Case Study: New Balance Athletic Shoes
Case Study: New Balance Athletic Shoes
New Balance was founded by William J. Riley in 1906 in the city of Boston. Riley started by making arch supports for customers who had to spend all day on their feet. Over time the building of arch supports led to the creation of his first running shoe in 1925. As part of a local running club, Riley capitalized on an opportunity to improve running shoes of the time and his designs became widely popular.
His new running shoes became so popular that by the 1940’s that production spread from running to many other sports. Then the expansion of the manufacturing significantly increased as he realized a need to running shoes with more selection for wider feet, and the company grew significantly through the 1960’s (Veleva, 2010).
James Davis purchased New Balance in 1972, from Paul Kidd, after looking into several business opportunities and trying out the New Balance sneakers for himself. Davis currently owns New Balance along with his wife, Anne Davis, who holds the position of vice-chairman and executive vice-president (Veleva, 2010).
By the 1990s, rising labor costs and fluctuations in customer demand pushed much of the manufacturing processes overseas. Although the expansion into foreign manufacturing opened up unlimited opportunities, it also exposed the industry to intense scrutiny for various human rights issues in the supply chain (Veleva, 2010). New Balance, among other companies, realized an increasing need to focus on sustainable business plans that incorporated internal Corporate Social Responsibility programs. Strengths and Weaknesses
New Balance has focused on a sustainable business model and responsible corporate leadership for many years before CSR became a hot topic. Before CSR was had formed roots at New Balance, they already had a program they referred to as “Responsible Leadership Steering Committee (RLSC). The RLSC was tasked with driving change in 4 areas of social responsibility: community investing, environmental, compliance, and the product life cycle (Veleva, 2010).
Most of the employees and senior staff agreed the company was committed to doing the right things for the right reasons, but most of the senior management still believed RL was more of a cost than a, “strategic business driver with measurable social and business benefits” (Velvea, 2012). Even once the company began to make changes at New Balance, they did not do a very good job at communicating their efforts to the employees or the community.
The root of the CSR issues at New Balance could be attributed to the lack of clear leadership and direction from the top. When the employees are constantly feeling pulled in various directions and trying to balance, profitability, performance, manager expectations, and social responsibility – strong leadership and clear direction need to be made abundantly clear. This was not happening effectively at the highest levels at New Balance (Veleva, 2010). Products and Services
New Balance continues to impress critics throughout the running world, with magazines like Runner’s World rankings showing rave reviews of the newly developed 320 (Chang, 2012). New Balance has led in areas of innovation by working with athletes to improve their technology and design. They were able to reduce the sole thickness of the 320, while maintaining the comfort level to the runner, lowering weight and fatigue (Chang, 2012).
Recent design successes, along with the trademark success of the larger range of width of their products, are just a few examples of how New Balance continues to be a forerunner in athletic shoe design.
By deciding to establish an “Endorsed by No One” campaign, New Balance has decided to embrace the concept of not having professional athletes or celebrities endorse their products (Velvea, 2010). Although some would attribute some of New Balance’s success to this campaign, Nike and Reebok have seen tremendous success with celebrity athletes such as Michael Jordan, Andre Agassi, and Tiger Woods just to name a few.
One could easily argue that Nike’s success is a direct reflection of their commitment to their celebrity sponsorships, and while New Balance has found a niche by staying clear of these expenses, it could also be a root cause for why they dominate less than eight percent of the market share (Veleva, 2010).
New Balance decided to improve their operations by implementing a “lean production system” in all of their domestic facilities. The lean production system was taken from Toyota’s manufacturing processes to, “deliver goods on demand, minimize inventory, maximize the use of multi-skilled employees, flatten management structure, and focus resources when and where they are needed” (Veleva, 2010).
These improvements helped significantly improve vast processes across New Balance manufacturing, and in one example reduced the time to make a pair of shoes in the Lawrence facility from eight days down to three hours (Veleva, 2010). New Balance has a significant opportunity to expand its operations in the western region.
While the commitment to northeastern operations may have provided an early advantage, there is certainly an opportunity to capitalize on the explosive growth within the western market (Chang, 2012). It is important to balance growth across various markets, to ensure market share is captured, in order to get ahead of the expanding market culture before brand dominance is established by the competition.
New Balance continues to stay committed to social responsibility by donating employee volunteer hours and funding to various organizations. The flagship of community support provided by New Balance is through its New Balance Foundation. The New Balance Foundation is committed to building healthier and stronger communities – with considerable focus on helping to prevent childhood obesity (NewBalance.com, 2013). Annual grants from the foundation in 1981 were approximately $30,000 and have grown to over $6.4 million in 2011.
New Balance commits to, “a holistic approach that includes medical, academic and grassroots nonprofit partnerships and work with partners who engage kids and their families through exercise and play as well as nutrition (NewBalance.com, 2013)”.
