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Strategic Risk Management

Case Study

Polaris (PII)

ACC 798 – Strategic Risk Management

Summer 2015

The Center for Strategy, Execution and Valuation

Kellstadt Graduate School of Business

DePaul University

Dr. Mark L. Frigo

Team Members:

Michael Allen

John Barry

Gem Begolli

Anthony Debenny

Jonathan “Kevin” Green

Helen Lobas

Jesus Magana

Krunal Shah

Danielle VanHouten

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Table of Contents STORYBOARD ................................................................................................................................................... 4

COMPANY OVERVIEW ...................................................................................................................................... 4

POLARIS HISTORY ........................................................................................................................................... 6

POLARIS CREED ............................................................................................................................................... 7

POLARIS VALUES ............................................................................................................................................. 7

COMPANY FINANCIAL PERFORMANCE ............................................................................................................. 9

COMPANY STRATEGY .................................................................................................................................... 12

THE COMMITMENT TENANT ....................................................................................................................... 15

Ethically Maximize Wealth................................................................................................................... 15

THE GOAL TENETS .................................................................................................................................... 16

Fulfilling unmet customer Needs .......................................................................................................... 16

Target Appropriate Customers Groups ............................................................................................... 16

THE COMPETENCY TENANTS ..................................................................................................................... 17

Innovate, Deliver, and Brand Offerings ............................................................................................... 17

THE SUPPORTING TENANTS ....................................................................................................................... 17

Partner Deliberately.............................................................................................................................. 17

Map and Redesign Processes ................................................................................................................ 18

Engage employees and others ............................................................................................................... 18

FOUNDATION TENANTS .............................................................................................................................. 19

Genuine Assets ...................................................................................................................................... 19

STRATEGIC RISKS ...................................................................................................................................... 20

Customer/Market Risk ......................................................................................................................... 20

Operations Risk..................................................................................................................................... 21

Regulatory Risk..................................................................................................................................... 21

Employee Engagement Risk ................................................................................................................. 22

Value Chain Risk .................................................................................................................................. 22

Innovation Risk ..................................................................................................................................... 22

Partnering Risk ..................................................................................................................................... 22

Brand Risk ............................................................................................................................................ 23

RISK METRICS ................................................................................................................................................ 25

Financial Risk Metrics .......................................................................................................................... 25

Customer Risk Metrics ......................................................................................................................... 26

Operations Risk Metrics ....................................................................................................................... 26

Learning / Growth Risk ........................................................................................................................ 26

SUMMARY AND CONCLUSIONS ....................................................................................................................... 31

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Works Cited .................................................................................................................................................. 33

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STORYBOARD

This case describes an overview of the Strategy, Strategic Risk, Risk Measures and Risk Disclosures

of Polaris Industries, Inc. and Lessons Learned.

COMPANY OVERVIEW

Polaris Industries, Inc. (“Polaris”) is headquartered out of Medina, Minnesota, employs

approximately 7,800 employees and has sales in over 100 countries. The company produces off-road

vehicles, snowmobiles, motorcycles, small vehicles, and other parts, garments and accessories. Based

on 2014 annual report1, total sales were $4.5 billion. The strategy for Polaris is to reach $8 billion by

2020, since 2010, sales have increased approximately 124%. The pie chart below illustrates the

product mix percentage:

1 Polaris Industry Inc. Annual Report. "Polaris 2014 Annual Report." (n.d.): n. page. Web. 21 June 2015.

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Polaris products are sold through a number of networks.2 Totaling over 100 countries.

✓ 1,750 independent dealers in North America

✓ 23 subsidiaries outside North America

✓ Approx. 85 distributors outside North America

✓ 3 company owned retail stores in Australia

✓ Sale through e-commerce (Polaris.com, indianmotorcycle.com, klim.com. kolpin.com,

proarmor.com)

The graph below is taken from the 2014 annual report, which shows the international breakdown of

sales by percentage.

2 Polaris Industry Inc. Annual Report. "Polaris 2014 Annual Report." (n.d.): n. page. Web. 21 June 2015.

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POLARIS HISTORY

Polaris was founded in 1954 in Roseau, Minnesota. Polaris has a long history, which started in 1944,

originally called Hetteen Hoist and Derrick prior to renaming it Polaris Industries in 1954. Polaris

refers to the North Star since the company is located in Northern Minnesota. Though Polaris may

typically be known for their snowmobiles, which only makes up 7% of their total sales, the

company’s history shows that product diversification is nothing new. The chart below illustrates the

long history of Polaris.

Polaris was founded by enthusiasts and inventors. Polaris continues to fuel others by launching

programs such as T.R.A.I.L.S. which funds organizations such as ATV clubs and other associations

to secure the future for ATV riding.

