By Bryan J. Kaus
If we want things to stay as they are, things will have to change.
— Giuseppe Tomasi di Lampedusa, The Leopard
In 1964, a shipment of 300 pairs of Japanese running shoes arrived at Phil Knight’s parents’ house in Portland. He stored them in the basement and sold them from the trunk of his Plymouth Valiant at track meets across the Pacific Northwest. In 1971, Bill Bowerman, his former coach and business partner, melted urethane in his wife’s waffle iron while trying to build a sole that would grip a new track without tearing up his runners’ legs.
Neither man would have called this culture. They were trying to solve problems with little money, no reputation, and no margin for abstraction. They stayed close to runners because that was where the information was. They experimented because the established answers were not good enough. They learned faster because survival required it.
That way of working became Nike before Nike became a vocabulary.
On October 1, 2026, the company those men built reported quarterly revenue of $11.21 billion, down 4 percent from a year earlier. Greater China fell 26 percent on a currency-neutral basis, its ninth consecutive quarterly decline. Nike Direct fell 9 percent on the same basis. Nike’s performance business was growing, but the chief executive told analysts it was still not large enough to offset the pressure in Sportswear, Jordan Brand, and Greater China. Management announced another restructuring, including future layoffs and an operating-model overhaul expected to run through fiscal 2031.
After the earnings release, the shares traded more than 80 percent below their 2021 high. In September, after eighteen years in the index, Nike was removed from the S&P 100.
I do not own Nike shares. For several years the company has failed my standard for ownership, not because the brand lacks power, but because the operating system beneath it has not yet proved capable of converting that power into durable results.
Most accounts of Nike’s decline tell a strategy story. The company pushed toward direct-to-consumer sales, reduced wholesale distribution, relied too heavily on classic franchises, and ceded shelf space to hungrier competitors. That account is accurate. It is also incomplete.
The deeper problem was not merely that Nike chose the wrong strategy. It treated category expertise, retailer relationships, and proximity to athletes as pieces on an organization chart rather than as repositories of knowledge. In pursuing a plan that was defensible on paper, it weakened the culture and capabilities that might have made the plan work, or told management, early enough, where it was failing.
That is a culture story. And the pattern was described almost perfectly fourteen years ago by a writer who was not thinking about sneakers at all.
The money will always be there
Rich Cohen’s The Fish That Ate the Whale is a biography of Sam Zemurray, the Russian immigrant who began by selling overripe bananas beside railroad sidings in Mobile, Alabama, and ended up running United Fruit. Chapter 12 opens with an observation about what happens after the people who built a company are gone.
A corporation ages like a person, Cohen writes. The founders die and the bureaucrats of the second and third generations take their place. The reckless, forward-looking spirit that built the firm settles into comfortable middle age. The institution becomes self-conscious. It asks how a decision will look before asking whether the decision will work. If the business remains wealthy and strong, later generations acquire the most dangerous kind of confidence: “They think the money will always be there because it always has been.”
Zemurray bought United Fruit stock as its professional managers ran the company into the ground during the Depression. In 1933 he walked into a board meeting and took control. The men he displaced were not fools. They were accomplished executives running a company that had dominated for so long that dominance felt like a property of the institution rather than the result of anything people still had to do.
The important word in Cohen’s passage is generation. It does not have to mean family. It means managerial generation.
The first generation discovers how the business works through necessity. The second learns from the people who made those discoveries. The third is trained in systems designed by people who learned from the people who made them. By then, an institution can know exactly what it does without many people remaining who understand why it worked. Ritual replaces judgment. Vocabulary replaces behavior. The cash flow is there because it has always been there.
Kodak is the clean version of one failure mode. A Kodak engineer built the first digital camera in 1975. The technology existed inside the building for decades, but the company’s culture could not carry out a strategy that threatened the film business paying everyone’s salary. Kodak did not lack intelligence or invention. It lacked an organization willing to turn those assets against the answer that had always worked.
Nike illustrates the other failure mode. Culture can block a necessary strategy, as it did at Kodak. But strategy can also hollow out the culture and capabilities needed to execute it, as it did at Nike.
