Assessing and Managing Risk
The purpose of this assignment is to assess how potential value-enhancing strategies may pose risk to a firm. I am still doing AMAZON.
Review your instructor’s feedback on the Strategic Alternatives Assessment and the Financial Analysis assignments. Use that feedback to guide your analysis of the strategies that you believe will provide the most significant opportunities for your firm to manage risk and add value.
Keep in mind that increasing value for the firm does not necessarily mean expanding the business. Acquiring other firms, conducting research and development, or introducing new products and services might fall under the umbrella of value enhancement, while in other cases it may mean downsizing, rightsizing, or even refining the products and services the firm offers.
In a paper of approximately 1,500 words, revisit the strategic alternatives and financial analysis recommendations that offer the greatest opportunities to add value to your firm and assess the risks of each. Use the information you have learned about your company’s business model, industry, competition, and target market in conjunction with the feedback you received on your work in the previous two topics to assist you in addressing the following.
In the Strategic Alternatives Assessment, you evaluated potential growth opportunities and strategies for your firm, using a SWOT analysis to assess the advantages and disadvantages of each. Recapitulate your findings here in conjunction with any instructor feedback received, identifying how you determined your proposed strategic alternative(s) and calculated potential inhibitors to each. Expand upon your initial proposed alternatives to include financial considerations.
Throughout the course, you have developed and submitted reports for your firm based on information that you and your CLC group have acquired and assessed. However, it is equally important to consider what other information, had you been able to locate it, would have been of value in formulating recommendations. What information are you lacking that might assist you and your team in developing and suggesting value-enhancing strategic alternatives? What information are you lacking that would assist you and your team in better assessing and managing possible risks of the proposed alternatives?
When it comes to making strategic recommendations to management, financial considerations weigh significantly on the feasibility and viability of the available options. Revisit the Financial Analysis assignment and, with the incorporation of any instructor feedback received, reiterate your findings on the financial condition and performance of the firm respective to the risks and benefits of forming a strategic alliance, profitability ratios, and possible value-enhancing strategies.
Given your instructor’s feedback and considering how the financial markets have changed since you submitted your Financial Analysis assignment, how would you refine or update your assessment of the organization’s current performance and financial strategies?
How would you use a decision matrix to determine the risks of your suggested strategic alternative and the potential financial implications for your company of pursuing this alternative? Is the decision matrix an effective tool for predicting risk? Why or why not? How does the application of the decision matrix alter what you previously chose as the most advantageous strategy?
Utilizing a risk matrix, identify a minimum of 10 unique risks associated with the strategic alternative you believe will provide the most significant opportunity for your firm to add value. Choose two or three of the most critical risks and discuss their potential impacts on your selected alternative.
Submit your risk matrix with your written response.
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Solution
Risks of potential value-enhancing strategies in Amazon
Value enhancing strategies are different interventions that the company takes to maximize profits and foster a dynamic cash flow. In attempting to maximize profits, the value-enhancing strategies focus on mitigating and altogether avoiding risks in business operations. Value-enhancing strategies reflect the company’s continued growth in meeting the demand of the consumers. Consequently, the company achieves a competitive advantage over its competitors. In this regard, most business operations focus on restructuring their ordinary norms for the business to achieve their overall goals of generating profits in their operations. The potential value-enhancing strategies reflect on past financial and marketing strategies (Alshmrani, 2021). Analysis of the historical financial performance of the business help in establishing new strategies.
Mitigating risks
Risk mitigation strategies are vital in cushioning an organization from potential risks and allowing the organization to attain maximum financial growth. Amazon is a dynamic company that has an advantage in the global market, especially due to its large size and unique business model. However, the competition in the global market is a potential risk to the company (Alshmrani,2021). In this regard, the company should keep on changing its operation strategies to march the level of its competitors and maintain its uniqueness. Consequently, the potential value-enhancing strategies may pose a risk to Amazon. The objective of this paper is to assess how potential value-enhancing strategies may pose a risk to Amazon.
How Amazon opportunities might be a potential risk to the company
The potential value-enhancing strategies focus on opportunities and strengths bestowed on Amazon to indicate its potential growth. Amazon’s opportunities should be analyzed and evaluated to identify any potential risks of implementing the new strategy. Potential Amazon opportunities only cause risks to the company in the implementation stage. Therefore, it is essential to analyze the company’s opportunities before making it a practice.