Mainly produced farm equipment (grain elevators, pickup truck box expanders, straw choppers) and snowmobiles 1950s

First front engine snowmobile the Comet Snowmobiles began to be viewed as recreational vehicles Polaris sold to Textron, a golf cart producer

1960s

Polaris is know identify with the color blue due their snowmobile racing team "Midnight Blue Express" who won the championship

Other manufactures enter the market of producing snowmobiles 1970s

Introduction of the ATV Polaris division sold to independent managers 1980s

Victory motorcycles introduced New Polaris watercraft introduced Ranger utility vehicles introduced

1990s

"The Way Out"- marketing New all terain pickup- ATP 2000s

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POLARIS CREED

The creed at Polaris is “Making great products is not just a job-it is a way of life”.3

The can be located at every Polaris location entrance. Polaris prides itself in its employees, who

they believe give them the competitive edge because they too are “enthusiastic riders”.4

POLARIS VALUES

Employee are key to the Polaris’ success, as such, the values were defined by the employees. These

values are evaluated as a part of an employee performance. Polaris values include the following:

1. Team Player

2. Innovation

3. Employee development

4. Customer focus

5. Integrity

6. Passion for excellence

7. Problem solver

8. Leadership

3 "Polaris." ATV, Snowmobiles, RANGER, Victory : About. N.p., n.d. Web. 22 June 2015. 4 "Polaris." ATV, Snowmobiles, RANGER, Victory : About. N.p., n.d. Web. 22 June 2015.

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COMPANY FINANCIAL PERFORMANCE

● Polaris performance forecast using the Holt Lens shows that the cash flow return on

investment (CFROI) has continuously been above the cost of capital and is forecasted to

continue.

● While Polaris cash flow is increasing, the company continues to reinvest through the

purchase of assets. The company’s futures shows a positive outlook for Polaris.

● Polaris’ vision is to increase sales to $8 million by 2020

o End of 2014 sales approx. $4,480M

o Q1 2015, sales approx. $4,625M5

● Polaris stockholder return has consistently outperformed the S&P 500 since 2010

5 "POLARIS INDUSTRIES INC." POLARIS INDUSTRIES INC. Thomson ONE, n.d. Web. 23 June 2015.

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COMPANY STRATEGY

Polaris has been a high performing company for many years. The company is ethically maximizing

wealth by creating unique and innovative offerings to the right customer. The organization is

effectively deploying two genuine assets to fulfill these needs: people and the Polaris brand name.

The Polaris brand equals =quality, dependability, and support. Executives have been judicial and

deliberate in their strategic partnerships, and effective at engaging their employees.

The overarching target communicated thought the company is to grow sales to $8 billion with a 13%

Comprehensive Annual Growth Rate (CAGR), and to increase net income to $800 million by 2020.

The current strategy has 5 components:6

● Be the best in the Powersports PLUS market

● Growth Through Adjacencies

● Global Market Leadership

● Improve operations and focus through LEAN Enterprise

6 Polaris Industries Inc. 2014 Annual Report, 2015. Web. 21 June 2015.

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● Strong Financial Performance

Though past performance is no guarantee of future success, Polaris is doing a lot of things right. The

overarching question going forward is if the older and high-income demographics of baby boomers

that have supported Polaris will continue to support the company going forward. While side-by side

and other off-road vehicles (ORVs) in North America account for a large portion of the profits, we

like and believe the aggressive, yet calculated, global expansion opportunities and LEAN operations

efforts that focus on the customer, will continue to support high CFROI. Motorcycle companies, such

as Harley Davidson, and even Polaris, which owns Victory and Indian, are exposed to demographic

shifts in demand; however, through diversification and customer and value centered innovation

Polaris is able to differentiate itself from competition. Global expansion into new opportunities may

be risky, but it is necessary and has been calculated.

The employees of Polaris are continually asking why their customers act and what their customers

value. LEAN efforts will give the company a competitive advantage through agility to adapt to

customer demands. Superior quality, delivery, and cost management improvements will contribute to

both margins, and more particularly turns. The expansion efforts into untapped territories through

innovation, like China and India, through innovation can, and likely will, further diversify and

sustain the company going forward.

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THE COMMITMENT TENANT

Ethically Maximize Wealth

Polaris is the perfect example of a company that not only has ethical people, but it employs strong

moral managers to truly believe and communicate holistically to their employees what it means to be

an employee. Communications across the company exude a perspective and feel of humility and

team innovation. The Polaris creed states that “making products is not just a job - it is a way of life”

and is actually etched in steel at the entrance of every Polaris location.7 It is not only the design, but

working together as users of their products that the company gains a competitive edge. Stacy Bogart,

VP explained that Executive meetings start out with CEO Scott Wine reviewing the Guiding

Principles: Best Team, Best People, Customer Loyalty, and Safety & Ethics Always. This reinforces

just how important they are.8

The values statement of Polaris clearly explains “the key to its success is in the ethics and values of

7 About Polaris. Polaris Industries Inc. Web. 21 June 2015. 8 Polaris Industries Inc. 2014 Polaris Industries Annual Report. Medina, MN. Polaris Industries Inc. 2015.

