Companies engage in transactions that they deem viable for the safety and continuity of their enterprises. Management is charged with the duty of ensuring a safe environment where the scarce raw materials are utilized sufficiently. The main objective of any firm is the maximization of revenue and minimization of costs to realize the highest profits. Large establishments such as Dell Company face a wide range of risks and uncertainty within the last year with pertinent issues relating to adverse selection problem, moral hazard problem, principal-agent problem, and the organizational structure.
Dell Technologies
It is through establishing the origin and the exact type of business activities that are run by the establishment that offers insight into the kind of engagements vis-à-vis the mission, vision, and goals. Dell, which is a multinational corporation (MNC), engages in computer-related initiatives. Its headquarters are in Round Rock in Texas with multiple micro-establishments across the universe. The massive consumer base enjoys a guarantee of acquiring products that are developed by Dell, which it sells after ideal production with the making of various gadgets that tune to the liking of different target markets. At the helm of management is the CEO, who is Michael Dell, which explains the name of the firm (“Corporate”). The other engagements include repair of worn out or broken computers and providing sufficient assistance on related goods and services. Baldwin (2019) opines that the industry has Dell Technologies facing stiff competition from its biggest PC competitor, i.e., Lenovo (formerly IBM) followed closely by HP, who is second regarding the market share. Recent data (according to the IDC) captured in April 2019 shows that Dell had 28.7% market share ranking a close third to HP’s 29.4%, thus reflecting hardship as being third in a weak market is difficult (“Corporate”). Such establishments require stand-out implementations for exemplary performance in the competitive market.
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Dell Technology is responsible for producing technologically advanced equipment such as MP3 players, data storage devices such as flash drives, and cameras. It is critical to note that the company recognizes the community and engages in corporate social responsibility (CSR) initiatives to give back to society and develop a positive rapport. The main goal or vision in doing so is seeking ideal human progress, which Dell sufficiently attempts through the capture of the stakeholder needs by engaging technology improvements where necessary. The primary recognition for its significant achievements that place it among the best performing establishment is the supply chain management strategies that are exemplary. Just like any other firm, Dell Technologies faces a wide range of risks and uncertainties subject to the full range of engagements and its extensive customer and employee base. Some of the mentioned aspects it faces include reliance on third-party suppliers, the ability to achieve favorable pricing from vendors, cost efficiency measures, a weak PC market, and seasonal sales trends (DELL Technologies, 2018).
Evaluation of recent actions dealing with risks
The computer technology industry involves a wide range of risks and uncertainties that it attracts due to the universal approach of doing business. The massive customer base forces entities to engage in sufficient outsourcing, which brings into play a wide range of stakeholders and associates that further the idea mentioned above. A risk can be defined as “the probability of incurring loss or gain” (it is a known aspect) whereas an uncertainty alludes to the “lack of knowledge on prospects which can also mean the unsureness of a particular outcome/ occurrence of the unpredictable outcome” (Inekwe, 2016). Dell Technologies in the recent past has enacted specific strategies to deal with the mentioned factors. Firstly, the company has shown extensive preparation for handling and managing multiple outcomes. It is critical to note that the main adversity faced by the computer industry in recent times allude to cybercrime. Dell stands out with mitigation efforts to limit the misfortune through the hiring of efficient engineers who are mandated to ensure cybersecurity (Townsend, 2019). Dell faces the uncertainty of PC sales declining by 5% in 2019 that would hit major brands like Apple (Martindale, 2019). The establishment seeks to remedy the situation through harnessing their storage solutions for the cloud by avoiding PC sales reliance.
The move of handling cybercrime showcases the company’s ability to foresight impeding harm or dangers and subsequently address them through bringing on board a common approach in handling the situation through various departments. The firm simultaneously engages in the in-depth analysis of the inputs and the outputs to minimize the likelihood of occurrence of mal eventualities. The mitigation efforts are backed by the use of technologically advanced analytical techniques which ensures timely identification of the risks and uncertainties for impeding their realization. The computer industry has substantial establishments with equally large portfolios similar to Dell Technologies; the company thereby stays afloat through the cultivation of its reputation through various initiatives such as those concerned with environmental sustainability (“Corporate”). It is the positive perceptions and branding that drives the entity to be revered and thereby enable it to handle extreme cases which extends their reach in dealing with the negativities. It is essential for the firm to moderate its activities and model them in an ideal manner which explains the supply chain management strategies that stand out for a timely response.
