51016-Assessing and Managing Risk
A comprehensive analysis of strategic alternatives and assessment of financial analysis has an impact on the respective firm upon implementation. Stakeholders are tasked to ensure a prime combination of recommended activities for the overall benefit of the firm. Following the prior studies on Nike’s strategic alternatives assessment and financial analysis, a recapitulation of the two studies is recommended to point out the underlying value-enhancing strategies. Potential value-enhancing strategies may pose a risk to a firm as determined through the recapitulation of strategic alternative analysis and financial analysis assessment.
Strategic Alternatives Assessment Recap
The established Nike brand counts on the firm’s outstanding strength. Unlike most firms, Nike does not exert much effort in product promotion activities. Besides, the firm has earned a vast global influence with its brands selling across the globe. Multicultural customers across the world have deeply rooted in the firm’s positive reputation and further expansion potential. Due to economies of scale, Nike has achieved low production costs hence gaining the financial stamina to finance iconic subsidiaries like the Air Jordan brand according to McNew (2017).
Batson (2013) reveals that strategic alliance formation entails collaboration with an autonomous firm to formulate a common strategic goal for purposes of collective improvement and expansion. Despite the strong capital base implied by the strategic alternative assessment, the formation of a strategic alliance poses a potential risk to Nike. The possibility of hidden costs, weakening of the brand’s market base, management wrangles, and unstable control of the firm’s operations pose a huge potential risk to Nike. The process of developing and maintaining a brand is quite involved. Potential value-enhancement policies that pose a threat to the firm’s reputation and brand destabilization should be critically scrutinized to avoid hazardous decisions. Both short-term and long-term financial implications of the strategies to be implemented for Nike should be considered to ensure the global brand is maintained. Besides, setting a strategic alliance with a globally established firm might create unnecessary competitive forces due to natural dynamics. For instance, striking the deal with Adidas, whose P/E ratio is at 20.64 as compared with Nike’s 30.72 might work for the sole benefit of Adidas hence posing a huge loss of global market share for Nike according to White et at. (2020).
Strategic Alternatives and Associated Risks Information Gaps
The formulation of value-enhancing strategic alternatives for an established firm like Nike is a broad task. Some customized data is required to ensure the process is successful and productive hence posing a positive growth index to the firm. For instance, organizational culture is quite essential in the determination of the firm’s future. Decision-making processes and general planning of an organization are based on the firm’s culture. Information on Nike’s organizational culture concerning strategic alliances and other value enhancement strategies would be quite productive in the formulation of the best strategies to improve the firm. Consequently, some organizations have mission and vision statements pegged to their respective organizational culture. Despite the availability of strategic alternatives to achieve the set objectives, such firms are limited in their culture hence hindering the decision. The information on Nike’s organizational culture and related aspects would be elemental in the formulation of value-enhancing strategic alternatives.
Besides, Nike’s outstanding threats include competitive forces from other global firms and the introduction of poor-quality counterfeits at lower prices. A legal approach to combat production and trading of counterfeit products would help Nike mitigate the challenges posed by the introduction of counterfeit products. Besides, the improvement of production techniques by the use of technology-based methods would lower the cost of production further. With low production costs, Nike would avail products at affordable prices hence beating the competitive forces.
Financial Analysis Recap
The formation of strategic alliances and consideration of profitability ratios is the key financial aspect considered in the financial analysis study according to Batson (2013). The right combinations of these aspects would ensure safe value-enhancement strategies. Nike has consistently maintained the promising values of profitability ratios over time (McNew, 2017). For instance, the P/E ratio which determines the firm against its earning has been fairly consistent. The current Nike P/E of 32.72 explains the company’s high possibility of expansion. In this case, an expansion would mean devising technological means to combat its weaknesses and threats (Nike Inc., n.d.).
Alliance formation could be a lucrative strategy owing to keen scrutiny before implementation. However, the strategy entails a higher risk as compared to the potential profits attached. For instance, allying with an untrusted partner would result in conflicts that would cost Nike both finances and reputation. Besides, alliance formation is a long-term strategy with uncertain immediate cost implications to develop and maintain. Owing to the undefined nature of the strategy’s outcome, it poses more risks than potential benefits to Nike. Also, the outstanding Nike’s profitability ratios would drastically fall after commitment to any alliance. The time to be taken to restore the values poses a higher risk to the company’s global market positioning as compared to the little anticipated value enhancement.
