Nike: The No. 1 Most Innovative Company Of 2013

For a pair of revolutionary new products and a culture of true believers.

"This is the raw stuff."

Stefan Olander, head of Nike's three-year-old Digital Sport division, is watching a group of his engineers hack an experiment together. They're using a pair of Nike trainers with embedded sensors. The sensors 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 MacBook; the MacBook's screen features a program that is busily imitating a 1987 Nintendo video game called Track & Field II. Which brings us to the ostensible goal of all this madness: finding out if new-age sensors and wireless devices work with an ancient video game.

That's why Burroughs, 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 been 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 full of engineers, which isn't very glamorous. But the experiment is working, sort of: As his avatar nears the first hurdle, Burroughs leaps too late, leading his digital self to trip and tumble into a pixelated pool of water. "Arrrrrrr!" yells Burroughs. "Come on!"

Olander, who bears a distracting resemblance to Matthew 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 innovation, Nike-style: a messy, exhausting process culled from myriad options and countless failures.

Nike CEO Mark Parker.

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 process. 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 of the 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 thinking 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 of thing (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 a commitment to 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 of the 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 DISRUPT, YOU MUST GO 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 unnecessary excesses," says Ben Shaffer, studio director at the Innovation Kitchen, Nike's R&D center. The Flyknit Racer, one of the 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 incredible potential, not only within running, but across multiple categories." That's a massive bet given Nike's dominance of the athletic-shoe business, where, for example, it owns half the running market and a whopping 92% of the U.S. basketball shoe business. And Nike has gone all-in on that bet, building a whole new manufacturing process around the product. "Does this change our business model in some cases, or our supply chain? Absolutely," Parker says.

Shaffer shows me some of the 195 major iterations the Flyknit went through as we tour the Kitchen. 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 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 reimagining 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, Jones stops short and wavers, "I can't say anymore."

Rule #2: ANTICIPATE A PRODUCT'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 them. "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 resemble 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 it's 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 activity 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 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. Flyknit is not only valuable because its technology will help Nike make all kinds 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 personalize 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 knit technology.

Rule #3: DIRECT YOUR PARTNERS

Stefan Olander has barely ushered me into his neatly arranged 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 Velcro 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, beautiful product just because Parker 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 businesses need to constantly evolve, either through partnerships, 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 super confidential." 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 resembled 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 for us,'" 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 turned off calorie tracking.

Nike's role was between a coach and a traffic cop. Nike designer Jamian 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, laughing. "But that's innovation: full throttle, hit the brakes; full throttle, hit the brakes." The effort produced several breakthroughs, 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 conversations around racking up points and spending them on Nike socks," says Ian Spalter, who was then R/GA's product design VP and who now serves a similar role at Foursquare. The agency tinkered with tabulating Fuel points in aggregate for public causes--the digital equivalent of charity 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 addictive. "There's something about dipping into feeds," says Nick Law, R/GA's chief creative officer, "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 everything.' But who's going to do all that stuff? It's this interaction between design and engineering that keeps the experience refined."

And during that process, "Nike was the ultimate 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 of the 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 of the 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 represents 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 company'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 security 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 analytics behind the FuelBand and other digital Nike 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 example, that only a few dozen employees have access to the Zoo and the Innovation Kitchen. Yet there are clearly more than a few dozen employees inside both, which, mind you, are on the first floor of the Mia Hamm building, behind only slightly tinted windows through which passersby can clearly see from the campus sidewalk. 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 benefits, 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 unprompted, "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 marketing message and product release, and transferred 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 innovative company," says Forrester's Sarah Rotman Epps. "It's hard to overstate how important it is that Apple CEO Tim Cook is seen wearing one of your products onstage at an 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 vanishes 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.

Serena Follows Nike's Playbook

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.

1/Always offer something 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 actually 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 for next 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 Herve Leger [bandage] 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 an underdog

"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 entrepreneurship, 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 Pastorek

[Top photo: Jason Pietra, Prop Styling: Erin Swift; Parker: Art Streiber; Fashion Styling: Melanie Leftick; Grooming: Juanita Lyon; Serena: Photo by Art Streiber; Hair: Nikki Nelms; Makeup: Sheika Daley; Prop Styling: Nick Tortoricii]

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61 Comments

  • I thought the fuelband was such an amazing concept with great potential, but poor execution. Product usability and accuracy was nowhere near what it could have been

  • All-American

    Can anyone here tell if Nike is a good place to work? I got an offer to work there, but I live on the east coast. I'm not sure moving across the country would be a smart thing to do.

