Apple Inc. is a multinational company that deals with technology that performs a designing, development, and sale of electronics and computers. It deals with both hardware, that is the sale of iPhone, mac book and I pod amongst other electronics and at the same time, it deals with software development of the same products.
In attaining its profitability, the firm faces challenges, ranging from management, operational, financial and another risk that affects its liquidity and may extend the same to its shareholders. In this study, an analysis of various risks will be assessed, its viability in the management, liquidity, and profitability of the firm will be discussed. Risk management including the mitigation will also be assessed in relation to the operating capability of Apple Company.
Actions Taken By the Firm in Managing Recent Risks
In 2018, Apple management experienced competition risks, operational risks, credit risk, inventory risk, and market risk. Through all this risk, the management through its operational unit managers tends to strive and devise various ways to mitigate the same risk so as to reduce its impact on the firm’s operations.
Market risk: MobileTechnology Company is dynamic and one of the most effective industries that experiences change. The market share of Apple is gratifying and it has a huge consumption in terms of mobile technology, digitalization and video and music players in the market. From its strategy to meet the global economy, there is an increased risk base that entails interest rate that is the cost of borrowing in an internalities market and foreign exchange risk when it comes to repatriation of profits from a global Brach,(Rothaermel, 2013). In this case, an increase in firms’ risk has led to a decline in the performance of the company and in the same way it has also lead to a reduction in its overall profits.
The firm is exposed to interest risk as there are changes in the operational and economic activities and development in various countries that are an affiliate market to the company. In this case, Apple interest is sensitive to the firm’s income and expenditure. It, therefore, affects the firm’s level of profits directly and has led to lactation in securities rating and foreign currency within the firm. It is through hedging that will help to minimize the level of risk and firms ability to control profits repatriation when it comes to the reporting of the firm’s performance.
Since the firm operates in different countries, there is also a reduction in its level of performance when it comes to exchanging of firms currency from local where the firm operates to an international currency that is needed by the business. This exchange affects the level of net sales and gross profit margins as the management needs to change the currency from the local currency to US dollars which are the standard rate. In this case, it is perceived to have a high cost of exchange an, in the long run, it will lead to a loss due to repatriation.
Competition risk: Since it is a multi-national company, the firm faces much competition from mobile communication and computer services. All the competitors come from small and media size enterprise and the produces they offer also faces risk from the Android and other mobile technologies within the industry.
Introduction of new products lead to an increased level of competition and from the competitors, the firm faces the risk of losing to competitors in terms of its pricing strategy and the affordability of the products,(Kaplan, 2012). Apple products in the market are deemed to be expensiveand this has lead to a higher risk from other competitive companies and in this case, it has reduced the market share of the firm. Due to rapid technologies and changes in the industry, then this shows that the business is highly competitive. If the firm is unable to compete effectively, then its financial and operational conditions will affect the business materiality and in the long run, it increases the risk profile of the company.
Operational risk: From the (Form 10 k, 2018), it indicates the Apple generates a large portion of revenue through international operations. Due to differences in culture and legislativerequirements, it indicates that the operational cost of firm management is high. Therefore due to a change in culture and legislative requirements, in setting up a new business in an international market shows that the firm needs the high cost of operation and this may affect the profits of the firm. Since these costs are treated as a sunk cost, then it needs that more operational management and international activities have an increased level of risk in the business.
Changes in the firm’s status also have an implication on the political, economic, social, technological, environmental and legal impact on the business. Apple in itsoperations needs to assess the above factors as it has a greater implication on firms’ profitability and change management needs to be adopted.
Credit risk: In the purchase of Appleservices, there is more focus that is placed on credits as they are deemed to be expensive. The online store is one of the most approaches that isconsidered by the business, there is more risk that is placed on default as the business operates. Credit risk due to default by the customers reduces the level of firms profit and in the long run, it will affect its profitability and at the end, it increases the level of bad debts in the organization.
Inventory risk: Due to the increased level of demand, firms need to supply its products and ensures that during the decline period, they produce more products. High pricing increases the tied up capital as there is less movement of stock that is produced. This has also led to a reduction in the firm’s level of operation as its working capital is deemed to be ineffective and has led to a more impact on the sales volume of the firm.
In managing the above risk, the firm has offered some mitigative ways, in this case, the risk management team identified the risk and mitigate the firm’s level of risk through diversification and increasing the mitigating factors in the business.
Advise To Improve Risk Management
In improving the risk management of Apple Company, the following are the risk management advice that is deemed rational to the management of Apple Company: Reduce performance variability to unacceptable level: Variance in the level of performance, especially to the negative trend is deemed as an indicator of risk. In this case, the management needs to perform a risk assessment process so as to identify the systematic approach to mitigate this risk. It should also approach this risk by offering measures that determine the volatility, magnitude, and persistence of the risk to the major events of the organization.
After identifying the possible source, then the man agent of Apple Company is also called to develop a response rate and perform a high impact event so as to help in managing risk and creates a vulnerable error that needs to reduce the firm level of risk. It should also increase the critical learning process to its management team and this will help in risk identification and measures that might affect the risk management process
Risk management alignment and integration: In assessing the level of risk, its magnitude needs to be assessed so as to determine the viability of the risk in the organization. In this case, it is important for the management to ensure that through the risk CEO, individual interest should be subordinated with the organizational interest. In this process, integration of risk means that crucial management strategies, including capital expenditure and firms level of stock level, needs to be assessed with the main aim of planning and perfuming risk management process,(Dhillon, 2009).