- The risk of expansion
The first opportunity for Amazon is how it can penetrate and expand its operation in the developing new markets ahead of its competitor. In reflection of Amazon’s financial performance and Strategic alternative assessment, the company has a competitive advantage over its competitors. According to Amazon’s financial analysis, the liquidity ratios indicate that the company has the potential of expanding in the global market easier than its competitors (Mescall & Klassen, 2018). Consequently, Amazon has a positive reflection on its financial leverage and performance. In this effect, Amazon has an opportunity of acquiring more assets and enhancing dynamic growth in different parts that enhance positive financial growth. However, penetration in the developing market poses a risk to the company’s operations. Penetrating developing markets require a huge investment in marketing and promotion of the company’s new services. In this effect, Amazon may need leverage to facilitate, open and penetrate the developing markets. According to Amazon’s financial analysis through financial ratios, Amazon is at risk of maintaining a favorable credit reflection based on its leverage ratios. Therefore, the potential risk of penetrating the developing market might cause a great risk to the company since it will increase the debts and expose the company to more debts. Consequently, penetrating the new market may not generate the revenues as expected. Therefore, Amazon might fall into debt and fail to meet its potential objective (Ott, 2020).
- Risk of brick-and-mortar
According to Strategic alternative assessments, Amazon has an opportunity of expanding in brick–and–mortar operations (Ott, 2020). The operations involve establishing physical stores and establishing customer care facilities in strategic places in different countries. The opportunity requires various implementation mechanisms such as hiring new staff and introducing their new products in the already established markets. However, the huge financial obligation of the company poses a risk to Amazon since the company may require leverage in facilitating the installation and establishment of new stalls. Additionally, the brick–and–mortar operations may take a long period to generate revenue, thus posing a liquidity risk to the organization.
- The risk of mergers and Acquisitions
Amazon has an opportunity to enter into mergers and acquisitions with other organizations in the industry so as to increase its market share. The strategy is a viable value-enhancing approach, and thus can be applied in generating revenues in the organization. Thriving companies may require moving cash flow movements that reflect on positive trends of the company. In this regard, mergers and acquisition may need Amazon to meet particular guidelines before entering into a contract (Ott, 2020). The new guidelines may break the culture of Amazon’s marketing operations, which may lead to the loss of the customer base, thus compromising the growth and performance of the company. In addition, the formation of Mergers and acquisitions may require the company to make new strategic plans that may compromise the company’s operations.
Therefore, the formation of mergers and acquisitions is a potential risk to the company. It may lead to the loss of marketing culture and delayed decision making, thus halting the performance of the company operations. Consequently, Amazon is a marketing and sales giant due to its plans and internal strategies. In a situation where Amazon enters into a merger with another small company of similar status, the company might lose its potential marketing information by sharing its operations strategies, thus becoming a potential marketing risk to its operations.
Inadequacy of information for better assessing and managing possible risks of the proposed alternatives
Financial information is essential in assessing and managing the possible risks of the proposed alternatives. However, while financial reports such as statement of financial position offer comprehensive data, financial ratios may not offer a real-time financial performance of the company. The ratios are a summation of the statement of comprehensive income and the company’s financial position statement. Through the SWOT analysis of Amazon operations, the decision matrix may not provide the appropriate information to make the most appropriate financial decision.
lack of financial statements
The lack of historical databased cash flow statements and financial reports of different years are a challenge that may discourage and frustrate better assessment and management of the proposed alternatives’ possible risks. Financial reports provide the company’s overall performance in different areas of operations. They indicate which items may have negatively affected the company’s negative performance (Kenny, 2019). In this effect, a lack of information from financial statements of the different periods may affect the company’s decision-making. The policies of making appropriate strategic plans and assessments should focus on formulating the most appropriate policy that should be used to develop the most viable strategy in business operations.
Lack of consumer’s information on preferences
A lack of information on consumer preferences and behavior may cause the company to change its way of operations, thus making the company fail to formulate the appropriate strategies to meet consumer preferences. The information on consumers’ preferences should be sourced through benchmarking and market segmentation exercises. In carrying out the exercise, Amazon will analyze the needs of a specific market without generalizing the entire market. The problem of a particular market may be different from the other market (Kenny, 2019). Therefore, lack of information is a potential risk in formulating the assessing how potential value-enhancing strategies may improve the financial performance of Amazon.
Benefits and Risks Involved in making potential value-enhancing strategies of Amazon by use of financial analysis.