Another challenge facing New Balance, has been the Non-Governmental
Organization (NGO) campaigns taking a direct aim at athletic shoe manufacturing, with initial issues such as codes of conduct and improvements with supplier monitoring (Veleva, 2010). In recent years, the focus has shifted to, “maximum work hours, health and safety in overseas factories, use of temporary workers, transparency, responsible purchasing practices and ‘exit strategies’ when closing factories overseas (Veleva, 2010)”.
New Balance has to contend with these direct transparency issues and incorporate policies to take into account different cultural differences; such as, some Asian workers prefer to work longer hours in order to earn enough to return to their families sooner (Veleva, 2010). Analysis
The review of New Balance operations exposed opportunities and challenges to improve the company’s overall execution of an effective CSR policy. Some of the company’s strengths are: Long term commitment to responsible corporate leadership;
Strong product line to help contribute to funding of research and philanthropy; Sustainable commitment to process improvements through innovative measures; Established programs to continue to monitor and improve CST processes. During the analysis of New Balance there were opportunities uncovered that will need to be addressed in order to accomplish a stronger CSR foundation. Those opportunities are: Improved communication from top level executives with clear direction; A reevaluation of celebrity endorsements of their top products; Continued evaluation of western operations and expansion;
Industry leading examples for cultural and human rights policies. Implementing CSR In order for New Balance to become a world leader in CSR, it will need to focus on and improve the humanitarian treatment of all workers that come in contact, with all levels, of the manufacturing and supply chain. In order for New Balance to truly set an example in sustainable leadership, in a responsible way, it needs to keep human rights at the top of the priority list.
The government places strict guidelines for the treatment of US workers, but it is the unprotected worker that needs to have a voice within an effective CSR policy. Key leadership needs to seek out feedback from any and all supply chain companies, and seek assistance from local government and NGOs, to get feedback from overseas employees. The information should be collected and made readily available and transparent to all invested parties. Supply chain companies that have exemplary processes in place should be rewarded, and companies that are found to be lacking the highest standards should be reprimanded, and should be replaced if immediate changes are not implemented.
The annual RL Report should be reevaluated to allocate adequate resources, to ensure the ethical treatment of employees is held to a higher standard as popular environmental projects. Open evaluation of the results from these evaluations will lead to stronger and truly sustainable operations as improvements are made. Supply chain human rights improvements should have immediate expectations, with limited turn times for corrections within a 30 day timeframe.
More complex issues should be evaluated on a quarterly basis, with senior leadership action plans communicated when more time is deemed necessary. Again, prudence and transparency is key to a successful CSR implementation plan.
In addition, the New Balance Foundation should continue to build value in its efforts to prevent child obesity. As health care in America continues to be plagued with the ill effects of obesity, the focus on healthy athletic alternatives is in perfect alignment with the vision of New Balance. Contribution funds should strive to reach an excess of $7 million by 2014, through awareness campaigns, employee contribution efforts, and community action committees in partnership with New Balance
. Also, New Balance should leverage their political influence to seek government contributions and assistance in their health based community programs, as these programs can certainly provide a service to the greater population. Conclusion
New Balance has set itself apart, as a company that strives to sustain its business operations through responsible contributions to its people and communities in which it operates. But in order to be a truly great company that sets an example for all corporations to strive for, it needs to ensure the efforts made are not a mask for profit.
If the end goal is only to improve the bottom line through community efforts, then the win-win strategy will only maintain the appearance for so long before the true intentions are known. People run companies – companies are not responsible or irresponsible – people are, and the leadership of the company determines the vision and direction. In order to maintain a genuine CSR policy, the leaders need to hold each other accountable to each other and themselves.
Chang, C. (2012). New Balance Athletic Shoes Case. StudyMode.com. Retrieved 11, 2012, from http://www.studymode.com/essays/New-Balance-Athletic-Shoes-Case-1241026.html ewBalance.com. (2012). New Balance Responsible Leadership Report. Retrieved October 13, 2013, from assets.newbalance.com/nb-us/rl_flipbook/files/inc/171206508.pdf NewBalance.com. (2013). Responsible Leadership. Philanthropy and Community Investment Foundation.
Retrieved October 14, 2013, from http://www.newbalance.com/ Responsible-Leadership_Philanthropy-and-Community-Investment_Foundation/ about_responsible_leadership_philanthropy_foundation,default,pg.html Veleva, V. (2010). New Balance: Developing an Integrated CSR Strategy. In R. Ramadan (Ed.), Organizational Leadership 690: Responsible Corporate Leadership. Course Package: Harvard Business Review Articles: Coursepack. Manchester, NH: Southern New Hampshire University Bookstore. (Reprinted from Richard Ivey School of Business.)