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A. Are the processes used for managing risks satisfactory in Adidas? What changes (if
any) would you make? Justify your answer. You may (but not need to) answer in
the context of a specific issue, concern, organization of industry.
1. Introduction
The Adidas Group is consistently striving for and developing new strategies to boost
profitability and long-term shareholder value. As a result, it is understood that some risks must
be taken to maximize commercial prospects. Risk management concepts and systems, on the
other hand, provides a foundation for conducting business in a well-controlled environment
(Alsbiei, 2015). Investor and financial market potentials for clear and inclusive risk
communication risen due to the current financial and economic crises.
The Adidas Group is frequently introduced with risks that have the competence to
adversely or constructively influence asset value, profitability, cash flow asset, or qualitative
attributes such as a brand image.

2. Risk Management
Adidas deliberately pushes boundaries and consistently investigates and develops
prospects to stay competitive and assure long-term success (Ranjan, 2016). The principles and
strategy of risk management will give the context for Adidas Company to do business in a well-
controlled setting in this study.
2.1. Risk Management System in Adidas
The Executive Board is in charge of developing a competent risk and opportunity
management system that guarantees that all significant risks are managed comprehensively and
consistently (Alsbiei, 2015). On behalf of the executive board, the risk management department
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rules administer, improves the firm's risk management arrangement, and is the centrally
controlled risk management progression.

The Supervisory Board is in charge of monitoring the risk management system's efficacy.
The supervisory board's audit committee is in order of these responsibilities. The internal audit
gives objective certainty to the executive board and audit committee regularly on the
appropriateness and integrity of the company's risk and prospect management system, working
independently of all other areas of the organization.
Furthermore, as part of its regular audits operations with selected Adidas affiliates or
functions each year, the internal audit department evaluates the efficacy of risk managing
systems and acquiescence with its risk management policy (Adidas Annual Report).
3. Risk handling in Adidas
As outlined in the Risk Management Policy, the company's risk management concepts
are applied to risks. Risk Owners are responsible for designing and implementing acceptable
risk-mitigation strategies and identifying and developing opportunities within their area of
accountability (Wipplinger, 2007). Furthermore, the Risk Owners must deliberate on a general
risk-handling approach for the risks acknowledged, including risk avoidance, risk reduction to
reduce the effect and probability, risk transmission to a third party, or risk recognition.
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4. Risk monitoring and reporting

The Adidas risk and opportunity management system attempts to take risks and
opportunities more transparent. Because both risks and opportunities are constantly evolving,
Risk Owners keep a critical track of changes and the feasibility and efficiency of the current risk
management plan.

Half-yearly risk reporting is conducted, and it comprises a five-step reporting process that
is reinforced and assisted by a company-wide IT solution:
 Risk Owners must disclose risks with a potential net effect of €1 million or more
to Risk Management, regardless of their chance of materializing.
 Risk Management sends an associated report to all Executive Board members,
which contains each member's evaluation and the significant risks and
opportunities indicated by Risk Owners.
 The Executive Board examines the account, decides on a final corporate risk and
opportunity assessment, and determines whether Risk Owners are compelled to
take arbitration proceedings.
 Risk management develops the absolute risk, and the opportunity report premised
on the executive board's determination also discussed with the Core Leadership
Group (CLG).
 In partnership with risk management, the Executive Board be responsible for the
supervisory board's audit committee with the absolute risk and opportunity
assessment results.
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5. Analysis of Adidas Risk Management System

Adidas' risk management system is predicated on the Committee of Sponsoring
Organizations (COSO) of the Tread way Commission's frameworks for enterprise risk
management and internal controls, which were created and published. Furthermore, Adidas has
modified its risk and opportunity management system to better match its culture and structure
(Alsbiei, 2015). This system emphasizes identifying, evaluating, managing, monitoring, and
reporting risks and opportunities systematically.

