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adidas Group- Management, Organizational Structure and CSR Analysis

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adidas Group- Management, Organizational Structure and CSR Analysis

  1. 1. adidas Group: “Impossible is Nothing” Analysis of adidas Group’s Top Level Management, Organizational Structure and Corporate Social Responsibility Laura Valkiers, Hannah Schepers, Youyou Gao, William Vermeulen, Yannick Gielis, Leendert Vandenhove, Michael Calo
  2. 2. Introduction “Impossible is nothing”, the slogan of the adidas Group, a top tier company in the sports industry that has its roots in Germany. adidas was founded in 1920, when the brothers Adolf and Rudolf Dassler started designing shoes in Herzogenaurach, Germany. With the rise of Hitler, both brothers joined the Nazi’s while designing shoes for the German army. After World War II, both brothers became rivals and both founded a sports company. Adolf Dassler started adidas and Rudolf started Puma. Both companies would have a life-long rivalry ahead of them. Under pressure of competitors like Nike, Puma & Reebok, adidas was losing market share in the beginning of the 20th century. Therefore, it conducted a takeover of the French Salomon Group, another leader in the sports apparel industry. This allowed them to gain a competitive advantage in the sector thus becoming adidas-Salomon. In 2006, adidas, once more, succeeded to reinforce its global positioning by the takeover of Reebok. adidas then became the leading company adidas AG. With global headquarters in Herzogenaurach, Germany, their organization is widespread across the globe including several countries, such as the Netherlands, Panama, United States and Hong Kong This report will include an overview of the top-level management and leadership, the organization’s structure and the corporate social responsibility of the adidas Group. Top Level Management and Leadership The top-level management of the adidas Group can be illustrated using the following figure. Figure 1: Corporate bodies of the adidas Group
  3. 3. The adidas Group consists of three corporate bodies: the Annual General Meeting, the Supervisory Board and the Executive Board. [1] It is the latter, the Executive Board, which is of importance when looking into the management structure and leadership within the company. The Executive Board is at the pinnacle of the company, responsible for the entire management with focus on strategic management, financial control, compliance and risk management.[2] Furthermore, the Executive Board represents the company and defines the company policies.[3] In their decision-making processes they apply a high level of focus on creating value for the company and its stakeholders, while also incorporating the overall interests and values of the company as exemplified through their extensive history in the industry.[4] At the head of the Executive Board is the Chief Executive Officer, Herbert Hainer, who was appointed by the Supervisory Board.[5] The CEO will have the deciding vote in case of a draw in submitted votes when adopting new resolutions within the Executive Board.[6] Overall, it can be observed that the Executive Board at the adidas Group solely consists of men, ages ranging from 49 to 61. On the basis of nationality, two members represent the brand’s originating country, Germany, two Americans and one executive from New Zealand. The adidas Group has notoriety for being a traditional, westernized company in this perspective. Despite this makeup within top-level management, the lower levels of the organizational structure pride itself on maintaining a youthful (average age is approximately 30 years), diversified (employees from 79 different nations) and gender-neutral (50% female) employee base. Whilst this might be the case at lower levels within the company, there aren’t many signs of this vision within the top-level management of the organization. The adidas Group as an organization Figure 2: adidas Group Organizational Structure
  4. 4. When looking into the organizational chart of adidas, the company employs a top-down strategy in the higher ranks of the structure. The Executive Board stands alone at the top, supported by three Vice Presidents in specific areas (Finance, Marketing and Human Resources). Further down the organizational structure are three additional Vice Presidents, who are dedicated to specific divisions (Projects, Engineering and Manufacturing). The latter Vice Presidents are further supported by teams of managers. From this point on, the organizational structure shifts from a top-down, functional, structure into a matrix structure. As shown on the figure, this matrix structure consists of a very cohesive organization, where different divisions are constantly collaborating and working together. By allowing and fostering communications between mid-level managers and workers across each department, including engineering, manufacturing and projects, each worker sees the entire picture and can more easily understand and buy in to the vision that the adidas Group seeks to reinforce through its business practices. These divisions focus not only on the expansion of existing business, but also on the implementation and penetration of new business opportunities. The adidas Group can be seen as an ambidextrous organization exemplified by their keen focus