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Nike

BY AUSTIN CARR

"This is the raw Stuff." Stefan Olander, head of Nike's

three-year-old Digital Sport divi- sion, is watching a group of his engineers hack an experiment. They're using a pair of Nike trainers with embedded sensors. The sen- sors measure pressure created when the shoes, which happen to be on the feet of a lanky product manager named Brandon Burroughs, strike the ground. The data are collected and then fed wirelessly to an iPhone; the iPhone is plugged into a Mac- Book; the MacBook's screen features a program that is busily imitating a 1987 Nintendo video game called ixazV. & V'xaà IL Which brings us to the ostensible goal of all this mad- ness: fmding out if new-age sensors and wireless devices work with an ancient video game.

That's why B^urroughs, who is outfitted head to toe in Nike attire, is crouched in anticipation like a runner before a starter pistol is fired. Suddenly, a whistle screams from the MacBook—it's the game's signal that a steeplechase "race" has begun—and Burroughs starts sprinting in place. It isn't pretty He's panting heavily. He's t)een at this for a while and is clearly spent. His feet thud against the carpet like a clumsy drumroll as his crude avatar lurches forward on screen. And he's doing all this in a big, clean, stark corporate lab fuliof en- gineers, which isn't very glamorous. But the experiment is working, sort of: As his avatar nears the first hur- dle. Burroughs leaps too late.

50 MOST INNOVATIV[ COMPANIES

THE i W FACTOR

FUELBAND Nike embedded

120 LED lights into the FuelBand. modeling

the display after a retro Scoreboard.

Knit threading and supportive cables

(think suspension bridges) allow the

Flyknit Racer to weigh just 5.6 ounces.

« C O N T I N U E D FROM PAGE 89

leading his digital self to trip and tumble into a pixelated pool of water. "Anrmr!" yells Burroughs. "Come on!"

Olander, who bears a distracting resemblance to Mat- thew McConaughey and looks fit enough to have cleared that hurdle with ease, jokes that the only problem here is that Burroughs "is not very fast." He actually loves that the group is "just mucking about and having fun," as he puts it. "Really cool stuff can come from the opportunity to test without constraints." And that, in sum, is innova- tion, Nike-style: a messy, exhausting process culled from myriad options and countless failures.

In 2012, Nike's experimentation yielded two breakout hits. The first is the FuelBand, a $150 electronic bracelet that measures your movements throughout the day, whether you play tennis, jog, or just walk to work. The device won raves for its elegant design and a clean interface that lets users track activity with simple color cues (red for inactive; green if you've achieved your daily goal). Press its one button for a scrolling stock ticker of how many calories you've burned, the number of steps you've taken, and your total NikeFuel points, a proprietary metric of activity that Nike encourages you to share online. The FuelBand is the clearest sign that Nike has transformed itself into a digital force. "Nike has broken out of apparel and into tech, data, and services, which is so hard for any company to do," says Forrester Research analyst Sarah Rotman Epps.

The other innovation is the Flyknit Racer, featherlight shoes that feel more like a sock atop a sole. Created from knit threading rather than multiple layers of fabric, it required a complete rethink of Nike's manufacturing pro- cess. The result is a shoe that's more environmentally friendly and could reduce long-term production costs. "Flyknit could turn the [shoe] industry on its head," says Nike sustainability VP Hannah Jones.

To produce even one of these innovations in a given year is a rarity for any company, especially one with 44,000 employees. But Nike CEO Mark Parker knows he can't just rely on celebrity endorsements and the power ofthe swoosh when confronted by big-name competitors such as Adidas and upstarts like Jawbone and Fitbit. "One of my fears is being this big, slow, constipated, bureaucratic company that's happy with its success," he says. "Companies fall apart when their model is so successful that it stifles think- ing that challenges it. It's like what the Joker said—'This town needs an enema.' When needed, you've got to apply that enema, so to speak. "

Every CEO says this kind ofthing (minus the enema part). The difference is that Parker delivers. Last year, Nike's annual revenue hit $24 billion, up 60% since he took over the reins as CEO in 2006. Profits are up 57%, and Nike's market cap has more than doubled. This story is about

how he has achieved that growth, and how he has driven commitment into the company's culture. Nike is a business with much corporate lore, that lovely, misty story of how a bunch of renegades with a waffle iron bucked the system and revolutionized an industry But a close examination ofthe development of Flyknit and the FuelBand, based on interviews with top Nike executives, current and former designers, engineers, and longtime collaborators, reveals four distinct rules that guide this company, that allow it to take big risks, that push it to adapt before competitors force it to change.

