Polar-adidas

Introduction
On Sunday, April 3, 2005, in a downtown hotel in
Erlangen, Germany, Mr. Jorma Kallio, managing Director
of Polar Electro Oy, a Finnish family-owned manufacturer
or heart rate monitors, was preparing his opening speech
to a group of some 100 Polar Electro employees and part
ners. He was in central Germany for an internal launch of
a partnership between Polar Electro and adidas, the sec
ond largest sporting goods manufacturer in the world. The
next day, on the premises of the expansive headquarters
complex of adidas in Herzogenaurach, the partnership
and "Project Fusion," the world's first completely inte
grated training system, would be introduced to marketing
and sales personnel. The project had been under devel
opment for the last year and a half and kept confidential
only some 40 people within Polar Electro knew about it.
Project Fusion was a new, complete solution for runners
to be launched in 2006, consisting of adidas shoes with
built-in electronics, running textiles that had built-in sen
sors, and watch-type sports computers that would display
such information as heart rate data, speed, and distance to
the runner (see Exhibit 1). The electronics technology is
provided by Polar, but the textiles and shoes will be sold
as premium adidas-branded goods.
Mr. Kallio was convinced that the partnership with
adidas would be very beneficial for his company. First of
all, becoming a trusted partner of adidas, an icon in sport
ing goods, was like a top-grade seal of approval for Polar.
Polar would certainly benefit from the great brand equity
that adidas owned. The majority of consumers around the
world have heard of adidas, but selected few were aware
of Polar. The adidas partnership would certainly raise
consumer awareness of the Polar brand, something that
Polar needed if it was to achieve its ambitious goals of
both growing its sports-related business and extending
from the core of serious sports into lifestyle applications.
Second, the partnership could give a boost to the distri
bution of Polar goods. \l'hile Polar was represented
through some 35,000 retailers in 50 countries, the channel
This case was authored by Hannu SeristO of the Helsinki School of
Economics and IIkka A. Ronkainen. For further information on the companies
and their strategies, see http://www.adidas-polar.com; http://www.polar.fi/
polar/channels/engl; http://www.adidas-group.com/en/home!welcome.asp;
and http://www.nokia.com.

power of adidas could not be ignored by wholesalers or

retailers. Third, there was certainly a lot to learn from a
successful company like adidas, be it in concept devel
opment or marketing processes.
There were some concerns, however. First of all, the
sheer difference in size between the two companies: Polar's
sales in 2004 had been 170 million euros, whereas adidas
sales exceeded 5 billion euros, making it 30 times the size of
Polar. The track record of alliances in general is not great and
significant size differences between partners can cause dif
ficulties in the relationship sooner or later. As an example,
when adidas could appoint 5 people to a certain part of the
project, Polar could afford two at most. Executives who
were to implement the partnership, such as Christian
Franke, Director of Brand Marketing at Polar, would have a
lot on their plates. Another concern was the ability of Polar
to perform in the relationship. Even though Kallio had full
confidence in the capabilities of his managers, the fact that
Polar was engaged in the development of very demanding
high-tech electronics, whereas adidas would be responsible
for shoes and textiles, was a factor that might bring surprises.
His concern was that if there were unexpected difficulties in
the development of electronics, the schedule of introducing
new, jointly developed products with adidas might turn out
to be frighteningly tight. A large company could hire an ad
ditional twenty R&D engineers if there were unexpected
challenges in the development work, but for a company of
Polar's size that would be financially an extreme solution. In
terms of the classic risk of enabling and creating a future
competitor, Kallio did not see it very relevant in this very
case. He had full confidence in the partner, largely thanks to
the solid personal relationship that existed between Kallio
and key executives at adidas. Referring to the key executives
in both of the companies, Kallio said: "We all understand
and in fact love sports, so we talk the same language-that
is a great starting point for the relationship."

