Managerial Risk

Managerial Risk

Managerial Risk

What steps can the company take to diversify its portfolio?

The company in question should diversify organically through creation of new business in house or via acquisition of a competitor organization to facilitate competition within the industry, which in turn would improves its performance. In case the organization decides to diversify organically in house, the organization should hire experienced managerial team and employees to promote efficiency and effectiveness throughout its operations. Moreover, the company should identify market gap in the environment. It is a crucial requirement for the organization to ensure that the company identifies customers’ needs and seeks to satisfy them. Further, it is crucial to consider market segmentation within a given region to ensure that the organization produces services or goods based on customer demands to facilitate efficiency (Sikes, 2011). In addition, competitors are crucial drivers towards a business success; however, their operations may also influence the company’s prosperity.

Notably, the company should strive to identify competitor’s strengths and weakness to ensure that it works on the rival organization’s weaknesses to outdo them. The initiative will in turn promote superiority in the market place and consequently diversify its portfolio. In addition, the outfit should create a healthy relation between stakeholders to ensure that the organization is successful by fostering its wellbeing benefits and success through positive contribution and goodwill. Further, a healthy working relationship with stakeholders such as suppliers would ensure that the company operates on loans regardless of their financial position. Moreover, it would be important for the company to observe legal requirements and regulations such as tax payment and licenses. The undertaking would guarantee that the company is legally approved to operate. It would also enhance its reliability as a steadfast enterprise. The said aspect ensures that shareholders such as sponsors are guaranteed of an effective enterprise that is determined to make profit, which maximizes their returns thereby encouraging them to invest in the enterprise.

Define diversification and its necessity in risk management.

Diversification relates to the techniques an organization applies with an aim of overrunning a market or an industry that is different from the company’s core activities. Diversification is a techniques that organizations employ to ensure that they reduce reliability from a small number of income sources. Through diversification, an organization is guaranteed to make profit out of the invested operation based on the identified market needs. In addition, diversification ensures that cyclical and seasonal product fluctuations are eliminated through creation of goods and services that are in demand at a particular time. This aspect strengthens the organization evaluation of market segments and identification of customers’ needs and market gaps that competitors have not invaded yet to ensure that the organization makes maximum profit out of the identified market opportunity. Further, market diversification is necessary since it bases an organization on a higher growth rate to facilitate maximum profit generation.

Also, investing on a different enterprise from the main core activities of an organization ensures that the company competes and invades other competitors market that in turn encourages competition. However, a wide range of challenges characterizes this move. One of the main challenge is that the company may incur losses to lack of sufficient information regarding a certain opportunity. Lack of experience may also impact its efficiency which in turn results to loses (Neuberger & Duffy, 2016). Further, manufacture of cycling goods and services requires capital that may also lead to loses once the produced goods are passed by time. Also, invasion of an existing market place may hinder the business operations due to their long term experience that in turn might trim the company’s targeted profit.

Discuss 5 steps to diversify the card business.

The phases involved in business diversification include acquisition of finances to facilitate funding of an enterprise’s operations. Finances considerations are crucial aspects that require deliberation for the success of a business. The provision of manufactured goods require capital as well as compensation of labor provided in the course of the business operation. The following step requires an organization to consider labor and its employees. This involves hiring of software developers that help in creation of custom programs to facilitate the smooth running of an enterprise.

Moreover, the next phase entails seeking customer support representatives to facilitate provision of guidance and the support needed to help customers as they conduct their business as well as facilitate creation of awareness in usability and to familiarize with the developed systems. Further, the next stage revolves around developing a greeting card software that constitutes of over 50 greeting cards. This will also be facilitated through marketing strategies such as use of an organization website to market its softwares to encourage creation of appeal to customers which in turn would promote enhanced profit margins. The final phase would entail software advertisement through the media to promote its functionality and benefits to its potential customers.

Suggestions of how and where funds can be allocated for new investments.

The company can sell stock via an Initial Public Offering on the primary securities market. The Initial Public Offering of stocks sold for the first time would give rise to increased earnings. The company would use money generated from the sale of stock to finance projects and grow the business. The Initial Public Offerings stocks are offered in common and preferred stock. The underwriting firm will determine the type of stock offered, the stock price, and the appropriate time to sell the stock. Moreover, the company can sell bonds to the public via the primary securities market. The company bond selling can be undertaken directly to the investors to generate funds for the business. If sold, the funds would come from institutional, high net worth investors and individual investors.

A convertible security is a bond or a preferred stock converted into a share of a company’s common stock. Typically, the holder of the convertible security decides if and when to convert the security. The convertible security converts to common stock at a fixed price. The purpose of issuing a convertible security is to raise money. The convertible securities are sold for a specific reason. The company can sell stock directly to individual investors. Once the shares are sold, the investors can be allowed to trade stock on the open market. The initiative will work best if the company is well established.

The company can finance the funds through a bank loan. The loan will carry a fixed interest rate, monthly or quarterly repayments and established a repayment date. The bank will offer intermediate and long-term loans. The intermediate loan is typically less than 3 years and repaid on a monthly basis (Bornstein, 2014). The long-term loan is typically between 3 and 10 years, but the term can be as long as 20 years. The loans typically require quarterly or monthly payments and backing by a collateral. The company can obtain funds via a Small Business Administration (SBA) guaranteed loan. The SBA typically guarantees 80 percent of the loan principal. In addition, the bank or commercial lending institution will give the customer a 10-year term. The SBA guarantees roughly $12 billion per year in loans. By obtaining an SBA backed loan, the payments will be lower and allow the company to obtain a loan with inadequate collateral.

References

Bornstein, M. (2014). Bank-Term Loans. Burr Ridge [etc.: Irwin.

Neuberger, E., & Duffy, W. J. (2016). Direct Public Offerings. Boston: Allyn and Bacon.

Sikes, E. R. (2011). Diversification: Business strength supplement. New York: Holt.


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