RULE # 1 : TO OISRUPT, YOU MUST 00 ALL-IN what makes Flyknit so truly disruptive is that it isn't a shoe—it's a way to make shoes. As the team members who spent four years developing the technology like to say, they're "breaking the sewing machine." The old Nike model involved cutting rolls of prewoven material into pieces, and then stitching and assembling them. But with Flyknit, a shoe's upper and tongue can be knit from polyester yarns and cables, which "gets rid of all the un- necessary excesses," says Ben Shaffer, studio director at the Innovation Kitchen, Nike's R&D center. The Flyknit Racer, one ofthe first shoes in the Flyknit line, is 5.6 ounces, roughly an ounce lighter than its counterparts. Nike uses only as much thread as it needs in production, and the shoe can be micro-engineered—tightened here, stretched there—to improve durability and fit.

Parker clearly has big expectations for Flyknit, telling shareholders it "is one of those technologies that has in- credible potential, not only within running, but across multiple categories." That's a massive bet given Nike's dominance ofthe athletic-shoe business, where, for ex- ample, it owns half the running market and a whopping 92% ofthe U.S. basketball shoe business. And Nike has gone all-in on that bet, building a whole new manufactur- ing process around the product. "Does this change our business model in some cases, or our supply chain? Ab- solutely," Parker says.

Shaffer shows me some ofthe 195 major iterations the Flyknit werit through as we tour the iCitchen. Some appear as rudimentary as a ballerina's slipper. The prototype that marathon runner Paula Radcliffe marked with scribbles now looks like a rejected Project Runway design. Nike's

9 0 FASTC0MPANY.COM MARCH 2013 PHOTOGRAPHS BY ART STREIBER

"ONE OF MY FEARS IS BEING TH SLOW, CONSTIPATED, BUREAUC

COMPANY THAT'S HAPPY WITH ITS SU CEO MARK PARKER

50M0SIINNOmiV[COMPANI[S

ambitions for Flyknit can be seen in the trays full of feet that live in tall carts around the Kitchen. The disembodied wooden lumps—most generically sized and others made by scanning some of the actual feet of the thousands of professional athletes that the company sponsors—are all waiting to be fitted, like Cinderella, with the perfect prototype shoe.

"Flyknit is a platform," Nike's Jones says. "We're rei- magining the upper, the bottoms—the whole caboodle." In addition, as materials such as rubber become harder to come by because of overharvesting or climate change, "we're going to be able to navigate the volatility of these resources," she adds. Then, perhaps reminded of the fierce competition Nike is in with Adidas over knit shoes, f ones stops short and wavers, "I can't say anymore."

RULE # 2 : ANTICIPATE A PROOUCT'S EVOLUTION Before the FuelBand, a product called Magneto was, briefly, Nike's next big thing. You'd tape magnets to your temples and then clip futuristic eyewear onto it "Perhaps we went too far with that idea, because we actually started to make it," admits global brand EVP Trevor Edwards. Parker decided the product was impractical, and he killed it

That sounds like an obvious call, but Parker reputedly approved Flyknit after being shown only a tube sock stitched to a rubber sole. Early on, great ideas can re- semble bad ones: They both sound ridiculous. "Steve [Jobs] had a good bullshit meter, but also an open mind," Parker says. "It's that bullshit filter that says, 'Really? Is this really compelling?' We kill a lot of ideas."

Parker says he often feels like Tom Hanks in Big—a kid at a toy company whose job is to approve only the products he has fun with. In the FuelBand, Parker saw what athletes would instinctively value. As a "smart" version of the already popular Livestrong bracelet, the FuelBand would give users their own digital coach to motivate them. They could connect with other users and with their friends and family via social media to cheer them on, whether ifs to lose weight or train for a marathon. Nike would benefit from this community, thanks to the ongoing connection with its customers, as well as every user promoting Nike with each post or tweet of their activ- ity report. Plus, people were already comfortable with wearing a silicone wristband, unlike, say, face magnets.

