M4 (KJ) Response

NEED RESPONSE - ONLY 2 - 3 PARAGRAPHS WITH 1 REFERENCE

ORIGINAL TOPIC:

Assignment 1: Discussion—Assessment of Risks

Risks are common for all firms, but there are different levels of risks in different industries and in different countries. The differences in risks from firm to firm or industry to industry are called unsystematic risks. Consequently, individual firms and industries deal with risks in different ways.

Tasks:

Consider two companies that deal in two entirely different industries, such as Microsoft, which is a technology company, and Caterpillar Inc., which manufactures heavy equipment.

Respond to the following questions:

• Explain how the risks and the approaches to anticipate these risks differ for each company.
• Analyze the kinds of risks that are most intimidating for each.

STUDENT RESPONSE:

Two companies that I have decided to review that deal in two entirely different industries are Krispy Kreme Doughnuts Inc. and Toys R Us. 

Krispy Kreme Doughnuts, Inc. is an American doughnut company and coffeehouse that is known for their Hot Original Glazed Doughnuts. With over a dozen varieties of doughnuts and a wide range of other beverages; Krispy Kreme ensures that any sweet tooth will leave satisfied. On the other end of the spectrum is Toys R Us, a go-to toy and baby retail company striving to be the best toy store in the world but has been making headlines recently for financial woes. 

According to Blackman (2014), strategic, compliance, operational, financial and reputational are all different forms of business risk. However, businesses can also be exposed to liquidity, systematic, exchange-rate and country-specific risk. “A risk inherent in a firm's operations as a result of external or internal factors that can affect a firm's profitability. Factors such as changes in customer demand can cause a firm's stock price to fluctuate as more demand means less risk while less demand mean more risk to be shouldered by the investor” (Business Dictionary, 2018). 

Krispy Kreme Doughnuts Inc. 

Two risks that Krispy Kreme Doughnuts Inc. can face is reputational and financial risk. Reputational risk can potentially destroy Krispy Kreme Doughnuts and can erupt out of nowhere. Krispy Kreme (KK) is a company that is dependent on their consumer base and what they think about their product and the company as a whole. “Krispy Kreme placed fifth in a hospitality subcategory list that measures product quality by assessing “perceptions of a company’s offerings based on whether they are thought to be high in quality, in value and service and meet customers’ needs” (Mazurak, 2015). For instance, a threat or danger to the good name can wipe out millions of dollars in market capitalization or potential revenues and can occasionally result in a change at the uppermost levels of management. As mentioned, financial risk can come into play when KK is producing more products than what is being sold which results in lost revenue. KK’s inability to generate sufficient revenue to cover its operational expenses will create financial risk. A way that KK can anticipate reputational risks would be applying reputation insurance coverage. “These policies can provide risk mitigation before, during and after an incident through controls and preparedness, including crisis communications and messaging support and media training to help retain stakeholder loyalty and protect enterprise value” (Kossosvsky, 2014). Financial risk can be anticipated by critically investing and focusing on where to spend. This means that KK will focus on vulnerabilities and insecurities alongside social and organizational sources of resilience and security to reduce financial risk in the future. 

Toys R Us

Businesses face all kinds of risks, some of which can cause serious loss of profits or even bankruptcy. This is unfortunately the case for Toys R Us. Two risks that Toys R Us has faced is strategic and liquidity risk. Strategically, Toys R Us did not grow as the generation has over the years. For example, smartphones and tablets among young and older kids has meant less time for and less interest in traditional toys. This is a generational shift that Toys R Us has not taken into consideration as well as the heavy competition from Amazon.com, and from Walmart and Target, which often sell the same toys, but cheaper and more conveniently. Heavy competition creates another risk (financial) because revenue goals are not being met and the risk of liquidity become apparent. Toys R Us has not been able to meet short-term debt obligations. To anticipate these risk, Toys R Us needs to build a new experience for shoppers. I think many parents would like to see how their children will play with a toy before they make a purchase. By making stores more interactive with toy demonstrations, specialized toy kiosks and play areas for kids; this would create one surefire way to eliminate market and liquidity risk. A comprehensive, well-thought-out business plan can anticipate the risk factors of the market, strategic and liquidity risk. 

Differences

The risk differs between both Krispy Kreme Doughnuts and Toys R Us because Krispy Kreme is reliant on consumer feedback of their products and can their image can quickly be tarnished by a bad product versus Toys R Us who may not be easily affected by the risk of reputation as KK would. 

References: 

Blackman, A. (2014). The Main Types of Business Risk. Risk Analysis. Retrieved from, https://business.tutsplus.com/tutorials/the-main-types-of-business-risk--cms-22693

Business Dictionary. (2018). Company Risk. Definition. Retrieved from, http://www.businessdictionary.com/definition/company-risk.html

Kossovsky, N. (2014). How to Manage Reputation Risk. Risk Management. Retrieved from, 

http://www.rmmagazine.com/2014/04/01/how-to-manage-reputation-risk/

Mazurak, L. (2015). Krispy Kreme Lands on Most Reputable List. Biz Journal. Retrieved from, 

https://www.bizjournals.com/triad/news/2015/06/12/krispy-kreme-lands-on-most-reputable-list.html

NEED FOLLOW-UP RESPONSE - ONLY 2 - 3 PARAGRAPHS WITH 1 REFERENCE