Over an opportunity-focused yet risk-aware decision-making framework, the risk and

opportunity management system's primary goal is to enable business success and safeguard the
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organization as a going apprehension. The company's Risk Management Policy lays out the
company's concepts, methods, tools, risk areas, critical duties reporting standards, and
communication schedules. The steps in the Adidas risk and opportunity management approach
are as follows:
 Identification of risks and opportunities: Adidas regularly examines the macroeconomic
environment, as well as developments in the athletic goods sector and internal processes,
to identify risks and opportunities as early as conceivable Risk Owners (at least all
executives reporting directly to the Executive Board, particularly market Managing
Directors) form a company-wide network that guarantees effective bottom-up risk and
opportunity identification (Ranjan, 2016). To aid Risk Owners in identifying risks and
opportunities, Risk Management has developed 25 categories.
 Risk owners employ various tools in the risk and opportunity evaluation procedures,
including primary qualitative and quantitative examination, trend reconnaissance and
consumer surveys, input from Adidas business partners, and a regulated space network.
Global market assessment and competitive analysis aid these initiatives. Adidas hopes to
discover the markets, segments, consumer target groups, and product types that have the
most prospects for future development on a national and global basis through this
method. Those at risk of saturation, or those subject to rising competition or altering
consumer tastes, are also examined.
On the other hand, Adidas' risk and opportunity evaluation approach is not restricted to
external risk considerations or possibilities; it also considers business culture, procedures,
projects, human resource management, and compliance considerations.
5.1. Financial Risk
Rapid developments in the economy due to globalization increased the number of risks
that businesses must endure. Due to the advent of new technologies, such as financial technology
by financial institutions, the risk faced by Adidas is more complicated than before, resulting in
an even more composite financial instrument.
Conferring to Woods and Dowd (2008), financial risks are a company's hazards, which is
essential since it is linked to its financial operations [ CITATION Mar082 \l 1033 ]. Market risk,
credit risk, settlement risk, and operational risk, according to Jorion (2007), are the types of risk
that come within the financial risk umbrella [ CITATION Eve07 \l 1033 ].
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5.2. Operational Risk

For Adidas to execute effectively, effective operational risk management is critical. The
risk of loss from insufficient or failing internal procedures personnel and systems and external
events are the most prevalent operational risk definition.
According to Jose A. Lopez (2002), a few procedures may be taken to limit losses caused
by operational risk. For example, natural catastrophe damages can be insured against (Lopez,
2002). By constructing multiple backup facilities, losses resulting from business disruption due
to power or telecommunications outages can be minimized.
5.3. Market risk
Market risk is defined as the likelihood of investors losing money due to various
variables impacting the financial market performance in which they are involved. Systematic risk
is another name for market risk. While diversity cannot wholly remove systematic risk, it may be
mitigated. Recessions, political turbulence, interest rate instability, natural disasters, and terrorist
acts are all causes of market risk.
According to Guillermo Larrain's (1997) research, many investors, particularly
institutional investors, prefer rated assets to unrated assets due to domestic prudential regulation [
CITATION Gui97 \l 1033 ] . As ratings deteriorate, sovereign rates rise, indicating an increase in the
predefined market risk premium.
5.4. Liquidity Risk
When it concerns the liquidity risk, the inability of businesses or financial institutions to
satisfy their short-term loan commitments is the most popular definition. It signifies that their
assets aren't easily converted to cash. According to Ahmed Mohammed Dahir (2018), liquidity
risk is the risk that a bank would be unable to fulfill its payment obligations (Ahmed Mohamed
Dahir, 2018). He also discussed how liquidity risk is a driving risk element that poses a threat to
the financial system, with risks coming from various directions.
5.5. Profitability risk
The majority of the time, a company's success is determined by the amount of profit from its
investment. While running a business daily, deciding between liquidity and profitability, and
finding a balance between the two, may be difficult.
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6. The Potential Impact