  • iamlilT

    It really depends on you. The culture is great, at least for me. There are a lot of freedom at work and people are usually very nice (besides things that involve politics). However, there are alot of ambiguity going on and you really need to be on top of your game to make decisions. once your handed with the project, you are the call maker. sure you can consult with others, but they wont tell you what to do. you really need to be self-driven, well-connected, and talk to the right people to make the right decision.

  • David Martin

    Innovation is about more than one and done.  Nike has enjoyed some very successful first acts.  But, the FuelBand and the Sports watch are now almost two years old.  We're waiting for progressive innovation - software and hardware updates.  They're late.  First generation FuelBands are now breaking and there is no NextGen product to upgrade to.  Since when is that innovative?  Nike needs to take a lesson from Apple and get on with it.  Progressive innovation is the key to success.  Nike needs to step up!

  • Amber

    Well this is an old article but how do you guys even get these decked out jobs at Nike in the first place? And this is a good article on their inventiveness by the way

  • Harishdv

    I am very surprised that Salesforce does not figure in this list!. What was the criteria for evaluation?..

  • tayguy

    AN INTERN CREATED THE "KNIT" IDEA FOR ADIDAS - THEN BROUGHT THE SAME IDEA TO NIKE AND THEY MADE IT FIRST, "
    "Good Artists Borrow, Great Artists Steal"

  • #2boy

    I get the feeling that when you wrote the article you only went to WHQ - did you spend some time with the employees in the field?  The employees who actually present the brand to the consumer and do the work for the executives in their nice office?  WHQ is a different world.  I worked for Nike for years and was miserable.  Working 7 days a week, conference calls until midnight, missing my kids birthdays.   The people in the field do all the work.  Also, how can you even compare Nike to Apple?  Nike makes shoes and Apple was innovative in bringing technology to the masses.  

  • Michael Downs

    If I have a totally new idea for a possible multimillion or billion dollar venture that Nike would be perfect for who would I write to?
    Sincerely, Dr. Mike
    DocMikeGoSC@AOL.com

  • nini

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    life's smash. In 2013, the brand ushered in the 20th birthday. Kate spade New York "things we love" as a theme throughout the year,nike air max tn
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  • TheGrubb

    This must be a joke.  If Nike is so 'innovative' why do they employ thousands of children to make their products?  Can't they innovate their way out of that?

  • BitterBosh

    Well, they seem like they can 'innovate' in this field, just please, please stop letting them design sports uniforms.

  • Baustinf

    As Scott M suggests NIKE should look internally for innovation and change. By this I do not mean meetings. By this I mean that NIKE should fix their disgusting supplier chain, stop using child labor, and start manufacturing these useless products here in the United States. Then at least Americans will be back to work. NIKE is one of those giants that is completely tolerant of cheap labor overseas. How is it innovative to break people's spirits and force them to live on pennies a day?

  • dvo

    Wait a minute…

    "NIKE: THE NO. 1 MOST INNOVATIVE COMPANY OF 2013"

    It's not quite even the middle of March yet…there's still 9 more months of time to innovate in 2013...

    #justsayin

  • Bhupeh Dua

    Nike is the certainly the lightest ever sport shoe, i have put on. Its really flying in space experience on earth while walking, running or jogging.

    More so, because my dearest brother Bhupesh Dua works for it with great dedication and exuberance

  • Luiz

    And they can't run a web service either, I'm not able to sync my Nike+ Ipod for more than 15 days by now. Ask for customer support and you won't have it. They must be all in a meeting...

  • Monica Donaton

    I would just like to add that I'm not sure to what extent Nike, as you say, "treat it's past with reverence". Its breakthrough into the "digital force" was through Nike+ sensors for running. It generated a huge community of runners through the forum and running challenges. We, the runners, were the culture of true believers that propelled Nike and we were neglected when they launched the new sensor devices like the Fuelband. They revamped the Nike+ site on June 2012 but in the process they eliminated the forum and challenges and left their believers in an isolated ghost town where runners have no platform to interact anymore. It's like killing the soul of Nike+. They promised the challenges would be back in the Fall 2012, pushed it back to "the 2012 Holiday season" and as of now has no date for their return or if they plan to bring them back at all. In the process many true believers like me just left Nike+ altogether or barely visit the site anymore. Yes, they are innovative and created exciting products, but unfortunately they did not treat their loyal believers with the reverence you would expect.

  • LawDog

    I worked for Nike for 8 years and I am STILL ALL IN!!!!  Would love to get to work @ WHQ.  If you don't believe it, you can't be it....plain and simple!

  • Baustinf

     I don't believe it, and I don't really f***ing care to. It's all useless crap that Westerners use then throw away and buy some more. Stop being a consumer and "just do" something that actually matters to this existence besides try and make money.