on emerging markets. Innovative concepts like Bluesign Technology, where it monitors and helps suppliers be more sustainable in their manufacturing efforts, shows that the adidas Group cares about people, society and their impact on the environment. They constantly innovate towards being a company that stands for revolution. This suggests the growth of the company, from a multi divisional matrix form, where they maximized their effectiveness in their current business practices and markets, towards an I-form organization, where the importance lies with Multi-Firm networks and Community-based structures that foster the creation and implementation of innovative business ideas and practices. They have grown toward and embraced the sharing of knowledge to make a positive impact on the sustainability of our world. In order for the adidas Group to remain competitive in a constantly changing and diversifying global setting, the organization has attempted to shift their organizational composition. To become more receptive to the developing trend of a globally integrated working environment, the adidas Group currently employs about 54,000 workers from 79 different nations. The organization has also acknowledged a need to become younger by placing more of an emphasis on hiring Generation X and Y employees while having Baby-Boomers account for only 3% of their workforce. This has resulted in an average employee age of 30 years old, which is significantly lower than the industry norm. Corporate Social Responsibility adidas Group The adidas Group directs an immense amount of focus into their corporate social responsibility. Specifically, they apply the majority of their efforts to the 4 P’s, namely People, Product, Planet and Partnership. The adidas Group has implemented various programs to enable them to reduce their environmental footprint while improving the image of their brand in the eyes of consumers. In this process they have been teaming up with experts in an array of fields, resulting in various partnerships. The first pillar of adidas’ sustainability policy is “people”. This pillar focuses on the well being of employees and workers within their factories. They want to influence the lives of their employees, factory workers and people living in the communities where
  5. 5. they have conduct their business in order to provide a positive presence to their stakeholders and the community in general. Within this pillar, the adidas Group developed a SMS worker hotline in 2012. As part of the project, mobile numbers of workers are anonymously gathered. Management can then send group texts reminding workers of safety issues or letting them know about changes in policy. More importantly, it offers factory workers the opportunity to ask questions, make suggestions or express their concerns by text. Additionally, this hotline is ran by an independent service provider, which ensures the anonymity of the persons sending these texts. By giving all employees a chance to express their concerns anonymously, the adidas Group provides a judgment-free working environment that values their employees opinions and views on the quality of their workplace while also becoming fully transparent in the sharing of company policy changes and safety concerns. Two years after the launch of this project, it has already expanded to 14 factories in Indonesia and 10 supplier factories in Vietnam. At the end of 2014, more than 160,000 people were covered. This year is the third year of this project and it is growing fast. The adidas Group strives to be an organization that is fully committed to respecting human rights. The company makes sure that their business activities do not harm any of their employees, factory workers or other stakeholders. They protect worker rights and attack any problems swiftly if infringements on human rights are found. Furthermore, the adidas Group partners with civil society groups to encourage governments to do more to fulfill their duty to protect human rights. They do, however, recognize that there are limitations in their ability to influence change on the world stage. Subsequently, this is why the organization pays additional attention to vulnerable groups within their supply chain. These vulnerable groups predominantly include migrant workers, women and children. In order to do so, the third party complaint mechanism was revised in 2014. Anyone who notices an infringement on its rights can now report this from anywhere in the world, making the fight for equal human rights a collaborative and global effort. The adidas Group also participates in an organization called, Wings of Help, assisting and improving the lives of refugees in Syria and Iraq. Wings of Help is a Frankfurt based NGO that provides emergency relief in crisis situations around the world. The adidas Group donated over 10,000 items of clothing and footwear since 2006. The adidas Group has built and maintained relationships with humanitarian aid organizations that assist them in bringing supplies into affected areas. In the second pillar, “product”, we can better understand how the adidas Group uncovers improved ways of creating their products, mainly through innovative processes, increased efficiencies and greater use of environmentally preferred materials. The adidas Group commits itself to increase the use of sustainable materials such as recycled polyester, bio-based materials and sustainable cotton. At the moment, the company uses 30% of sustainable cotton in their products. Although this does represent progress in becoming more environmentally sustainable, the Group has committed to source 100% of sustainable cotton by 2018. Recycled polyester is made from recycled waste, such as used clothes or plastic bottles, while virgin polyester is made from petroleum. Using recycled polyester has many benefits including the drastic reduction of dependency on petroleum, as well as limiting the amount of waste discharged during