A resilient culture avoids both mistakes. It changes without forgetting how to learn.
Strategy and culture meet in execution
The management literature has spent decades staging a contest between strategy and culture. The famous line, usually credited to Peter Drucker, is that culture eats strategy for breakfast. Drucker almost certainly never said it, which is a small lesson of its own about what institutions repeat after everyone has forgotten to check.
The contest is false.
Strategy decides where to win and what the company will do differently. Culture determines how thousands of people interpret those choices once the plan meets a customer, a competitor, a delayed shipment, a failed product, or a number that has turned red.
Culture is not the values printed in the lobby. It is what information travels upward, what behavior earns promotion, where authority sits, how quickly the company corrects an error, and whether the person closest to the work is permitted to contradict the person highest on the chart. A healthy operating culture does not punish red. It punishes concealed red.
That is where strategy and culture meet: execution.
Strategy without a supporting culture remains a promise. Culture without direction becomes motion without progress. A stale culture protects yesterday’s answer. A hollowed-out culture can no longer generate tomorrow’s. Both produce the same symptoms: slower learning, sanitized information, and results that drift before the income statement makes the drift undeniable.
The strategy that changed the organization
Nike’s drift did not begin with an outsider. That matters.
Mark Parker joined Nike as a footwear designer in 1979 and eventually became chief executive. Under Parker, Nike announced its Consumer Direct Offense in 2017 and stopped selling directly to Amazon in 2019. The logic was already in motion before the board chose John Donahoe, the former Bain consultant who had run eBay and ServiceNow, to succeed him in 2020.
Donahoe accelerated the shift under a program called Consumer Direct Acceleration. Three decisions followed, each rational inside the logic of the plan.
First, Nike realigned product creation and category work around men’s, women’s, and kids’ rather than organizing first around individual sports. Running and basketball did not disappear, but authority, integration, and attention shifted. Teams that had developed deep knowledge of particular athletes were asked to operate through a broader consumer construct, supported by a more centralized and data-driven model.
The reorganization looked simpler from the top. It was less clear what disappeared below it. A category team is not merely a box on an organization chart. It is where product judgment, relationships, argument, memory, and apprenticeship accumulate. When the box is removed, the work can be reassigned. The accumulated judgment is harder to move.
Second, Nike reduced wholesale distribution. In 2020 it reportedly closed nine accounts, including Dillard’s, Belk, Boscov’s, and Zappos; other retailers followed as the direct strategy expanded. The margin case looked compelling. Selling through Nike’s own stores and apps allowed the company to capture the retailer’s markup, own more customer data, and control more of the experience.
But that was gross-margin logic, not whole-system logic. Direct sales also bring fulfillment, returns, digital acquisition costs, retail labor, and inventory risk. More important, a retailer is not only a route to market. It is part of the company’s sensing system.
A specialty running store sees the shoe on a customer’s foot, beside the competition, through the eyes of an employee who fits runners all day. It hears why the loyal customer changed brands, which problem a new model solves, and which marketing claim collapses after three miles. Nike did not merely surrender doors. It weakened a distributed network of observation, interpretation, and trust.
Third, the company leaned on what already sold. Dunks, Jordans, and Air Force 1s carried the numbers while the innovation pipeline thinned. The products generated cash without requiring the organization to exercise the full muscle that had once produced them.
Cohen’s sentence again: the money would always be there because it always had been.
None of these decisions came from foolish people. That is the point. Each could survive a board presentation. Each could be supported by data. Together they moved Nike farther from the athlete, the retailer, and the product-level argument that had once made the company difficult to beat.
The organization became more legible from the top and less perceptive at the edge.
Someone else took the shelf
Running exposed the damage first because it depends heavily on specialty stores and because running was where Nike had built its original legitimacy.
When Nike gave up space on the running wall, Hoka and On filled it. Their growth was not marginal. Hoka’s net sales increased from roughly $353 million in fiscal 2020 to $2.23 billion in fiscal 2025. On grew from CHF 425 million in 2020 to CHF 3.01 billion in 2025.