As if to prove the point, when Parker and I meet, he's wearing a FuelBand on each wrist—exactly double what any user needs. "I don't normally wear two," he says, beaming, "but I have to admit, I'm obsessed." The company is now working to extend that obsession to others. In December, Nike partnered with the startup mentoring

92 FASTC0MPANY.COM MARCH 2013

For nearly a decade, tennis star Serena Williams has been one of Nike's most visible athletes. (In March, in fact, her core workout will be released on the Nike Training Club app.) But she's also a serious entrepreneur: Her clothing line Signature Statement is on HSN.com, and her business investments range from skin care to tech startups to part ownership of the Miami Dolphins. And she credits Nike for setting her business standards.

I I l i l i l l l l l l l l l l l l l l Serena Follows Nike's Playbook

1 ALWAYS OFFER SOME-

THING NEW

"You look at where Nike started, from the '80s until now, and it's such a huge difference," Williams says. "I wonder, like, how were athletes able to play back then? Every time I turn around there's something new—pants with ventilation, seamless fabric. They actu- ally invent fabrics, which is really cool for me, with my fashion background. I always use them in my line, i'm like, 'So what are the colors fornext season?'"

2 THE INVISIBLE IS

AS VALUABLE AS THE VISIBLE

"When I first came to Nike I said, 'I don't care how I feel; I just want to look good.' And they said, 'We're going to make you look good, and we're going to make it comfortable.' Last year at the French Open, my dress was almost like a Hervé Léger Lbandage] dress, really tight fabric. But I was able to perform, I was able to move. It was really functional, but it was also bringing design and style."

3 CONSIDER YOURSELF ANUMOERDOG

"I'm not disrupting my brand enough. I need to do it more. Nike always tries to improve. They never say, 'I'm No. 1, and I'm happy.' They always say, 'How can we get better?' Beyond a company, beyond entrepre- neurship, you can really take that attitude in your life, like, i want to be a great mother, or a great student, or a great doctor. What can I do to be better?" —/As told to Whitney Pastore/c

firm TechStars to woo entrepreneurs to launch companies that will build on top of Nike's digital platform. Nike has already announced games built on Fuel points.

This three-steps-ahead thinking is important for any product. Flyloiit is not only valuable because its technology will help Nike make all ldnds of lighter, better-fitting shoes, but also because it fits into the company's global growth initiatives. With Brazil hosting both the 2014 World Cup and 2016 Summer Olympics, Sterne Agee analyst Sam Poser believes Flyknit will help Nike reorient how it makes and sells shoes in such an important international market. "The duties importing from China [where Nike does much of its manufacturing] to Brazil are absolute craziness—way too cost-prohibitive, and the [manufacturing] in Brazil is so expensive," he says. "But Flyknit is much less labor intensive. If they can go into Brazil and set up [knitting] machines, they win." Poser goes further, imagining that Flyknit will one day allow customers to digitally personal- ize shoes to match the exact shape of their feet.

Parker wouldn't be blamed if he had passed on Flyknit after seeing a modified tube sock, but if Nike doesn't bet on crazy ideas, its rivals will. "They're like sharks," says Poser. "If they stop swimming, they die." Adidas, also after four years of research, launched its Primeknit line only months after Flyknit's. Nike then dragged Adidas to court over patent-infringement claims related to laiit technology.

RULE # 3 : DIRECT YOUR PARTNERS Stefan Olander has barely ushered me into his neatly ar- ranged office when he invokes FuelBand lore. He has an early prototype at the ready, the very one that his team used in 2010 to pitch the idea to CEO Mark Parker. "We pulled up [our sleeves] and revealed this," he says, sliding his fingers over the white leathery Velero bracelet marked with green calculator-like numbers. "Mark is so consumer- driven that instinctively he said, 'Go do this now' His first question was, 'How fast can you build this?' "

The tale is burnished to a high gloss, which is a shame, because an idea as big as the FuelBand does not get cooked up in a single lab. It doesn't become a sophisticated, beau- tiful product just because Parlcer admired a leathery wristband. Nike doesn't like to discuss the gritty details of how something like the FuelBand gets made, but the real story shows how messy true innovation is.