About Partnership
Agreements
The agreement with adidas comprised, first of all, joint de
velopment of technology for endeavors such as "Project
Fusion." Polar is responsible for providing the sensor, but
joint work is needed particularly in fusing the textiles and

Polar-adidas

309

HelsinkilHerzogenaurach-August 4,2005

adidas and Polar introduce the world's first completely integrated training system

Polar Electro. the innovative leader in heart rate monitoring. and adidas. one of the world's leading sports brands, have
formed a partnership that will introduce the world's first completely integrated training system. Called "Project Fusion," it
seamlessly integrates Polar heart rate and speed and distance monitoring equipment into adidas apparel and footwear.
The integration simplifies use and increases comfort, allowing the products to become part of the athlete. Included in
the project are the adidas adiStar Fusion range of apparel (t-shirts,long sleeve shirts, bras, women's tops), the adidas
adiStar Fusion shoe,Polar's S3 Stride Sensor,The PolarWearLink transmitter, and The Polar RS800 Running
Computer.
How does it work? Special fibers bonded onto adidas tops work in conjunction with Polar's Wear Link technology to
eliminate the need for a separate chest strap to monitor heart rate. just snap the tiny PolarWearLink connector onto
the front of the shirt and go. The data are sent to the Polar RS 800 wrist-mounted running computer, which easily
displays and records all information in real time. Simply put. your shirt talks to your running computer.
The adiStar Fusion shoe has a strategically placed caVity in the midsole which can house the vel;' light Polar s3 Stride
Sensor, making it easier to use, more comfortable and more consistently accurate than top-of-shoe systems.And you
won't even know it's there when your shoe is talking to your running computer.
Information like speed and distance, chronograph functions, along with heart rate, are also shown on the RS800 in
real time. And when the workout is over, all data can be downloaded onto a computer so workouts can be easily
managed and analyzed, meaning the, whole system talks to you.
"The great thing about the system is that it's so easy to use;' says Michael Birke, adidas Running Business Unit Manager.
"By putting all the best equipment into one package, it's made training simpler, more comfortable and more precise.
The system is greater than the sum of its parts."
"An athlete can train more effectively with the right objective information," says Marco Suvilaakso, Running Segment
Manager for Polar Electro. "This system caters to the individual, with preCise and personalized feedback."
PurchaSing the entire system-Polar RS SOOTM, Polar s3 TI1 Stride Sensor,adiStar Fusion top, and adiStar Fusion shoe-will
be around 640 Euros/680 Dollars.The products are available as separate pieces as well. and available in Spring of2oo6.

sensor technology, which inevitably means shared engi

neering and industrial design. In shared engineering, a
challenging issue typically is to decide which partner
owns the jointly-create intellectual property. Also, as "Pro
ject Fusion" is a complete package, or solution, the indus
trial design has to be coordinated in terms of form and
appearance. Rights concerning the design issues should
normally be covered in partnership agreements.
Partnership agreements need to address the issues of
exclusivity; that is, can certain technologies or solutions
be offered to other companies beyond the main partners.
Normally it is not recommended to lock oneself into one
partner only, since it would compromise one's flexibility

or stand-alone capability. On the other hand, exclusivity

given to a partner is bound to enhance commitment and
trust in the relationship.
The second part of the agreement deals with joint
marketing efforts. Channels where there is joint pres
ence and sales efforts have to be specified, induding
complementary marketing efforts (i.e., whereby Polar
uses the adidas distribution system to get its products to
the world marketplace), A considerable benefit for
Polar is that adidas controls globally 145 flagship stores,
such as adidas Originals Georgetown in Washington,
D.C., Performance Store Abasto in Buenos Aires, adidas
Concept Store Nevski in St. Petersburg, and adidas

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Originals Sydney. As for promotion, the choice of media

for shared appearance and, for instance, joint web sites
(such as http://www.adidas-polar.com) are important
issues to address in the agreement.
In implementation, the management of the partner
ship should be clarified in the agreement. Whether there
is, for example, a steering board composed of members
from both partners, and who will serve as its chairper
son, are some of the questions to settle. Also, determina
tion of areas of responsibilities between the partners and
the sharing of costs and revenues is normally a standard
clause in an agreement of this sort. Finally, the agree
ments normally should address issues like the term and
termination procedures of the partnership, and the set
tlement of disputes.