At Dick’s Sporting Goods, transaction data showed Nike’s footwear share falling from 39 percent to 32 percent during the first five months of 2024, while On rose from 8 percent to 12 percent and Hoka from 8 percent to 13 percent.
The challengers did not beat Nike with a better corporate vocabulary. They used the playbook Nike had written: build for a particular athlete, earn credibility through specialty retailers, listen closely, and let performance create broader desire. The upstarts practiced the culture Nike had begun to describe in the past tense.
Nike’s direct strategy was also supposed to improve profitability. In fiscal 2015, before the direct push became the organizing thesis, Nike’s gross margin was 46.0 percent. By fiscal 2025 it was 42.7 percent, pressured by discounting, channel mix, and inventory reserves.
That comparison does not prove that direct-to-consumer caused every lost basis point. Foreign exchange, freight, tariffs, product costs, and mix all mattered. It does disprove the easy assumption that removing the retailer automatically improves the economics. Nike captured more of the ticket price and more of the inventory risk. When the product did not move, the markdown belonged to Nike too.
The shelf belongs to no one
The principle does not care whether the company is an incumbent or a challenger.
The 2025 channel data had already begun to turn. On’s sales in U.S. independent running specialty stores fell 19.7 percent in the twelve months through September, the steepest decline among the major brands. Hoka declined there too. On a year-to-date basis, Nike grew roughly 35 percent and the smaller Topo Athletic about 30 percent.
This does not mean On or Hoka are broken. Both continued to grow globally. It means the shelf never becomes an inheritance. The brands that used proximity and specialization to challenge Nike must now defend their own scale against companies using the same methods.
No one stays on top by repeating what got them there. Markets change. Competitors learn. Technologies alter the work. People retire, and their replacements inherit conclusions without living through the conditions that produced them. Sometimes the institution becomes arrogant. Sometimes it becomes cautious. Sometimes it simply forgets.
Sports fans know this without needing a case study. The Yankees, Alabama, the Patriots. Dynasties end because personnel turn over, the competition studies the film, and the game moves. The Patriots are the useful case for anyone who assumes the problem only arrives with outsiders. Bill Belichick built the system, stayed after the quarterback left and the league adjusted, and the system stopped working with the builder still in the chair. Founders overstay too. The lesson is not that founders are safe. It is that leadership has to keep moving, because the answer that built the institution is rarely the one that keeps it.
Culture is not nostalgia. It is not preserving every role, process, or leader because it existed during better years. It is preserving the organization’s ability to see clearly, learn quickly, exercise judgment, and change before the market changes it by force.
Technology can accelerate the mistake
Artificial intelligence does not change this pattern. It compresses the time available to recognize it.
The tempting logic in a cost-conscious institution is straightforward. An analyst takes eight hours. The model takes eight minutes. Remove the analyst. Apply that logic repeatedly and the organization becomes cheaper while losing apprenticeship, context, institutional memory, and the people who understand why a process exists.
The output does not immediately get worse. It gets smoother, faster, and more alike. Everyone has access to similar tools producing increasingly plausible versions of the expected answer. For a company whose advantage depends on seeing something competitors do not, average is not a safe outcome.
The better use of the technology runs in the opposite direction: automate the mundane, widen access to information, preserve knowledge that used to leave at retirement, and give capable people more time to exercise judgment. The enduring asset was never the process itself. It was the judgment that knew when the process was wrong.
Professionalize without sterilizing. Institutionalize without bureaucratizing. Scale without hollowing out.
That is the work.
The ones that kept relearning
None of this is a law of decline. Some institutions age and some keep relearning, and the difference is observable.
In the late 1980s Hyundai was a punchline in the American market. The Excel was cheap and fell apart, and the brand became a joke. The company’s response was not a new slogan. Beginning with the 1999 model year it backed its cars with a ten-year, 100,000-mile powertrain warranty that no one in Detroit or Tokyo would match. Chung Mong-koo, the founder’s son, took over Hyundai Motor that year and in 2000 made quality the operating obsession of the company, tying engineering and factory careers to the results. By 2004 Hyundai tied Honda in J.D. Power’s initial quality survey, second only to Toyota. Today its electric vehicles compete with anyone’s.
