Retaining entrepreneurial spirit during hypergrowth at sportswear brand On (A) Custom Case Solution & Analysis

1. Evidence Brief

Financial Metrics

• Revenue Growth: Net sales increased from 425 million CHF in 2020 to 1.22 billion CHF in 2022, representing a compound annual growth rate exceeding 70 percent.
• Profitability: Gross profit margin maintained at approximately 56 percent in 2022.
• Market Capitalization: Following the 2021 IPO on the New York Stock Exchange, the company achieved a valuation exceeding 10 billion USD.
• Regional Performance: North America accounts for over 50 percent of total revenue, while the Asia-Pacific region shows the highest growth rate at approximately 90 percent year-over-year.

Operational Facts

• Headcount Expansion: Total employee count grew from roughly 100 in 2016 to over 2,000 by late 2022.
• Product Diversification: Expansion from a single running shoe line to a full range of performance apparel, outdoor gear, and tennis footwear.
• Organizational Structure: Transitioned from three founders to a five-member Co-CEO leadership team including Marc Maurer and Martin Hoffmann.
• Geographic Footprint: Headquarters in Zurich with major regional hubs in Portland, Berlin, Yokohama, and Shanghai.
• Distribution: Hybrid model combining direct-to-consumer (DTC) channels with selective high-end wholesale partnerships.

Stakeholder Positions

• Olivier Bernhard (Founder): Focuses on product innovation and the athlete-centric philosophy; insists on maintaining the feel of a running club.
• David Allemann (Founder): Prioritizes brand storytelling and design; concerned with preserving the Swiss design aesthetic during rapid scaling.
• Caspar Coppetti (Founder): Drives the entrepreneurial spirit and global expansion; advocates for decentralized decision-making.
• Marc Maurer & Martin Hoffmann (Co-CEOs): Tasked with operationalizing growth while maintaining the Explorer mindset; they emphasize that every employee should act as an owner.
• New Hires: Often report confusion regarding the flat hierarchy and lack of traditional job titles during onboarding.

Information Gaps

• Employee Turnover: The case does not provide specific attrition rates for employees who joined pre-IPO versus post-IPO.
• Decision Latency: Quantitative data on the time required to approve new product lines under the decentralized model is absent.
• R&D Spend: Specific breakdown of research and development costs relative to marketing spend is not fully disclosed.

2. Strategic Analysis

Core Strategic Question

• How can On scale its decentralized, non-hierarchical culture to support 2,000 plus employees without succumbing to the operational paralysis or the red tape typically associated with hypergrowth?

Structural Analysis

Applying the Greiner Growth Model, On has moved past the Crisis of Leadership and is currently navigating the Crisis of Autonomy. The flat structure that fueled early innovation now faces friction as the distance between the Co-CEO office and frontline Explorers increases. The Value Chain analysis reveals that On’s primary differentiation lies in Product Development (CloudTec) and Marketing (Brand Spirit). However, the support activities—specifically Human Resource Management—are struggling to keep pace with the physical expansion of the company.

Strategic Options

Option 1: Formalize Functional Specialization

• Rationale: Introduce traditional reporting lines and clear departmental boundaries to increase accountability and speed up execution in specialized areas like supply chain and finance.
• Trade-offs: Risks alienating the original talent pool and stifling the cross-functional innovation that defined the brand early on.
• Resource Requirements: Significant investment in middle-management hiring and enterprise resource planning systems.

Option 2: The Pod-Based Scaling Model

• Rationale: Organize the company into autonomous, multi-disciplinary pods of 10 to 15 people that function as mini-startups, maintaining the Explorer spirit within a larger framework.
• Trade-offs: Can lead to duplication of efforts and inconsistent brand messaging across different pods.
• Resource Requirements: High demand for internal leadership training and sophisticated digital collaboration tools.

Option 3: Cultural Radicalization

• Rationale: Double down on the no-title, decentralized approach by investing heavily in cultural immersion and peer-to-peer accountability mechanisms.
• Trade-offs: High risk of burnout and slow decision-making for complex, capital-intensive projects like global retail expansion.
• Resource Requirements: Massive expansion of the people and culture team to facilitate constant onboarding and alignment.

Preliminary Recommendation

On should adopt Option 2. The pod-based model allows the company to maintain its entrepreneurial agility while providing the structural guardrails necessary for a public company. This approach preserves the decentralized decision-making the founders value but applies it to manageable units that can scale independently. It avoids the rigidity of Option 1 while solving the coordination failures inherent in Option 3.

3. Implementation Roadmap

Critical Path

• Phase 1 (Days 1–30): Define Pod Architecture. Identify core business functions that must remain centralized (Finance, Legal) versus those that can be decentralized (Product Design, Regional Marketing).
• Phase 2 (Days 31–60): Leadership Identification. Select 150 Pod Leads from existing staff based on cultural alignment and operational competence.
• Phase 3 (Days 61–90): Pilot Implementation. Launch 10 pilot pods in the North American market to test decision-making speed and output quality.
• Phase 4 (Ongoing): Global Rollout. Scale the pod structure across all regions, supported by a centralized digital platform for knowledge sharing.

Key Constraints

• Leadership Talent: The plan assumes the existence of 150 capable pod leaders. If this talent density does not exist, the decentralization will lead to chaos.
• Communication Overhead: Decentralized pods require exceptional transparency. Any breakdown in information flow between pods will lead to brand fragmentation.

Risk-Adjusted Implementation Strategy

To mitigate the risk of operational friction, On must implement a dual-track system. While pods handle innovation and local execution, a central Operational Excellence team will manage global logistics and manufacturing. This ensures that the entrepreneurial spirit does not compromise the supply chain reliability required to maintain the 56 percent gross margin. Contingency plans include a temporary freeze on pod expansion if quarterly targets in the pilot phase are missed by more than 10 percent.

4. Executive Review and BLUF

BLUF

On must transition from an organic culture to a designed architecture. The current reliance on founder-led intuition is unsustainable at a 1.2 billion CHF revenue scale. To preserve the Explorer spirit without descending into chaos, On should implement a pod-based organizational structure. This move decentralizes accountability to small, agile units while centralizing the capital-intensive functions of supply chain and finance. Failure to formalize these boundaries will lead to a crisis of autonomy, slowing product cycles and eroding the premium brand position. The window to act is now, before the post-IPO growth pressure forces a reactive shift toward traditional, slow-moving hierarchy.

Dangerous Assumption

The single most consequential unchallenged premise is that cultural immersion can substitute for structural accountability. The leadership assumes that new hires will instinctively adopt the founder mindset through osmosis, ignoring the reality that at 2,000 employees, the social contract of a startup naturally weakens.

Unaddressed Risks

• Brand Dilution: Rapid decentralization in marketing pods may lead to inconsistent customer experiences across the Portland, Zurich, and Shanghai hubs, damaging the premium Swiss identity.
• Operational Fragility: A lack of clear vertical hierarchy in the supply chain could lead to catastrophic delays in a volatile global logistics environment, where quick, top-down decisions are often required.

Unconsidered Alternative

The analysis overlooked the possibility of a Strategic Business Unit (SBU) model based on product categories (Footwear, Apparel, Accessories). This would provide clear P and L responsibility while allowing each category to maintain its own entrepreneurial pace, potentially offering better financial control than the proposed pod system.

Verdict