competitive advantage among less sustainably engaged corporations. Organizations that demonstrate sustainable behaviors in operations garner the attention of these influential groups. Businesses that employ sustainable operations strategies shape their reputations to reflect alignment with the ideals and sympathies of these generational groups and tap into their buying power. Studies show that 66% of consumers would spend more for a product if it came from a sustainable brand, and 81% of global consumers feel strongly that companies should help improve the environment (Rafi, 2022). Companies that adopt sustainable operations strategies fortify the organization itself since members of the talent pool are attracted to organizations that make sustainability one of their priorities. Nearly 40% of millennials have accepted jobs because of the company’s position on sustainability and some have been willing to take pay cuts to work with an environmentally

friendly company (Rafi, 2022). When a company employs sustainable operations behaviors, would-be employees who recognize the value of sustainability are that much more motivated to contribute to the company’s sustainability culture. Companies that don’t adopt sustainable operations could miss out on attracting top talent who find sustainability critical to overall vitality and longevity. Not only is the talent pool attracted to companies who are focused on operational sustainability. High-profile celebrities are as well. Businesses like Nike that employ star power and the influence of celebrity figures in their marketing schemes can leverage sustainability as a means of enhancing the influence of star power by connecting sustainability to their value propositions. Efficiency gains and mitigation of waste can be achieved through sustainable operations. Reductions in waste and the resources used to operate translate to reduced costs and improved revenue. A McKinsey study states that a sustainability strategy can reduce costs substantially and can impact operating profits by as much as 60% (Rafi,2022). Significant costs are associated with a company’s distribution network. Applying sustainable behaviors through innovation and technology further refines and improves a company’s distribution model through more effective use and better application of energy. When businesses are committed to sustainable operations, they are more motivated to leverage technological and innovative strengths to find new and exciting ways to achieve triple-bottom-line success. Because sustainability continues to grow in importance to the world, especially to millennials and generation z populations, powerful associations between the concept and the organization itself should be made so that the organization, its mantras, symbolic representations (trademarks), and intellectual property become synonymous with its sustainability focus. A continued pledge through visible, demonstrated, and consistent action toward sustainability

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achievement raises its level of accountability and can strengthen the overall perception of the organization. The focus of sustainability is not limited to the treatment of natural resources. It also encompasses political, civil, and social perspectives. A company’s statements and efforts toward sustainable operations can appear disingenuous when all facets of sustainability are not congruent. Nike’s weaknesses can threaten to undermine the goal of reaping the bottom-line benefits of sustainable operations. Women comprise just over half the global population, so their influence on the success of businesses is undeniable. When gender discrimination and sexual harassment are evident in organizations, the public backlash can have a lasting impact because gender discrimination and sexual harassment are indicative of deficiencies in the culture of the organization where inequities appear to be fostered at the leadership level. When organizations ignore or prolong their response to allegations of gender discrimination and sexual harassment, they risk their ability to recover trust and further damage their reputation. Controversial labor practices are also indicative of deficiencies in an organization’s culture. Sensitivity to ethical misconduct puts an organization at risk to lose market share and can cause the community to reject businesses that turn a blind eye toward glaring gaps in social values. Adopting sustainability in operations draws attention to these gaps and forces accountability to correct the issues. The dependence upon and geographic concentration of independent contract factories outside the U.S. can potentially put Nike at a disadvantage due to political, social, and environmental conditions. While cost-saving advantages are beneficial to the business and consumers, outsourced labor can be frowned upon due to lost job opportunities at home. Political strife and unstable environmental conditions can be disruptive to the supply chain as

well. Achieving sustainability in operations may drive decisions to take calculated risks and manufacture in certain geographic locations especially if the raw materials and workforce are concentrated in those areas. Competitors for the same raw materials and workforce also complicate the organization’s objectives. Long lead times pose a major threat to supplier performance. When goods are not available to meet anticipated demand, consumers and the business are negatively impacted. Businesses cannot be competitive when lead times are not minimized. Lead times can be further exacerbated by overseas manufacturing sites. Distance, international customs protocols, and transportation challenges are just a few contributors to long lead times. Sustainable operations endeavor to control the factors in the supply chain that contribute to long lead times by bringing efficiencies into all the processes from planning to delivery. Dependency on the U.S. market for a considerable percentage of the globally supplied product may indicate an opportunity for deeper penetration into global markets. Disproportionate reliance upon U.S. markets overlooks the potential consumers in international and developing markets. R&D investments that further leverage Nike’s focus on sustainability to include social media marketing could help expand its reach into international (and developing) markets. Nike’s direct-to-consumer initiative includes e-commerce and Nike brick-and-mortar locations. Whole wholesale partners are an important facet of revenue generation, the relationship comes at a compromise of control of how the product is positioned in wholesale markets and the profit margins. The focus on sustainable operations can enhance Direct to Consumer (D2C) sales allowing Nike to exercise more control over sales and marketing which can ultimately improve profit margins and revenue.