Financial Assessment Update
The global market is quite dynamic due to numerous external factors that affect the market. International policies, natural calamities, internal legislative issues, and internal factors are among the outstanding aspects that contribute to a dynamic global market. Referring to Nike’s financial position, the outbreak of the COVID-19 pandemic has negatively affected the company’s global financial position. The United States forms the biggest market for Nike Company. In reaction to the pandemic, Nike has closed its stores in the United States, New Zealand, Canada, Western Europe, and Australia according to Fernandes (2020). The gross loss in sales and promotional opportunities due to the pandemic has decimated the company’s financial status as compared to the values presented in the previous study.
However, digital marketing and other internet-based techniques pose a potential rise in Nike’s profit ratios despite the pandemic. COVID-19 is a global pandemic hence most firms are equally affected. Besides, as of 25th March 2020, the company’s shares fell nearly by 8% due to worries over the pandemic. 16% of Nike’s revenues are from China hence resulting in the loss. The company’s PEG has fallen up to 1.5x. Moreover, Nike’s P/E is arguably 37x as compared to the initial value of 32x according to Fernandes (2020)
Decision Matrix Applicability
A decision matrix compares the possible choices arranged on rows against the respective parameters that should be considered in selecting the choices. The keen application of the tool would yield informed decisions for Nike Company in selecting the most appropriate strategies. For instance, the decision matrix would have the Alliance Strategies arranged in one row then cost implications, the emergence of conflicts, company mission, and company mission on the columns to compare against.
Risk prediction is a lucrative task in an established company. Risk factors affect both the current financial state of an organization as well as future goals. Investors consider the risk factors in their decision-making process on where to invest and the amounts to invest. A well-structured application of the decision matrix would easily predict the risks pegged to various strategic alternatives and other potential value-enhancing strategies. More so, the decision matrix offers several options to choose from hence proving to be effective upon informed application.
The application of the decision matrix offers a comparison of the previously suggested value-enhancement strategies against their repercussions. The initial suggestions might be nullified due to the risk posed by the strategy to the company. For instance, the tool would alter the initial suggestion to consider the financial alliance strategy. The alteration is because of the high risk of the strategy.
Considering financial alliances as the most potential strategic alternative, the row containing “Financial Alliances” would be placed against 10 columns. The contents of the columns are; conflicts, unnecessary cost, loss of competence, management wrangles, poor operational control, partner lock-in, fall of profit ratios, mismatch with organizational culture, and information leakage. Comparing the strategy, and financial alliances against the ten potential risks would yield in drawing an informed decision that would favor Nike Company.
Critical Risk Impacts
Critical risks of a given strategy play a crucial role in decision-making. In this discussion, the impacts of conflicts, poor operational control, and unnecessary costs will be discussed. Conflicts in a financial alliance are bought by mistrust among partners. Financial alliances require two ally companies to agree for mutual benefit. However, in case of mistrust, conflicts set in. The impacts of conflicts among partners include; leakage of contract details to the competitors, presentation of misleading information among partners, mismanagement of joint projects, and loss of market trust.
Consequently, the impacts of unnecessary costs include; reduced profits, increased prices of products, internal management disputes, company borrowing, reduction of profitability ratios, and financial instability within the company. Besides, the impacts of poor operational control include; market inconsistency, irregular pricing of products, internal leadership wrangles, poor utilization of resources, and poor planning.
The greatest threat to Nike is competitive forces and the availability of counterfeit products Nike Inc. (n.d). The impacts of the three selected risks would give competing firms like Adidas a prime chance to dominate the industry. Internal leadership disputes due to poor operational control would destabilize the company’s management hence paving the way for fraudulent manufacturers to continue producing Nike counterfeit products.
Batson, M. J. (2013, June 6). 5 Keys To Creating Successful Strategic Alliances. Retrieved from https://www.forbes.com/2002/07/18/0719alliance.html#3678309611f4
Fernandes, N. (2020). Economic effects of coronavirus outbreak (COVID-19) on the world economy. Available at SSRN 3557504.
McNew, B. S. (2017, February 15). 3 Biggest Opportunities for Nike Inc. Retrieved from https://www.fool.com/investing/2017/02/15/3-biggest-opportunities-for-nike-inc.aspx
Nike Inc. (n.d.). Read Nike’s Mission Statement and find information about NIKE, Inc. innovation, sustainability, community impact and more. Retrieved from https://about.nike.com/
White, D. M., Sharma, G., Benjamin, S., Divya, Sg, & Oasis. (2020, April 4). Nike SWOT 2020: SWOT Analysis of Nike. Retrieved from https://bstrategyhub.com/swot-analysis-of-nike-nike- swot-analysis/
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The purpose of this assignment is to assess how potential value-enhancing strategies may pose risk to a firm.
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 increased 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.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
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