Then after integrating the risk, then the maximum allocation of capital and efficient capitalization and profits repatriation needs to be done. This will help to mitigate the risk that is faced by the company and in the long run, it will help in creating focused importance in risk management.
The risk that has common profile needs also to be integrated and managed collectively to help in reducing the cost of risk management. This needs to be done through the formulation of an enterprise risk management response that will help in providing resources of risk management and help in mitigating the risk in the organization.
Corporate social governance enhancement: In the process of doing business in the organization, community and stakeholders needs to be integrated into the system of risk management. In this process, it will help in elevating the risk management strategy in different lengths and depths in society. It is also through a supportive and collective agreement that will help the firm mitigate the risk especially those risk that is culturally related to the business. This will help the monument in aligning the risk appetite of the business to the community with the aim of providing an n opportunity and cost seeking behavior that will help in risk management.
Strategy alignment and corporate culture: It is also a rationale for the business as it operates in a different environment to offer a positive culture with its strategic alignment to mitigate the risks that are culturally aligned. In this case, it shows that the firm needs to create focus and risk control, clarify on risk-taking and risk avoidance behaviors, risk exposure tools, risk accountability, and management and facilitates a timely risk identification for effective risk management.
Adverse selection process
Apple Inc. is a market leader in the business have different access to market information as that of its competitors. In its marketing, the adverse selection process that the firm has an impact on is the demand of its consumers and the new products in the market. In this process, the information related to the demand for Android devices cannot be known with assurance by the competitor
This lack of information creates in congruency when it comes to the demand and supply analysis by the company. It also shows that in the process, there is a reduction in the level of sales and in this case, it has led to firm’s failure to manage the risk that is associated with the demand and revenue projection.
At the beginning of 2018, the firm, that is Apple may not be in a position of determining with assurances its sales in the next project year as the industry is dynamic. With various brands in the industry, a change in the market demand is as a result of variation in the consumer preferences and demand of products in the industry,(Khan, 2015).
Therefore, in this case, it is a rationale for the management to utilize various sales and perform a risk projection that will help in covering up a lack of adequate information about the expected demand. It should also offer a risk profile that will help in managing the changes in demand and offers assurance to the management on issues related to demand.
Apple faces a moral hazard risk when it comes to the contractual agreement in the parties that enters into a transaction with the company. The most common hazard that has affected the company is the user and the producer manual in terms of product warranty and guarantee. In this case, consumers tend to provide false information and this has affected the good faith action of the firm in contract execution.
The improvement that needs to be made when it comes to this is the use of signatory and voice recognition so as to increase the enforceability of the contract. Employing the biometric system like the use of fingerprints will help in managing the risk and increase contract enforceability.
Principal-Agent Problem and Their Mitigation
In the reporting of the profits, there is a conflict that exists between the shareholders and the management as every provision that has been made affects the operations in terms of dividends share. In this case, this has widened the risk of capital access and it has increased the business failure,(“Apple Reports Fourth Quarter Results,” 2018).
To manage this risk, the firm management in the admission of new shareholders have management representative and shareholders representative in terms of audit and this will in providing quality assurance of the information
Conflict with the branch managers: In this case, there is also a conflict between the managers of the main branch, that is the head office and the branch managers in the business operations, In this case, it is the role of the business to mitigate the risk through giving information of profits and repatriation of profits within the acceptable time . Through reducing these conflicts, it has helped in increasing the firm’s ability to control the risk and increase its profitability.
Organizational Structure of Apple Inc.
The following is the organizational structure of Apple Company:
Source :(“Apple Organizational Chart and Market Plan – Bus100AppleJWade,” 2018.)
From the above, it shows that there are various activities that are done by the management. In this case, it is the role of the CFO to ensure that its operations run effectively and ensure that capital and resource allocation is done optimally.
The changes that are deemed rationale to increase risk management profile of the company is through the introduction of a risk assessment structure that will help in identifying and assessing the risk magnitude in the business.
In this case, the profitability will be restored and in the long run, it will help in increasing the risk viability of the business and management of risks in the business. In the long run, mitigate features will be attained.
In conclusion, risk needs to be identified, measured and controlled by the business. Since Apple ink is one of the most successful businesses in the technology industry, it needs to assess its risk profile so as to stand in a higher position to manage the risk in the business.
Apple Organizational Chart and Market Plan – Bus100AppleJWade. (n.d.). Retrieved from https://sites.google.com/site/bus100jwade/apple-organizational-chart-and-market-plan
Apple Reports Fourth Quarter Results. (2018, November 1). Retrieved from https://www.apple.com/ke/newsroom/2018/11/apple-reports-fourth-quarter-results/
Dhillon, G. (2009). Managing and controlling computer misuse. Information Management & Computer Security, 171-175.
Kaplan, R. S. (2012). Managing risks: a new framework. Harvard Business Review, 48-60.
Khan, U. A. (2015). A critical analysis of the internal and external environment of Apple Inc. International Journal of Economics, Commerce, and Management, 955-961.
Rothaermel, F. T. (2013). Strategic management: concepts. New York: McGraw-Hill Irwin.
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