The Growth of Polar Electro Oy

The origins ofthe Finnish sports instruments producer Polar
Electro can be traced back to the need of cross-country ski
ing coaches for a device to measure an athlete's heart rate
during training sessions in the field, as opposed to this
being possible only in a laboratory environment. were
were no light, portable devices available, only large expen
sive laboratory equipment. Promoted by this need, profes
sor Saynajakangas of the technology faculty at Oulu Uni
versity started development work on technology that would
make such measurements possible. Work was done partly
with colleagues at the Qulu University, and eventually a
company called Polar Electro was founded in Oulu in 1977,
with Saynajakangas as the owner. we first heart rate moni
tor (HRM) was a battery-powered device that measured the
heart rate from a fingertip. By the year 1982, the technology
had advanced to the point that the first wireless heart rate
monitor was ready. The first computer interface was intro
duced in 1984. The zone feature was launched in 1987,
which was a predecessor to the so-called OwnZone feature
of today. The principle is that the suitable intensity levels of
training may vary daily due to factors such as fatigue, illness,
or jetlag, and the athlete should check the right intensity
levels before each training session.
In the 1980s, Polar Electro sought cooperation with
top-level competitive athletes and world-class trainers
and coaches. Relationships with leading universities and
research institutes in the area of sports medicine were
established. The target customers for Polar technology
were competitive national and Olympic level athletes.
From the very beginning the company was compelled to
take a global look at the markets, because the chosen
niche was narrow. Domestic market sales would have
been in hundreds of units during the early years.
During this era, Polar Electro was first and foremost a
technology company that conducted research, devel
oped new technological solutions and started to build
manufacturing capacity for the large-scale production of
heart rate monitors. Early on, the company benefited

from financial support for promlsmg high-technology

start-ups in developing regions by Finnish government
agencies. Products were sold mostly under other brands,
through private label arrangements, particularly in the
U.S. market, which was then the key market for Polar
Electro. Marketing to the masses existed only in long
term plans. By the end of the 1980s, Polar Electro had
grown to a company of one hundred employees with
annual sales of almost 20 million dollars.
At this point, the target market was broadened from
the original devices aimed at competitive top-level ath
letes. The first steps to the so-called fitness market were
taken in 1987. New models were developed for ordinary
people who wanted to monitor the intensity of training,
through heart rate measurement, while they were exer
cising..The Polar brand became a focus of development
in 1989. Polar's target was defined as being "anyone with
a heart." Indeed, the company provided an HRM for race
horses, which they continue to proVide to this day.
Throughout the 1990s, Polar started to put more em
phaSis on marketing, partly driven by increasing com
petitive pressures. The heart rate monitor business had
caught the attention of some big firms and entrepre
neurs, all hoping to challenge Polar in this potentially
sizeable business area. Large players like the U.S. watch
maker Timex and the Japanese electronics company
Casio started to work on HRM products, and in Europe
such companies as Sigma from Germany and Car
diosport from the U.K. introduced comparable HRMs.
However, in terms of features, technology, quality, and
even production costs, Polar was able to maintain its
lead of a couple of years in this race. The building of an
extensive international dealer network became the key
focus of marketing efforts.
The key products by Polar in the 1990s comprised
specific models for runners, bicyclists, and fitness users.
Two special product groups were developed: Team Sys
tems, to be used in the training of football or ice-hockey
teams; and Educational Systems that were used in the
physical education classes of school children, mostly in
the United States, where the Federal Government pro
vided support for schools that adopted innovative equip
ment to improve the quality of physical education. The
largest product category for Polar was Fitness, because
the products appealed to many different kinds of users.
Several trailblazing technologies were introduced at this
time, including the first integrated one-piece transmitter
of heart rate measures in 1992; coded transmission of
heart rate measures (from the chest transmitter unit to
the wristwatch unit) in 1995; the first HlUvl combined
with a bicycle computer, which had speed, cadence, and
altitude measurement in 1996; personalized OwnZone
training intensity zone and OwnCal energy consumption
solutions in 1997; and the Polar fitness test, which pro
vided a very accurate estimate of physical condition,
even when measured while the person is not exercising
but simply lying down for about 5 minutes, in 1999.

