Business organizations are affected by various risks regularly, some of which are too adverse to the extent of possibly bringing such businesses to a close. Thanks to the various management tools available to curb such risks enabling the managers to mitigate them whenever they surface. Risks are unplanned occurrences that affect the organization’s projects, whereas uncertainties refer to the unknown state of a given outcome in a business (Lechler, Edington & Gao, 2012). Risk management is the decision made by a manager to mitigate risks and prevent their adverse effects both in the short and long run. Risk management may involve a variety of resolutions, including a change of tactics, and a change of business structure, among other decisions.
Apple Inc.
Apple Inc. provides its stakeholders with a risk analysis report on a year-quarterly basis. For 2019, the company has engaged its risk management department in risk analysis to evaluate any existing financial and alliance risks that may exist in the company's business activities. The first-quarter financial reports saw Apple Inc. identify various risks, including possible effects of their purchasing decisions on the individual and business consumers who buy their products. Additionally, Apple identified a potential increase in costs and the impact of currency mixes as well as the price competition in the market. The company also identifies asset risks such as inventory risks that come about the company's decision to order raw materials from their suppliers.
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Apple engages in cluster risk analysis to save the company's investments from falling. Notably, this kind of analysis is essential because it enables Apple to identify risks that would otherwise be unknown. This is visible from the various risks that the company seeks to identify. Apple employees distinctly work in groups for individual products, identifying any possible changes in the products for future revisions. Their activities include analysis of reviews from the customer bases as well as research-based analysis on particular products.
The company has succeeded in engaging their customers better and bringing them closer to them. Just like every other year, Apple trained its employees new and better skills of welcoming customers into stores with warm receptions. Specifically, the company outlined to their attendants the need to treat employees with utmost politeness. Additionally, the company has set up the right channel that customers can use to report any issues they have. The company's continued contingency plan is such a good plan to improve their customer and supplier engagement. The company CEO plans to build a new Headquarter by 2020.
I would advise Apple's management to rank the company's risks in order of possible severity and likeliness during identification. After that, it is recommended that the worst potential risk with the highest likability to be solved with priority. The management should focus their risk management strategies in reducing the possibility of occurrence for an adverse risk while increasing such possibilities in harmful risks.
Adverse Selection Problem
Adverse selection refers to a problem of information asymmetry where the seller of a product has more information on a product that the buyer, hence selling the product at a higher bargain. According to Jones (2019), adverse selection offers more advantages to one party over the other. In most cases, the buyer tends to be the most disadvantaged in such dealings.
Apple Inc. may find itself in this situation with its suppliers. The company produces technology devices with raw materials taken from another one. Subsequently, the company might run losses in such a case. Similarly, the employees of the company may take advantage of the information they have on the share prices of Apple shares, moving to secure benefits. Subsequently, the company risks an influx on the share capital. The company also risks being slammed for unethical business behavior when organizations members use of the organization. It is also fair to note that adverse selection impacts negatively on transactions. A company stands a chance to interfere with the company’s transaction.
The first step against adverse selection is to safeguard the information that may leak important information that could bring about information asymmetry. Since some of this information may affect the company in the long run, therefore, Apple should conduct an internal control system and regulate the amount of information leak. Apart from that, the company trains its staff to handle information with diligence.
Moral Hazard Problem
Moral hazards occur when a party engages in a risky business with the thought that another party will protect them from their risky engagements (Itoh, 2016). This behavior constitutes a form of a risk on a business organization and is most common with customers and employees. Quite often, the employees of Apple Inc. develop a tendency to abandon their work and responsibilities at the expense of other personal endeavors. In worse situations, the employees even utilize the resources of the company in completing their individual needs. Apple Inc. stands the chance of experiencing low-level unproductivity when employees resort to abandoning their duties for other unrelated work activities. In other cases, moral hazards may occur by employees of an organization wasting resources. Specifically, this refers to a situation where employees utilize more resources in completing tasks that would have been otherwise completed with fewer amounts of the same resource. When this occurs, the company stands to incur the loss on behalf of the employees.
Apple Inc. includes in its strategies the ways to deal with the problem of moral hazards. Apple Inc. offers a lot of incentives to employees as a way of motivating them to give their all for the company. This is important because the motivation gets to make employees think of every risk that comes with their actions and thus moves to avoid putting the company into such situations of incurring losses. The company gives cash bonuses to the employees as well as stock gifts to encourage them to accomplish workloads and propel them to make innovative decisions as well. This subsequently helps the company in cutting moral hazard risks. Creating a healthy working environment for employees is yet another strategy that Apple Inc. uses to reduce the risks of moral hazards. They execute this by creating a healthy communication environment between employees and management at all times. This is also made possible by reducing workplace hazards to ensure employees' safety and taking swift care of employees' needs and complaints.