In a world of rapid disruption, companies no longer must—or can—own all the skills required to thrive. Just as Google needed Android to attack mobile and Apple needed Siri to give it a foothold in search, successful busi- nesses need to constantly evolve, either through partner- ships, new talent, acquisitions—or all three. "You can't have a barrier or restriction," says lead Nike engineer Aaron Weast. For the FuelBand, Nike had to open its doors.

The FuelBand's road to reality began in March of 2010, when a three-person Nike team flew to San Francisco to share their idea with the industrial design firm Astro

Studios. "They had this concept of a tennis sweatband with an electronic watch," Astro design EVP Kyle Swen recalls, as he sits in the same third-floor conference room where the meeting took place. "They wouldn't even leave us the pitch; it was superconfidential." Nike also consulted engineering firms Whipsaw and Synapse, and longtime digital marketing agency R/GA.

This team of outside partners created hundreds of prototypes, imagining concepts for displays that resem- bled an Amazon Kindle screen; bands that fully illuminate with color; ones that fit over your leg or upper arm; and even a fastening system modeled after a gas nozzle. "Everything was custom, custom, custom," says Astro designer Anh Nguyen.

Olander played the shepherd. "You will never get good work out of anyone if you hand over a brief and go, 'We have no clue what we want, but why don't you just do it forus,' " Olander says. During the FuelBand's development, for example, Nike's specific requests to partners included its red-to-green color scheme; the idea of Fuel points, which Olander felt would encourage competition among users regardless of their sport; and a dead-simple interface without excessive metrics. The team learned that last insight from its experience with Nike's earlier digital products, for which 30% of users turn off calorie tracking.

Nike's role was between a coach and a traffic cop. Nike designer ¡amian Cobbett describes it as an "ebb and flow." Astro's Swen relates how engineers from other parts of Nike's assembled team would see what the designers had in mind: "They were like, 'No fucking way,' " he says, laugh- ing. "But that's innovation: full throttle, hit the brakes; full throttle, hit the brakes." The effort produced several break-

GREAT IDEAS HAVE SOMETHING IN COMMON WITH BAD ONES: EARLY ON,

THEY BOTH SOUND RIDICULOUS.

throughs, such as when Whipsaw embedded 120 LED lights in the bracelet (to look like an old-time Scoreboard) and Synapse developed a curved lithium battery Both are key features of the final product.

R/GA was tasked with the interactive experience and toyed with making Fuel points spendable. "We had con-

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Nike continued from page 93

versations around racking up points and spend- ing them on Nike socks," says Ian Spalter, who was then R/GAs product design VP and who now serves a similar role at Foursquare. The agency tinkered with tabulating Fuel points in aggregate forpublic causes—the digital equivalent of char- ity runs. Several sources say Nike considered selling FuelBands synced in pairs (so spouses or best friends could track each other's progress), and it even explored using the system to create campfire moments—that is, lighting up all the FuelBands in the world at a particular time to connect with its community, such as when the Olympics commenced. In the end, the pull of getting a small shot of electronic serotonin from checking your progress all the time, the same way many people incessantly refresh email and social media statuses, proved more than addic- tive. "There's something about dipping into feeds," says Nick Law, R/GAs chief creative of- ficer, "whether it's fantasy football. Twitter, or Instagram."

As the product rounded into shape, "editing [then] becomes critical," Parker says. Olander adds, "It was like, 'What if we know your heart rate and have galvanic skin response, or add a gyro and magnetometer? We could know ev- erything.' But who's going to do all that stuff? It's this interaction between design and engi- neering that keeps the experience refined."

And during that process, "Nike was the ul- timate creative director," says Spalter. "What's more important—the people who cook up all the options or the people who curate and make the decisions? For a company of Nike's size, they keep the number of editors to a pretty damn short list"

RULE # 4 : FEED COMPANY CULTURE I am sitting in a Winnebago, parked in the middle ofthe Innovation Kitchen. The team purchased it on Craigslist for $750 to use as a conference room. There's plenty of meeting space

elsewhere, but as legend has it, Nike cofounder Phil Knight first sold shoes in the back of an RV like this one. So here we are.

