“Thinking like a designer can transform the way you develop products, services, processes – and even strategy.”
--Tim Brown, IDEO CEO and President
This follows on our first installment in our series on design thinking. What follows is a case study on how design thinking was applied at adidas, effectively reviving the brand. Please share your thoughts with us on our social media pages (Facebook, Twitter, Linkedin).
The Return of "The Three Stripes"
Adidas is a multinational corporation headquartered in Herzogenaurach, Germany, that designs and manufactures shoes, clothing, and accessories. It is the largest sportswear manufacturer in Europe and the second largest in the world after Nike. The company is synonymous with their very recognizable brand logo, commonly known as the three stripes.
Adidas was best known for high-performance sports shoes but has now become equally regarded as a company at the forefront of style and innovation. Adidas took analysts by surprise in 2017 as its “Superstar” sneaker overtook Nike’s Jordan brand in the US, Nike’s home market.
NPD Group vice president and senior industry advisor, Matt Powell, stated that adidas overtaking Nike in this brand battle is "an achievement I never thought I would see in my lifetime," as the Nike Jordan brand has been an entrenched leader in the segment for over a decade.
Adidas’ US market share for sneakers is now up to 11.3% as of May 2017, almost double from the previous year, according to NPD Group.
So, what’s behind adidas’ spectacular comeback?
As implied before, the company had been struggling recently. After buying out Reebok in 2006, adidas found itself with stretched resources and a fading brand, and according to an analyst interview in 2015, at that time “they hadn’t been keeping pace on the innovation front.”
The company knew a change was needed. Adidas set out to recreate the organization’s corporate culture in order to open it up to embracing new ideas and not only keep pace with innovation, but to become an innovation leader.
Adidas believes that the people are the key to the company’s success. With the development of a new strategy, adidas put people first in setting out on the great challenge of creating the new adidas.
Creating the New
It is inevitable that resistance will come with change on any level, but especially with great change. In an attempt to have people commit and accept changes in company culture, executives at adidas observed how its employees work, learn, and share. With this, the organization gained valuable insights, which led to effective changes.
Boundaries in physical space were brought down by designating open workspaces and by encouraging staff to choose their workspaces freely. By freeing up work styles, interpersonal and interdivisional boundaries were dissolved which led to a flattened hierarchy, and ultimately more efficient and effective communication, companywide.
Moreover, “The Learning Campus” was set up in 2014 to improve internal learning and sharing. According to Christian Kuhna, who at that time was part of the Learning Campus team, “(it became clear that) only 10% of what we learn happens through formal training, 20% we learn through other people and 70% on the job.” (See more about his efforts here.)
In other words, since learning is embedded in daily work, it proved very effective when peers were invited to teach and learn, and formal workshops were administered by professionals. Free experimentation was also encouraged and even failed attempts were shared and celebrated in order to mark the passage of the creative/iterative process.
The key internal KPI for this new strategy was the employee engagement and motivation index (non-financial), while the employer ranking constituted the external KPI. For performance management, motivational-inspirational factors were supplemented by “The Score,” a simple and transparent method combining target setting, employee development, and appraisals. Individual targets were aligned with team goals to promote buy-in and encourage collaboration.
Adidas’ “Create the New” strategy was successful financially as well. Against the previous year, currency neutral sales increased 18% and operating profit improved from 6.5% to 7.7%. Tightened controls brought about a decrease of 0.3% in operating working capital and a decrease of 12% in gross borrowings. Markets welcomed changes with a 67% increase in share prices.
The Superstar sneaker stands out as a symbol of this process. As customers were keenly observed in their natural habitat, a “retro” trend was tapped; a look and feel was created that won hearts and purse strings. In addition, adidas leaped outside of their proverbial comfort zone to embrace non-athlete representatives and social influencers. These people “resonated well with current consumer trends,” according to Baird analyst Jonathan Komp, thus changing the game of the sports apparel market completely.
My Personal Visit to adidas HQ
I visited the adidas headquarters in Herzogenaurach recently and was fortunate to get an inside glimpse as to what “a day in the life” of an employee at the company.
Public spaces included groups of staff and management of all office functions. They gathered around whiteboards and tables engaging in lively discussion. People were deeply absorbed in thought, working on assignments and moving from one workspace to the next, freely sharing ideas.
It was fascinating to see: an accountant mastering the technique of sewing, an intern-designer studying new fabrics, master designers engaged in their own projects and consulting others simultaneously, and a digital marketer learning how to make shoes.
It was clear that innovation by design thinking was taking place right in front of me.
If They Can Do It, You Can Too
What adidas did to change their corporate culture was no easy feat. Changing a corporate culture in any organization, large or small, is a complex and abrasive challenge with many hurdles.
It is clear that the people-first strategy implemented by the development team at adidas led to identification of critical needs, unconstrained experimentation, and future-looking solutions. Theoretically, changes to small organizations would be easier than in a large organization, and what I saw first-hand at adidas HQ was a perfect example of the latter. It was not easy, but if a large multinational corporation such as adidas can take the risk to change corporate culture, which has been a success, it is my belief that small and medium-size companies would benefit from such changes as well. That is, changes which focus on a people-first mindset in development, and lead to improved creativity and higher levels of customer acceptance.
It remains to be seen whether adidas will keep the momentum of its current success going, as competitors have not been watching idly. While improvements were achieved, further challenges lie ahead to sustain these improvements.
What do you think? Please share your thoughts on adidas’ journey or design thinking in general with us on social media.
Thanks to Hiroaki Kaneko for adapting this to Japanese and Cristian Vlad for photography.