Advise for improving risk management
It is proper that Dell Technologies streamlines the use of technological advancements in every department which establishes its recognition of modern ways of handling probable adversities in record time. The organization should seek to engage sufficient research on the consumer base, such as identifying their needs and wants. It is essential to recognize that consumer behavior frequently alternates subject to different aspects such as the transformations in the society or the changing economic patterns. The leading player in the market for a company engaging in business transactions translating to profits is the customer base. The company would reduce the adversities realized from risks and uncertainties through extending the research initiatives on other stakeholders such as the suppliers and stockholders. It is through such sufficient knowledge that would ensure that the company aligns the risk management strategies properly to avoid incurring any harm. Streamlining departmental mitigation efforts to the overall strategy provides a holistic approach in handling such scenarios. The risky ventures are captured in adverse selection problem, moral hazard problem, principal-agent problem, and the organizational structure.
Adverse selection problem
It is essential to acquire an in-depth comprehension of the factor to analyze the risk and uncertainty subject to detrimental selection problem that inflicts Dell technologies. It can be defined as a scenario where sellers stand at an advantage owing to their vast knowledge on specific issues that buyers lack or vice versa concerning a particular aspect of product quality (Pouryousefi & Frooman, 2017). It alludes to a situation of asymmetric information that is mirrored in the business transactions where one party would enjoy dominance owing superseding knowledge wherein ordinary circumstances the favor tilts to the seller. The asymmetry exhibits an outcome where one party enjoys support in negotiating deals leading to terrible decision-making for the disfavored party. The net effect of the mentioned tilt in the circumstances leads to less-profitable engagements or engaging in corrupt business involving risky market segments. The overall impact of adverse selection is negativity, which mandates any establishment to employ mitigation efforts to avoid the adversities.
An adverse selection problem that Dell Technologies faces in the business activities it engages revolves around the stocks. The establishment decided “to offer a new class of publicly listed common stock following completion of the proposed exchange of Dell Technologies Class V tracking stock for Dell Technologies Class C common stock” (DELL Technologies, 2018). The drive showcases a scenario where the sellers, which in this case is Dell Technologies, have more information concerning the mentioned financial assets compared to the buyers. The probable outcome is management showing increased willingness to issue the specified materials, especially if overvalued, due to the positive phase the company entails in recent times. It should be noted that the stock market involves players acting on speculation subject to the assessment of the market. The best practice to engage in for the company to mitigate the negative impact on the transaction that may arise due to uncertainty is to offer clear records on the stocks and engage the buyers for them to comprehend the venture they would be engaging conclusively.
Moral hazard problem
The second factor is the moral hazard problem which alludes to a scenario where a particular party engages in a risky event with the knowledge that it has protection against the risk where the compatriot would incur the cost (Jung, 2017). In simpler terms, both players lack information concerning each other. The mentioned scenario alludes to the structure of asymmetric information between two engaging parties. For any rational business entity, the avenue for costs to be incurred by another party encourages the compatriot to increase exposure to risks knowing very well that it has a cushion. The decision is usually reinforced with the drive to incur the most substantial amount of profits that would ensure the entity benefits. The motive may subject the other player to adverse effects as the purpose is driven by not necessarily engaging in the right consideration, which brings to play the question of morality. Safe to say the moral hazard problem touches on business ethics as an establishment faces the issue of engaging in that which is right and simultaneously is tempted to join in what would benefit the company even in the scenario that it is morally wrong.
Dell Technologies comprehends its moral obligations to the community and the global economy at large. It is for this reason that the establishment managers the moral hazard problem through doing what is necessarily right with morality taking a footnote of its engagements. The firm ensures that the employees comprehend their obligations to achieving the goals and aspirations through dutiful duty to the extensive customer base. Every individual in the establishment is handed the initiative of making the world a better place than before through technologically advanced actions and engaging in sustainability efforts. The computer industry is fundamentally an oligopolistic market where firms such as Dell may cooperate to establish different aspects in the industry, such as pricing. The moral hazard problem may thereby arise in such collisions which typically results in unfair price setting. The best practice used in the industry to deal with the adversity is through regulatory bodies such as the Securities and Exchange Commission (SEC). SEC entails regulation strategies that keep the industry in check to avoid any form of foul play by providing a level playing ground (Jung, 2017).
Principal-agent problem
A case may arise where the principal formulates a business environment structure where the agent’s incentives misalign with the former (Kellner, 2017). The mentioned aspect is the principal-agent problem. It is the mandate of the principal to formulate ideal fabrics for the agent to comprehend its basic needs and wants, which attempts to avoid information asymmetry. Agency cost, separation, and control are among the pertinent issues that bear the magnitude of the principal-agent problem. The first factor represents the costs incurred in ensuring or moderating the behavior of an agent to function in a particular way that is deemed fit by the principal. The remaining two aspects mirror the situation at the point where the hiring of services of the latter is acquired. The combination of the mix exhibits the principal-agent problem as the net results of the motives are to ensure positive outcomes for the principal, whereas the agent has a moral obligation of stemming out its duties.