Marginal, low, medium, high, and significant. These are financial or non-financial
metrics that fall within these divisions. The financial metrics are calculated based on the
company's net income (Ranjan, 2016). The extent of media exposure influencing the company's
credibility, brand image, employer value proposition, harm to human health and safety, and the
degree of legal and judicial implications at the personal and corporate level are all non-financial
measures employed.
The probability of a particular danger or opportunity materializing with an inevitable
impact is represented by likelihood. Individual risks and possibilities are rated on a percentage
scale organized into five categories: below 15%, 15% – 30%, 30% – 50%, 50% – 85 percent, and
beyond 85 percent.
7. Findings
Adidas is the world's second-largest sports footwear and clothing manufacturer, offering
various athletic products and clothing to clients based on their interests (Seifert, 2006). They
manufacture their items using current technologies and sell them worldwide (H. A. Mahdi,
2015). Adidas is considering cultural differences and adopting multi-cultural human resource
management as a result of implementing sustainable management techniques and a sound
customer service system to take care of their customers and workers while reaching their goals
and objectives [ CITATION Bor11 \l 1033 ].
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Adidas is based in Germany, an economically and politically secure country, and the
German government encourages enterprises to innovate, which can help them achieve their
primary objectives. In the appraisal process, the Risk Management department assists and guides
the Risk Owners. Risks and opportunities are assessed using a method that considers two
dimensions: the possible effect and the chance that this effect will occur. Risks and opportunities
are classified into three categories based on this assessment: negligible, moderate, and
significant.
Furthermore, Adidas can improve and develop its company in jogging, athletics, and
developing economies (Lindgens, 2012). Adidas' ultimate objective is to "be the world leader in
the athletic sector," These advantages and chances will help them achieve that aim (Moser, 206).
On the other hand, Adidas must manage their shortcomings and external threats to
achieve its corporate objectives. Adidas has faced challenges in conducting business globally,
including higher operating costs, quality inconsistencies, a heavy reliance on external partners,
counterfeit production, and foreign currency exchange volatility. Aside from that, Nike is
Adidas' biggest opponent. Thus they face a significant risk in achieving their ultimate aim
[ CITATION HAM15 \l 1033 ].
8. Conclusion
Due to their potential risk management, Adidas has considerable advantages and benefits
for sustaining their business. Adidas' efforts have been effective in some areas. For instance,
Adidas has effectively responded to risks and varying client needs by utilizing three separate
divisions inside the firm and performing consistently in the sports business by adopting the MI
Adidas strategic program (Moser, 206). However, there are many vulnerabilities and threats that
Adidas should avoid utilizing strategic methods and plans to remain in a competitive world.
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References
Ahmed Mohamed Dahir, F. B. M. N. A. B. A., 2018. Funding liquidity risk and
bank risk-taking in BRICS countries: An application of system GMM approach.
International Journal of Emerging Markets, 13(1).
Alsbiei, O. A. A., 2015. ADIDAS GROUP. The University of Sharjah.
Borowski, A., 2011. Adidas Marketing Strategy - An Overview. s.l.: GRIN
Verlag.
Dowd, M. W. a. K., 2008. The value of risk reporting: A critical analysis of value-
at-risk disclosures in the banking sector. International Journal of Financial Services
Management, 3(1), pp. 45-64.
Guillermo Larraín, H. R. a. J. v. M. P., 1997. Emerging Market Risk and
Sovereign Credit Ratings. OECD Development Center Working Papers from OECD
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H. A. Mahdi, M. I. K. A., 2015. A Comparative Analysis of Strategies and
Business Models of Nike, Inc . and Adidas Group with special reference to Competitive
Advantage in the context of a Dynamic and Competitive Environment.
Lindgens, F. T. P. a. E., 2012. Mass Customization at Adidas: Three Strategic
Capabilities to Implement Mass Customization. SSRN Electronic Journal.
Lopez, J. A., 2002. What is operational risk?. FRBSF Economic Letter, Issue
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Moser, K. M. M. a. P. F., 206. Transforming mass customization from a
marketing instrument to a sustainable business model at Adidas. International Journal of
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Ranjan, W., 2016. A STUDY OF ANALYZING STRATEGIC CHANGERS
AND ORGANIZATION ENVIRONMENT IN ADIDAS INC ORGANIZATION. North
Asian International Research Journal of Multidisciplinary, 2(6), pp. 2454-2326.
Seifert, R. W., 2006. The "Mi Adidas" Mass Customization Initiative. IMD,
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Wipplinger, E., 2007. Philippe Jorion - Value at Risk - The New Benchmark for
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