Samsung’s version was more theatrical. In June 1993 Lee Kun-hee gathered his executives in Frankfurt for a seven-hour meeting and told them to change everything except their wives and children. The mobile phone division’s defect rate the following year was nearly 12 percent. In March 1995 he had 150,000 of those phones piled in a yard at the Gumi factory, smashed with hammers and burned, in front of about 2,000 of the workers who had made them. The company that had built cheap imitations became the one Apple had to beat.
Both companies were second generation. Both had the money. Neither assumed it would always be there.
The test any leader can run is the one those two ran on themselves. Who in this company still touches the customer, and does their report reach me unsanitized? What behavior actually earns promotion here, as opposed to the behavior we say we value? When was the last time someone below me contradicted a plan and the plan changed? Which capabilities would we have to rebuild from scratch if the people who hold them left this year? And what are we still doing because it worked, rather than because it works?
A company that can answer those questions honestly has a culture. A company that cannot has a history.
The turn is evidence, not a verdict
Nike’s board brought Elliott Hill out of retirement in October 2024. He had started as an intern and spent thirty-two years at the company. He was not a founder, and his long tenure did not make him immune to the habits of a later managerial generation. What he did carry back into the building was operating memory the institution had misplaced.
Hill reorganized the company around sports, its “fields of play,” rather than treating men’s, women’s, and kids’ as the primary organizing logic. He rebuilt wholesale relationships, reduced classic footwear franchises by more than $2 billion during fiscal 2026, and put performance product back at the center of the company’s offense.
The first gains appeared where the thesis would suggest. Nike’s performance portfolio reached roughly $16 billion in fiscal 2026 and grew by high single digits in the first quarter of fiscal 2027. North America returned to modest growth. In independent running specialty stores, Nike’s 2025 sales rebound was the strongest among the leading brands.
That is evidence that proximity, product focus, and category expertise matter. It is not proof that the turnaround has succeeded.
Sportswear, Jordan Brand, and Greater China together account for more than half of Nike’s sales and remain under pressure. Overall revenue is still falling. The company now expects a high-single-digit decline for fiscal 2027. The October earnings release also introduced Pace, another operating-model transformation that will consolidate Nike into three geographies, open a new enterprise campus in India, reduce jobs, and target $2.5 billion in cumulative savings through fiscal 2031.
Some of that work may be necessary. Bureaucracy is not culture. Protecting every layer is not stewardship. A company in decline cannot preserve its cost structure as a museum exhibit.
The question is what the restructuring removes. Which layers merely delay decisions, and which translate local knowledge? Does the new structure make Nike only cheaper, or more capable? Those are the same questions from the section above, and they determine whether the strategy can survive contact with reality.
The risk is not that Nike will change too much. It is that the company will relearn the value of proximity in one part of the business while reorganizing it away somewhere else.
The Point Taken
The companies that Cohen's words about the failure of greatness describe did not necessarily run out of strategies. United Fruit had intelligent executives. Kodak had digital technology. Nike had capital, data, a global brand, and direct channels around the world.
What each lacked was a living system capable of telling the truth, preserving useful knowledge, and converting a plan into thousands of sound decisions. That system is culture.
It is easy to misunderstand culture as the soft side of management: morale, language, rituals, benefits, belonging. Those things can matter. The harder definition is more useful. Culture is the mechanism by which an institution decides what to notice, whose judgment to trust, how to respond to failure, and whether to adapt before the evidence becomes a crisis.
Every managerial generation inherits both an enterprise and an explanation for why it works. The explanation is usually incomplete. The obligation is to test it against reality before the market does.
Strategy is the promise. Culture is how the promise gets kept when reality refuses to follow the deck.
Every generation still has to earn the company it inherited.
© 2026 23.5 Strategies; The Point Taken™