Nike's campus is full of odd talismans like this, a living museum of itself, a container of legends and oral histories. The waffle iron that cofounder Bill Bowerman ruined making rubber soles in the 1970s? It's enshrined on campus like the Liberty Bell. In fact, with so many bits of lore around, anything can be mistaken as symbolic. The clock inside the Winnebago reads 2:59 even though it's barely past noon. My PR handler makes a point of asking about the significance ofthe clock's time. "I don't even know," Shaffer says, "but there's always something superdeep in things like that" Adds my handler, "That's the kind of detail people obsess over here—little things like this have a story behind it. Or, well, maybe it just means the battery is dead."

If Nike treats its past with reverence, it rep- resents its present in a different but equally honed way: as "top secret." In Parker's office, he shows me a pink running shoe that he says will reinvent Nike's manufacturing processes yet again. (It fuses Flyknit technology with a new, peculiar honeycomb-like sole.) "You might be the very first person outside of Nike to see this," he says.

In fact, I'm repeatedly dipped into the com- pany's inexhaustible supply of secrets—so much so that I wonder if Nike labels ideas "secret" the way the government broadly labels files "classified." Inside a garage on the outskirts of campus, behind a day-care center and a secu- rity firm, with its door simply marked "A," I witness two toned athletes lunging in front of a pair of Xboxes. This is the Sparq performance center, which was key to developing the analyt- ics behind the FuelBand and other digital Hike products. At one point, Sparq performance director Paul Winsper insists, "We don't want anybody to know about this." And as I enter the Zoo, another of Nike's "secret" facilities, an engineer confides, "Sometimes you want to be nice and hold the door for someone behind you, but you just never know."

All of this surely has some level of truth: Nike doesn't want full details of its R&D leaked out, nor does it want, say, some Adidas employee wandering in to snap photos. (Ahem: "Hell would freeze over before we copied a product," Adidas design lead James Carnes tells me.)

But like an action movie, the story isn't built to withstand serious inquiry I'm told, for ex- ample, that only a few dozen employees have access to the Zoo and the Innovation Kitchen. Yet there are clearly more than a few dozen em- ployees inside both, which, mind you, are on

the first floor ofthe Mia Hamm building, behind only slightly tinted windows through which passersby can clearly see ñ:om the campus side- walk. At one point when I walk by, a door to the Kitchen is propped open, unsupervised.

So what's with all the hush-hush? Culture. Employees internalize their own stories—that their work is imbued with a value worthy of secrecy, vaulting Nike into the lofty heights of philosophical (and sometimes self-important) corporate cultures alongside only Apple and Disney. When I bump into Nike coach and three- time New York City Marathon winner Alberto Salazar, in between the campus's Olympic-size swimming pools and sky-high climbing walls, even he tells me, "This place is like Disneyland."

That cohesive culture begets tangible ben- efits, such as talent retention. At Nike, you're a rookie if you've been at the company for less than a decade. Workers quote the company's maxims like the Ten Commandments. More than a dozen tell me, independently and un- prompted, "Be a sponge" and "If you have a body, you're an athlete." "We can almost finish each other's sentences," Parker says. "But not in a drinking-the-Kool-Aid, cultlike way"

That self-image is infused into every market- ing message and product release, and trans- ferred to a public eager to finally be let in on the secret. The more exclusive the presentation of those products and brands, the more they are desired. Parker borrowed more than a bullshit meter from Steve Jobs. No wonder consumers and media line the block for both Apple and Nike product launches.

"There's a halo effect of being seen as an in- novative company," says Forrester's Sarah Rot- man Epps. "It's hard to overstate how important it is that Apple CEO Tim Cook is seen wearing one of your products onstage atan Apple event," as he was with a FuelBand during the iPad Mini launch last October. Never mind that Cook sits on Nike's board. The cool kids are sitting at the same table, and you're invited.

After leaving that secretive garage on the corner of campus, the one labeled A, I'm told I won't be able to locate it again. It's that hidden, my handlers say, like a witch's cabin that van- ishes into the woods.

It seemed like a challenge. So the next day, I go hunting. I search in the rain for 45 minutes, down endless little roads. Finally, there it is— unguarded, intact, no laws of physics denied.

Another Nike myth busted? Perhaps. But I can't go in; the garage is empty The lights are turned off The building is there, but the ideas inside are gone. The secret is kept ®

156 FASTC0MPANY.COM MARCH 2013

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