Based on profitability performance, the return on investment of 8.98% is an indication that the company is generating profits from its operations. The positive reflection of the profitability of Amazon should be maintained or should go up (ceteris paribus) in the preceding years. However, entering into an alliance with a small company may involve high capital injections in forming the new alliance. In this effect, it is essential that entering mergers and alliances is a potential risk to the operation of Amazon since it may likely reduce the profits generated. However, the formation of alliances with already established companies may benefit the company since it will increase its cash flow, thus improving the liquidity of Amazon (Zhang et.al., 2018). The high return on investment should be a guideline in making strategies on whether to form new alliances. Therefore, Amazon should decide to form new alliances by ensuring that the profitability ratios are not affected.
Methods of refining and updating your assessment of the organization’s current performance and financial strategies
The financial reports are dynamic and keep on changing based on how volatile the economy is and other factors. Amazon’s financial statements will keep changing since the economic factors may not remain constant (ceteris Paribus). Therefore, there is a need to formulate different methods of updating the changes. First, the financial reports and performance should be carried out daily to depict the real-time financial performance of Amazon (Kenny, 2019). Besides, making an integrated financial system software will help run real-time operations and eventually create a favorable financial position for Amazon operations.
Use of the decision matrix to determine the risks of a suggested alternative
A decision matrix is used to evaluate various risks and rank them in order of priorities to enhance the appropriate decision-making process. A decision matrix is an appropriate tool that can be used in making decisions based on strategic alternatives and potential implications for the company. The decision matrix can identify the strategic alternative that seems riskier to undertake than the other.
Identifying Risks
All alternatives have a certain degree of risk. However, some decisions may be riskier to undertake than others. In this effect, it is essential to establish various mechanisms that should be established to arrive at the most appropriate strategy in the decision-making process (Nicho & Khan, 2018). Arranging the alternatives based on return on investment is appropriate in the decision-making process. However, the decision-making matrix is not an effective tool that can be used to form and establish the most appropriate tool for predicting risk.
Efficiencies of decision matrix
The matrix does not provide a statistical relationship between the alternative and the adversity of risk involved. Consequently, the decision matrix has altered what had previously been considered the most useful strategy since it did not analyze the risks that are likely to be involved. Additionally, the decision matrix focuses on the most profitable strategy without considering the risk involved in the process of taking a different alternative
Risk matrix in Mergers and Acquisitions
Mergers and Acquisitions are alternatives that may add value to Amazon in this effect. Amazon may identify new markets segments, identify the consumer’s niche, and thus enhance good policies and alternatives (Nicho & Khan, 2018). In addition, acquisitions of new companies may increase the asset base of Amazon, thus increasing its Leverage in acquiring new assets and formulating new obligations. However, mergers and Acquisitions may pose a potential risk to Amazon if the companies have risky negative operations.
References
Alshmrani, H. M. (2021). An analytical view of amazon success in the worldwide. Life Science Journal, 18(6). http://www.lifesciencesite.com/lsj/lsj180621/10_37325lsj180621_71_90.pdf.
Kenny, S. E. (2019). Strategic Audit of Amazon. com, Inc. https://digitalcommons.unl.edu/honorstheses/188/
Mescall, D., & Klassen, K. J. (2018). How Does Transfer Pricing Risk Affect Premiums in Cross‐Border MergersandAcquisitions?. ContemporaryAccountingResearch, 35(2),830865.https://onlinelibrary.wiley.com/doi/abs/10.1111/1911-3846.12397.
Nicho, M., & Khan, S. N. (2018, May). A decision matrix model to identify and evaluate APT vulnerabilities at the user plane. In 2018 41st International Convention on Information and Communication Technology, Electronics and Microelectronics (MIPRO) (pp. 1155-1160). IEEE. https://ieeexplore.ieee.org/abstract/document/8400210
Ott, C. (2020). The risks of mergers and acquisitions—Analyzing the incentives for risk reporting in Item1Aof10Kfilings. JournalofBusinessResearch, 106,158181.https://www.sciencedirect.com/science/article/abs/pii/S0148296319304989
Zhang, N., Mi, X., Feng, X., Wang, X., Tian, Y., & Qian, F. (2018). Understanding and mitigating the security risks of voice-controlled third-party skills on amazon alexa and google home. arXiv preprint arXiv:1805.01525. https://arxiv.org/abs/1805.01525