Principal-Agent Problem
The principal-agent problem refers to an issue of misrepresentation of interests. According to Kostovetsky (2015), this issue occurs when an individual (agent) acting on another person's (principal) behalf fails to delegate such duties in the best interest of the agent. Instead, an agent chooses to serve his interests. The principal-agent problem is inspired by the fact that the principal has no direct knowledge of how the agent would behave or act, yet he expects his interests as an agent to be catered. The case of business owners and a manager offers a perfect relationship of a principal-agent relationship. Shareholders get the manager to run the business on their behalf and expect the manager to serve their interests fully. In such a case, the manager's failure to meet the demands of the shareholder triggers a principal-agent problem. Similarly, an employee acts as the agent of the shareholder put in place to ensure maximum productivity on behalf of the principal, who is the shareholder.
Apple Inc. experiences a conflict of interest among the employees who prioritize self-interests ahead of those of the company. Just as mentioned above, the company expects total dedication, efficient resource utilization as well as maximum teamwork from the employees. However, employees often utilize company time to execute their activities. This way, they make a move to satisfy their interests against those of their principal (shareholders). Incentives remain the most effective strat5egy against the principal-agent theory because it motivates the agent to put the business interest first (Gong et al., 2017). Apple Inc. to uses incentives to get their employees to put the company's interest first ahead of personal interests.
Apple Inc. organizes a regular event dubbed "beer bash" where the employees get the opportunity to enjoy free booze, snacks, and some celebrity cameos. Apart from that, Apple Inc. offers four weeks of paid maternity leave before giving birth. The company also offers discounts to employees on the purchase of its products as a way of giving them the opportunity as first owners of new devices. Apple offers discounts of up to 20 percent to employees.
Organizational Structure
An organizational structure in a company defines the leadership positions held by various individuals, indicating the order of authority in a hierarchical structure. The organizational structure combines the different workforce groups with available business resources and defines their interconnection (Winnubst, 2017). Apart from that, the organizational structure also represents the business culture, which outlines the various management styles that the management makes at specific moments (Ashkenas et al., 2015). Apple Inc. has an organizational structure that focuses on promotion on innovations by employees. This implies that the company makes various decisions that mostly support innovations at the company.
Apple Inc. uses the traditional structure of a business organization and borrows slightly from other methods. The organizational structure of Apple Inc. is more of a traditional hierarchy. The company's organizational structure features divisions representing various products sold by the company. The structure preserves the hierarchy of leadership while it promotes collaboration between various product divisions with equal authority. One major characteristic of the company's corporate structure is the Spoke-and-Wheel form of Hierarchy. Whereas Steve Jobs decided on everything at the company, Tim Cook introduced collaboration between various departments, which are placed on the same leadership level. Spoke-and-Wheel Hierarchy refers to the fact that one manager is at the center of every decision. Despite the changes, the current manager at Apple Inc. is still at the center of everything.
Another identifiable characteristic of the structure is the divisional structure. The company has divisions in the name of various structures. A senior vice president heads every product division and output division. Apple's organizational structure has a weak functional matrix. While collaborations characterize product divisions, critical decisions are made by top-level management.
Apple ought to decentralize its decision-making functions to the product divisions. As it stands, all decisions have to come from the president and vice presidents before it is formulated. This makes a lot of time that could prove risky to the organization's success. Decentralization means that the product authority will be mandated to make the most accurate decisions on products.
Conclusion
In summary, financial risks affect Apple Inc. in equal measure as it affects other companies. Moral hazards and adverse selection problems are major risks that affect the technology company. Fortunately, the company has various strategies that they use to reduce such risks. The organizational structure is useful in reducing such risks.
References
Ashkenas, R., Ulrich, D., Jick, T., & Kerr, S. (2015). The Boundaryless Organization.: Breaking the Chains of Organizational Structure . John Wiley & Sons.
Gong, D., Tang, M., Liu, S., & Li, Q. (2017). Reconsidering production coordination: A principal-agent theory-based analysis. Advances in Production Engineering & Management , 12 (1).
Itoh, H. (2016). Moral Hazard and other-regarding Preferences. In Behavioral Interactions, Markets, and Economic Dynamics (pp. 483-517). Springer, Tokyo.
Kostovetsky, L. (2015). Political capital and moral hazard. Journal of Financial Economics , 116 (1), 144-159.
Lechler, T. G., Edington, B. H., & Gao, T. (2012). Challenging classic project management: Turning project uncertainties into business opportunities. Project Management Journal , 43 (6), 59-69.
Lester, B., Shourideh, A., Venkateswaran, V., & Zetlin-Jones, A. (2019). Screening and adverse selection in frictional markets. Journal of Political Economy , 127 (1), 338-377.
Winnubst, J. (2017). Organizational structure, social support, and burnout. In Professional burnout (pp. 151-162). Routledge.
