A study of 1,850 companies by Zook and Allen revealed

two conclusions:

First, the most sustained profitable growth occurs when

a corporation pushes out of the boundary around its

core business into adjacent businesses.

Second, corporations that consistently outgrow their

rivals do so by developing a formula for expanding

those boundaries in a predicable, repeatable manner.

Nike is a classic example of this process. Despite its success in

athletic shoes, no one expected Nike to be successful when it

diversified in 1995 from shoes into golf apparel, balls, and

equipment.

Only a few years later, it was acknowledged to be a major

player in the new business. According to researchers Zook

and Allen, the key to Nike’s success was a formula for growth

that the company had applied and adapted successfully in a

series of entries into sports markets, from jogging to

volleyball to tennis to basketball to soccer and, most

recently, to golf. First, Nike established a leading position in

athletic shoes in the target market, in this case, golf shoes.

Second, Nike launched a clothing line endorsed by the sports’

top athletes—in this case, Tiger Woods.

Third, the company formed new distribution channels and

contracts with key suppliers in the new business. Nike’s

reputation as a strong marketer of new products gave it

credibility.

Fourth, the company introduced higher-margin equipment

into the new market. In the case of golf clubs, it started

with irons and then moved to drivers. Once it had captured

a significant share in the U.S. market, Nike’s next step was

global distribution.

Zook and Allen propose that this formula was the

reason Nike moved past Reebok in the sporting goods

industry. In 1987, Nike’s operating profits were only

$164 million compared toReebok’s much larger $309

million. Fifteen years later, Nike’s operating profits

had grown to $1.1 billion while Reebok’s had declined

to $247 million.2 Reebok was subsequently acquired

by Adidas in 2005 while Nike went on to generate

operating profits of $2.4 billion in 2008.