  6. 6. manufacturing of their products. This keeps polyester from ending up in landfills and incinerators, where it can result in toxic emissions that negatively impact the environment and increase the environmental footprint left by the adidas Group. Another major issue in the textile sector is the enormous amount of water that companies use in the manufacturing process. Textile manufacturing leaves one of the largest water footprints on the planet and the use of dyeing poses an especially large problem. In 2012, the organization launched adidas DryDye. Instead of water, compressed and pressurized carbon dioxide is used as the agent to disperse dye within polyester fabric. Despite the limited amount of DryDye products currently in their collection, by the end of 2014 they had already produced four million yards of DryDye fabric. This improved technology saved 100 million liters of water, drastically reducing the organization’s water footprint on the global environment. Regarding their focus on “Planet,” the adidas Group has set up a series of goals. As a leader in chemical management for two decades they strive to achieve a zero discharge of hazardous chemicals by 2020. They have set up rigorous programs to manage the chemicals that are used to make their products. To achieve these goals they called in help from Bluesign Technologies; a company that is currently the world leader in providing assessment tools for positive chemistry in the textile industry. Bluesign Technologies screens and manages chemical input at the supplier level and give real world, practical guidance on improvements to the way products are manufactured. The adidas Group engaged in a partnership with Bluesign Technologies in order to find sustainable solutions in their global supply chain. Two other goals they are striving for are related to the use of perfluorinated compounds and the ‘wet process’. The adidas Group wants to be 99% PFC-free by 2017. They are in the process of achieving their goals seeing as they are already 90% PFC-free as of 2014. PFC is a chemical substance that is harmful to the environment and is used to make sportswear stain, grease, water and dirt repellent. To phase out the use of PFC, they need to conduct research for viable and less toxic alternatives. All potential solutions they come up with are screened by Bluesign Technologies. Obviously, all potential solutions need to be of high quality considering the adidas Group doesn’t want diminish quality. Concerning the ‘wet processes’ they want to be able to rid of 50% of all ‘wet processes’ by the end of 2015 across their global supply chain and even 80% by no later than July 2016. Their focus on Planet isn’t limited to production; they have also set up their Green Company Initiative to improve environmental performance of their administration offices, manufacturing sites and distribution centers. The Green Company Initiative is highly focused on the reduction of water consumption, household waste and paper use per employee as well as an increased effort applied to saving energy in their distribution centers, own operations and administration offices. The key to success of this initiative is their Environmental Management System (EMS), a management system used by all their brands. In 2014, they expanded their efforts to retail, with their Green Retail project presenting HomeCourt: a new global adidas store concept. This HomeCourt project presented an entirely new dimension, where they bring sustainable thinking into their storefronts. An essential aspect of their sustainability plan is not only for them to be sustainable but to also inspire their suppliers to adopt and improve their corporate social responsibility as well. Seeing as the adidas Group has limited control over direct environmental impacts of the manufacturing processes conducted by their suppliers, they try to influence their
  7. 7. suppliers by encouraging them to introduce environmental management systems in their own processes. The implementations of those systems are now compulsory for all their core suppliers. Besides their partnership with Bluesign Technologies they also collaborate with other important environmental organizations. For example, the adidas Group joined the Sustainable Apparel Coalition (SAC), the Fair Labor Association (FLA) and the Bangladesh Accord on Fire and Building Safety. They also collaborate with school, where they are able to set up BOKS; a free before-school physical activity program that allows the adidas Group to become involved socially at the educational level as well. Their core belief is that by engaging in projects that involve sports and teamwork, social change and improvement can be made for generations to come. To make sure everything goes according to plan, the adidas Group frequently organizes social compliance and environmental audits. In 2014, they conducted 1,193 audits and in addition to those audits, their compliance staff conducted multiple supplier site visits to discuss specific issues, review the status of projects or to give training sessions. 