Dell Technologies recently faced the brink of downfall, which led to the acquisition of EMC, thereby enabling the control of VMware (Townsend, 2019). The drive showcases the avoidance of a principal-agent problem as it reflects a transformative deal. It demonstrates a merger and acquisition where Dell plays the role of the principal, and the other establishments are the agents with the provided incentives to improve profitability aligns to the issuance of stocks. Other tools utilized include equity and existing cash. The drive reflects the motive to ensure the company moves forward to a better profitability level than the earlier era. EMC stands to benefit the enterprise by offering storage systems and capture the revenue collection through their best selling product called the PowerEdge Rack servers with their associated software for management (DELL Technologies, 2018). Dell had an engaging process in bringing EMC on board to handle the stiff competition, especially in a weak market thereby the acquisition would assist in offsetting the risk of staying in the PC market reflecting a positive outcome. Safe to say that the merger would be beneficial to both entities in a give-give scenario that they mirror.
Organizational structure
All firms are driven by specific aspirations, goals, missions, and visions. Management must ensure that the company’s drive is met to the letter creating ideal structures for improvements and streamlining all initiatives to the mentioned factors. The motives bring into play the issue of organizational structure that alludes to the precise formulation of specific activities to be steered towards the achievement of goals of a firm. It involves the mix of regulations, responsibilities, and specific roles of all departments and stakeholders to ensure continuity and progress of an establishment. The organizational structure is the determinant of information flow within an organization where the case of centralized structure showcases the trickling down of such aspects from top management levels down to the lower players. The opposite scenario is a decentralized structure which invokes a distribution of decision-making powers through different departmental levels in the establishment. The motive is ensuring efficiency.
Dell Technology has an organizational structure that resembles both a centralized and decentralized case. At the top point of management, information is shared across board with players such as the CEO, the CFO, and CMO, among others (DELL Technologies, 2018). The mentioned aspect transcends down to the Dell Client Solution heads and EMC, which later moves down to other departmental heads across the board (“Corporate”). The organizational structure is facilitated by the EMC servers given PC firms require IT support and data center infrastructure, which have grown in the modern era for mobile (think cloud) aps (Moore, 2019). The current structure works well, which is reflected in the amounts of revenue collected and the ideal business engagements in a timely fashion. One would recommend the converging of the heads to formulate a unified communicative team with representatives from each level and department to reduce the time taken for information to travel from one level to the next. The drive would ensure that the time factor is improved, which translates to efficiency. The net effect of such positive initiatives is improved profitability, which is the fundamental need of the firm.
Dell Technology recently faced risks and uncertainties, such as reliance on third-party suppliers, the ability to achieve favorable pricing from vendors, cost efficiency measures, a weak PC market, and seasonal sales trends. The adversities nearly trampled the establishment, which explains the merger with EMC and the mitigation efforts to manage different aspects such as the adverse selection problem, the moral hazard problem, and principal-agent problem. The industry requires an ideal organizational structure which encourages efficiency to mete out the competition through timely transactions resulting in improved profitability.
References
Baldwin, C. Y. (2019). Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 15 The IBM PC. Chapter, 15, 19-074.
DELL Technologies. (2. Jul 2018). "Press Release." Retrieved from https://investors.delltechnologies.com/news-releases/news-release-details/dell-technologies-concludes-strategic-review-and-reaches
DELL Technologies. “Corporate.” Retrieved from https://corporate.delltechnologies.com/en-us/about-us/who-we-are.htm
Inekwe, N. J., (2016). Financial uncertainty, risk aversion, and monetary policy. Empirical Economics, 51(3), 939-961.
Jung, J. Y. (2017). Effects of wealth and its distribution on the moral hazard problem. Seoul Journal of Economics, 30(4), 487-502.
Kellner, C., (2017). The principal-agent problem with smooth ambiguity. Review of Economic Design, 21(2), 83-119.
Martindale, J. (11, Apr. 2019).” PC sales slide 5 percent in 2019 and they’re taking Apple with them.” DIGITAL TRENDS. Retrieved from https://www.digitaltrends.com/computing/pc-sales-down-2019-apple/
Moore, C. (25, Mar. 2019). “Dell EMC Forecast for Server Market Trend in 2019 & Its Growing Market Share.” iCharts. Retrieved from https://www.icharts.net/dell-emc-forecast-for-server-market-trend-in-2019/
Pouryousefi, S., & Frooman, J., (2017). The problem of unilateralism in agency theory: Towards a bilateral formulation. Business Ethics Quarterly, 27(2), 163-182.
Townsend, W. (2, May. 2019). “Dell Technologies Places Its Networking Bets.” Forbes . Retrieved from https://www.forbes.com/sites/moorinsights/2019/05/02/dell-technologies-places-its-networking-bets/#40e895f834eb