Polar-adidas

Polar Electro has used aggressive patenting policy to

protect its inventions and intellectual property. In 2000,
the company introduced a soft and very user-friendly
textile transmitter belt to replace the traditional rather
hard plastic model. The launch of a speed and distance
measurement device in 2004 brought a new dimension
to running computers; a pod attached to the running
shoe measures acceleration and sends the information to
the wrist unit with an accuracy of 99 percent. Now run
ners can see on their wrist units not only their heart rate
and training intensity information, but also their real-time
pace or speed and the distance covered. Competitors to
this speed-and-distance technology include GPS-based
running computers by the u.s. company Garmin and by
Nike, developed with the Dutch electronics firm Philips.
Outdoor computers were also launched in 2004. These
wristwatch type devices have an electronic compass,
barometer, altimeter, thermometer, and various watch
and diary functions in addition to the advanced heart
rate measurement features.
Polar spends some 10 per cent of its sales on research
and development, which takes place mosdy in Oulu. The
company benefits from the supply of high-quality engi
neers from the University of Oulu. Oulu is a city with a
concentration of high-tech companies, particularly in the
area of electronics (Nokia, the world's largest mobile
phone manufacturer, has a significant R&D and manufac
turing presence in the city). The company also maintains
collaborative ties with well-known institutes, such as
Cooper Institute in Dallas, Texas, and leading universities
in the areas of cardiology and sports medicine.
After-sales service is an essential component of the
HRM business. The devices are rather complicated pieces
of technology, and consumers often need support in in
stalling software updates or setting up data transfer be
tween the devices and the PC. These computers are also
very personal objects, literally dose to heart, and con
sumers typically want support immediately if they have a
problem in the use of the equipment. The objective is to
provide an answer to consumers' or retailers' questions
Within 24 hours, anywhere in the world. Competitors
have not been able to match Polar's level in after-sales
service, making Polar users very loyal customers.
Industrial design has been a focus in the last two years.
The design and looks of the products were somewhat
SOUlless until a new generation of more fashionable and
Colorful models was launched in 2004. In particular, fe
male consumers were targeted with specific light and col
orful fitness computers. Polar received international
recognition for its improved design in 2004, when its new
Outdoor computer AXN 500 received an award in the
Gennan IF design competition.
Today, Polar Electro sees its mission as being to pro
vide people the best solution to achieve their personal
well-being, sports, and performance goals. The company
eXists to improve people's quality of life by generating
innOvative, high-quality, and user-friendly products. The

Polar brand's essence is captured in the statement that

"Polar is the leading brand and the true partner in im
proving human health and well-being through its under
standing of personal physiology and the environment."
Physiology refers to the mOnitoring of heart, and the en
vironment refers to the measurement of altitude, direc
tion, speed, distance, and temperature.
Most of Polar's 170 million in sales come from West
ern Europe and the United States, while the Asian mar
ket represents a very small share of business. Volume
production is in the Far East, while the R&D and the
manufacturing of the most advanced premium models
remain in Oulu. Some 1,700 people work in Finland and
in the 15 wholly-owned foreign marketing subsidiaries in
the key world markets.
Polar may be a household name for competitive
athletes and the most active exercisers, but the average
consumer does not really know the brand. Potential mar
kets include millions of people that could need and want
a heart rate monitor. Driving this potential is an increas
ing realization by individuals, societies, and national
economies that if people exercise more and are in better
physical condition, the result is fewer health problems
and lower consequent costs to the society. Populations
particularly in Western Europe and Japan are aging, and
the elderly want to stay active and healthy to lead re
warding lives after retirement. Obesity is increasingly a
problem, particularly in North America, but also in West
ern Europe, and possibly soon in many Asian countries as
well. Competition in the future is more in the area of mar
keting rather than in the pure development of technol
ogy. Design, trends, and fashion are becoming an essen
tial part of this business, making HRMs a lifestyle product.

Polar Marketing
The heart rate monitor consists of two parts: the transmit
ter and the receiver. The transmitter is worn around one's
chest, as close to the heart as possible to ensure accurate
sensing of the heart beat. Modern generation transmitters,
provided only by Polar, are soft fabric belts where the
sensors, or electrodes, are woven into the fabric, and the
signal is sent to the receiver through a separate .little unit
that is snapped onto the belt. The fabric transmitters are
much more comfortable to use than the old versions. The
retail cost of a transmitter is in the region of 40 euros.
The receiver is like a sports wristwatch that functions
mainly as the display for measured information. The re
ceiver typically has heart rate measurement functions,
watch and chronometer functions, and a variety of other
features. The Simplest models display only time and the
current heart rate, whereas the most advanced models
have several test features; a training diary and training
program features; measure air pressure, altitude, and
temperature; have compass functions; and display speed
and distance information. The case of the receiver is