47% of all active suppliers were audited in 2014 with a vast majority in high- risk countries in Asia that are currently the major sourcing region of the adidas Group’s materials and resources. If supplier factories don’t meet the adidas Workplace Standards or refuse to implement their management system, the suppliers must resolve their issues before they can be accepted to the adidas Group supply chain. Ongoing non-compliance issues are required to be addressed by the supplier and the adidas Group sends warning letters to advise these suppliers of their shortcomings. If the adidas Group needs to send a second warning letter; the supplier is one step away from a possible termination of business within the organization’s supply chain. They are very strict on this topic and seek to develop close work relationships with their suppliers by helping them to improve supplier performance as long as they don’t encounter severe or repeated non-compliance. To prevent this termination of supplier relationships from becoming a recurring experience, the adidas Group conducts thorough pre-screening with new suppliers. If the initial assessment uncovers important threshold or zero tolerance issues, the suppliers are rejected and do not become a part of the adidas Group supply chain activities. Company Values in Action The adidas Group prides itself on four core values: Performance, Passion, Integrity and Diversity. These values are clearly shown when evaluating the organizational and managerial structure and their implementation of corporate social responsibility. Performance: As evident in their creation of distinct cross-functional teams, the adidas Group focuses on being efficient in their business practices. By being fully transparent and open to sharing information across team boundaries, performance of the entire company’s performance and efficiency is optimal. This shared learning limits the duplication of processes or repetition of failed ideas. In addition, their willingness to acknowledge their shortcomings in hope of maintaining profitability ensures their long- term success. For example, after acquiring Salomon’s golf and winter sports lines, they recognized the unprofitability of the winter sports line and were willing to dissolve the line in order to ensure company-wide profitability.
  8. 8. Passion: They most identifiable passion at the adidas Group is their thirst for innovation and improvement. Since the creation of adidas, they have always sought to increase the reach of their brand through acquisitions and organic growth. Their ability to constantly challenge the status quo through the creation of innovative products and processes has forced competitors out of the market and has raised the bar when it comes to environmental and social responsibility. Not only has the adidas Group been profitable through quality growth but they have also created a brand that has passion for its stakeholders. Integrity: The integrity of the adidas Group is evident by their focus on the product as well as the people. Their attempts to maximize CSR through environmentally sound techniques such as limiting their environmental footprint and reducing the amount of toxins released during supplier manufacturing are commendable. These efforts serve to represent just how invested the adidas Group is in creating a supply chain that limits the negative impacts on the environment and supports integrity. Diversity: This value of the adidas Group is most obvious through analyzing the workforce within the organization. Their workforce containing over 50,000 employees from 80 countries and a range of ages spanning from baby-boomers to generation X, exemplifies the importance they put on having a diverse employee-base. With this diversity, the adidas Group is able to create a globally attractive organization that incorporates local market preferences throughout the world. Conclusion The adidas Group is an organization that has known many stages of growth by acquisitions throughout its history. Its upper management operates in a more top down system, which implies a functional, organizational structure as a result of the western executives within the upper management. Going from the top to the bottom, the multiple divisions inside the organization become more and more visible and the diversity within the organization becomes clearer. On these levels, there is more spread on the variety, race and background of employees. Due to the combination of the functional design on the top and the matrix design on the middle and lower level, the adidas Group can be seen as an ambidextrous organization. This makes it possible for the adidas Group to innovate on a constant level exemplified by various initiatives and projects within their corporate social responsibility.
  9. 9. [1] [2] Art. 3 of the Rules of Procedure of the Executive Board of Adidas AG. [3] Art. 3 (3) of the Rules of Procedure of the Executive Board of Adidas AG. [4] Art. 1 (2) and art. 3 (2) of the Rules of Procedure of the Executive Board of Adidas AG. [5] In conformity with art. 6 of the Articles of Association of Adidas AG. [6] Art. 7 of the Articles of Association of Adidas AG.