Internal stakeholders expect organizations to respond to weaknesses that can impact reputation, and consequently, brand value. The global community expects organizations to be sensitive to their interests as well. Sustainably minded organizations like Nike have responded to sexual harassment and gender discrimination claims by dismissing (even executive levels of) leaders from the organization to repair and preserve the corporate image. Doing so sends a message throughout the organization that respect and equity are universal priorities and reasonable expectations among all levels in the organization and that the commitment to social sustainability is genuine and integral to the way Nike does business. Publicly establishing hiring targets that commit to restoring equity among marginalized groups and requiring behavioral and cultural training are additional ways that can improve upon weaknesses like these. Public disclosure, transparency, and audits are powerful responses to address perceptions of poor working conditions. Sharing training and establishing partnerships with contracted labor forces can help align the culture of contracted labor forces with those of Nike. To protect Nike’s interest and mitigate operational risks overseas, Nike must make ongoing collaborative efforts to build and maintain partnerships with members of its supply chain and the governments of the foreign communities that produce its goods. Nike must demonstrate long-term interest through deep investments in the infrastructures of these communities that not only benefit Nike’s bottom line but create value for broader foreign communities. Constant examination of the supply chain to proactively improve efficiency and heighten mutual accountability are ways to address these weaknesses. To capitalize upon the many strengths of the organization, Nike must be committed to holding itself accountable to its sustainability culture. The sustainability strategies and the associated targets must be constantly evaluated. The strategy must be integrated into all the

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processes throughout the organization to enhance engagement, keep it alive, and keep it evolving. Education is paramount to an enhanced understanding of why the strategy is important and what can be done to support it. Highlighting progress toward targets established in Nike’s Impact Report is a great way to reinforce behaviors that support the achievement of sustainability targets achievements. Implementing the recommendations to enhance strengths or respond to weaknesses comes with risk. Ultimately, the intended outcomes may not be achieved, misunderstandings may arise, resources may not be available, and unforeseen challenges may arise that were not adequately planned for. Where heavy financial investments are made there is a risk that the return will not be congruent with the investment. Morals and ethics can change under adequate stress and agreements can be unexpectedly broken. Establishing partnerships requires shared and well-communicated expectations, along with a certain level of trust. Because there are no guarantees, a level of risk is eminent in all decision-making. Continuous improvement doesn’t happen haphazardly. The idea behind continuous improvement is that gradual, yet ongoing adjustments are made to progressively and positively impact the organization. An organization that has established a culture fueled by engagement, teamwork, and interest better understands the purpose and value of continuous improvement and the tools available to achieve it . Many tools and techniques could be used to help implement sustainable operations methodologies. As a methodology, kaizen enhances specific areas in a company by involving top management and rank-and-file employees to initiate everyday changes, knowing that many tiny improvements can yield big results (Tarlengco, 2023). Evaluating challenges from different perspectives uncovers facets and solutions that may not be apparent in the same way to everyone, but expands everyone’s understanding and ability to

resolve them. Small incremental changes can make a significant impact over time. Like kaizen itself, sustainable operations methodologies are multi-faceted and involve various considerations which is why kaizen seems to be an appropriate tool to implement the trend.

Resources Published by Erin Duffin and 30, S. (2022) U.S. population share by generation 2021 , Statista . Available at: https://www.statista.com/statistics/296974/us-population-share-by- generation/ (Accessed: April 1, 2023). Rafi, T. (2022) Council Post: Why corporate strategies should be focused on sustainability , Forbes . Forbes Magazine. Available at: https://www.forbes.com/sites/forbesbusinesscouncil/2021/02/10/why-corporate-strategies- should-be-focused-on-sustainability/?sh=10a467127e9f (Accessed: April 1, 2023). Tarlengco, J. (2023) Kaizen: Meaning, process, method, & principles , SafetyCulture . Available at: https://safetyculture.com/topics/kaizen-continuous-improvement/ (Accessed: April 2, 2023).

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