Part 2 Cases

typically made of different grades of plastics, but some

expensive models are made of steel or titanium.
The basic heart rate monitors by Polar cost about
60 euros in retail, whereas the most advanced models
with a titanium case can cost close to 500 euros. The
cheapest heart rate monitors in the market, often by Asian
manufacturers, can be bought for as little as 20 euros, but
these are typically of poor quality, poor usability, and
with no product support nor real warranty.
Polar heart rate monitors are distributed through
sporting goods stores, specialty stores, department
stores, and in some cases catalog sellers and online
stores. The products are so rich in features that the ex
pertise and professionalism of the sales personnel is a
key factor in the sales process. As a result, Polar has
committed Significant resources to the training of sales
people throughout the channel.
Polar provides extensive online support for its prod
ucts. Software can be downloaded from the Polar website,
and consumers can create their own training programs
and diaries on the global web site (http://www.polar.fi).

Other Partnerships
In early 2004, a technology and marketing partnership
between Nokia and Polar was made pUblic. Polar offers
a few heart rate monitor models that have the capability
to communicate with a certain Nokia mobile phone,
model 5140. This compatibility allows the user to trans
mit training data from the wrist computer to the mobile
phone, and again send it via mobile phone network, for
instance, to the PC of one's coach. So, for instance, a
distance-runner who is training in the warm conditions
of South Africa in January can easily send his daily train
ing session information for analysis by his trainer in
Northern Europe in order to get instructions for the fol
lowing day's training. Nokia and Polar were very visible
in a jOint marketing campaign, with the theme "Training
Mates," during the 2004 Tour de France.
A key product that had the Nokia compatibility is the
running computer model S625X. It was launched in the
summer 2004 and was a great success from the very be
ginning. The S625X has a speed-and-distance feature
that is based on acceleration technology. Acceleration
data are turned into information on distance covered
and speed or pace of the runner, and then displayed on
the wrist receiver. The accuracy is very high, with error
rates of less than 1 percent (Le., when running 10 kilo
meters, the error in the distance information is expected
to be less than 100 meters). Runners love it and media
have praised it. Even though the product is relatively
expensive (400), it appears that S625X is becoming one
of the most successful running computers Polar has ever
made.

Growth Prospects of Polar

Polar Electro has many of the ingredients to grow and
become a truly Significant global company. It has a solid
technological basis, processes in place, and very capable
personnel. In its own niche market, it is the world
market leader. However, it has to acknowledge its lim
ited resources: there are numerous potential new busi
ness areas and an abundance of ideas, but the develop
ment of completely new products takes millions of
euros. Brand marketing is obViously very important in
the future, but doing that with a real impact can easily
consume tens of millions of euros per year. Asia is un
doubtedly the market for the future, as in almost every
bUSiness, but the question is how to go there, since it
appears to be quite different from Europe and North
America: what products (adapted or not), which fea
tures, which markets (alone or with partners, or through
which channels), are some of the key questions. More
over, the human resources might turn out to be a chal
lenge-there are limitless opportunities, but the current
managers may not be able to handle all the new issues
simultaneously. Both the owners and the management
see the numerous avenues for growth, but there are a
multitude of factors to assess when choosing the right
path to follow.
In terms of financial benefits, it is perhaps too early to
assess the value of these partnerships. For one thing, the
measurement of inputs and outputs is not that simple.
For instance, how do you measure accurately the man
agement effort that has been put into the partnerships,
and whether that effort could have been used more
effectively somewhere else?
Mr. Kallio was convinced that the adidas partnership
was very valuable for Polar especially in the long term.
Some questions remained, however. How can a relatively
small company make sure that it can perform in a rela
tionship with a Significantly larger partner like adidas, and
not let the partner down? How can Polar make sure that it
gets most of the possible value out of the partnerships
for instance, through learning from a more experienced
company? How about assessing the inputs and outputs
how should Polar measure whether the relationship is
producing value to the company?

Questions for Discussion

I. How does the alliance with adidas fit with Polar's
growth objectives?
2. What are the pros and cons of having a company
like adidas as an alliance partner?
3. By 2010, what is the likely outcome of this alliance
(e.g., will Polar become part of adidas)?