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its employees” and that it is “not only on delivered results but also on how well they represent

company values”. To “prove that it is not just lip service”, Polaris deploys the genuine asset of its

great employees by grounding the company not only on quantitative metrics, but qualitative values-

based metrics like: being a team player, integrity, innovation, and a passion for excellence. 9

THE GOAL TENETS

Fulfilling unmet customer Needs

The last several decades have seen stellar high growth and high return on invested capital around 20-

30% due to fulfilling unmet customer needs. The largest driver of returns is a new category of ORVs,

which have greatly expanded from the original single driver four-wheel vehicles. These new side-by-

sides can seat several people and can be used from function to simply fun. Polaris also has seen use

in the military versions of the Dagor, Sportsman and RZR lineup, which can be great to transport

soldiers long distances with great gas mileage. When applying and breaking down the DuPont model,

the asset turns have declined from 4 to 2, but the HOLT adjusted increasing margins have been

steadily increasing to 22% have come from creating true value for their customers.

Constant innovation has allowed new ideas like military-grade non-pneumatic tires, and the three-

wheeled slingshot that fulfills the need of simply fun. As the company expands overseas, new

challenges and needs are being fulfilled by listening to their customers and constant innovation The

latest concept is the Multix, a joint-venture with Eicher Motors India that is targeted to businessmen,

but can also double-up as a three kilowatt generator and can power homes where electricity is a

luxury. As the managing director and CEO of Eicher best said, “We have identified a large, untapped

segment in independent businessmen with an estimated population of 58 million in India, and are

committed to create a new and strongly differentiated automotive solution for them through

‘Multix’.”10

Target Appropriate Customers Groups

According to Driven, “the key to long-term wealth creation is fulfillment of great unmet needs of a

great many people.” 11 Polaris has a very specific customer profile for each of their existing three

business segments being off-road vehicles, motorcycles, and snowmobiles. These segments have

limitations in how specific they are with a majority being above 40 years old, male dominated, and

high income levels (above $90,000). Recent efforts in their acquisitions and expanded product lines

will help broaden the scope of Polaris’ customer profiles. Through growth in the Work &

Transportation (W&T) and Military segments they are able to diversify the existing customer base. It

is still unknown, specific to the India market and with other newer product lines, how well Polaris

truly knows the long term needs of these new customers. 9 About Polaris. Polaris Industries Inc. Web. 21 June 2015. 10 Choudhury, Santanu. "Meet the Multix, India’s Newest Pickup Truck With Extra Charge." Wall Street

Journal, 22 June 2015. Web. 25 June 2015. 11 Frigo, Mark L. and Joel Litman. Driven: Business Strategy, Human Actions and the Creation of Wealth.

Strategy & Execution Press. Edition 1. 2007. Pg. 70

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THE COMPETENCY TENANTS

Innovate, Deliver, and Brand Offerings

Polaris branding is strongly focused on its core business, to be the best in power sports PLUS. They

currently are #1 in Market share for their core business of Off-Road vehicles and have more than

double their nearest competitor. Polaris continues to innovate its internal processes to streamline

production (i.e. equip latest facility with state- of-the-art painting systems to avoid production

delays). Their new LEAN Value Improvement Process (VIP) was recently implemented to improve

quality, delivery and cost. VIP is a Process to continually improve the quality, delivery and cost of

their products and services.

These initiatives and improvements allow Polaris to consistently brand themselves around the quality

of their product as well as drive inventory turn improvements long term. According to their first

quarter investor presentation, their product quality is good and improving, resulting in first rank for

net promoter score in Motorcycles, Side-by-sides, and ATVs.12

THE SUPPORTING TENANTS

Partner Deliberately

The Return Driven Strategy states, “The strongest partnerships bring unique assets together that

allow the firm to innovate, brand, and deliver unique need-fulfilling offerings”. Polaris has achieved

this with a recent joint venture with Eicher Motors Limited. According to Eicher Motors Limited

this strategic joint venture is “to design, develop, manufacture and sell a full new range of personal

vehicles suitable for India and other emerging markets.” 13

Polaris has also had several recent strategic acquisitions including the acquisition of certain assets of

LSI Products Inc. and Armor Holdings, LLC, which markets under the Pro Armor brand in

November of 2014. “The acquisition of Pro Armor adds another industry-leading brand to our

growing stable of PG&A aftermarket brands, a key contributor to Polaris’ growth and profitability,”

said Steve Eastman, Polaris’ vice president of PG&A. “Pro Armor is a leading brand in performance

side-by-side accessories with a relentless commitment to innovation, style, performance and quality.

The addition of Pro Armor to Polaris’ aftermarket brand portfolio allows us to extend our channel

and customer reach in the performance side-by-side and ATV markets. Our common culture and

shared passion for the power sports industry and consumer will create an exciting platform for

continued innovation and accelerated growth.”14

Other efforts to leverage aftermarket opportunities include the April 2014 acquisition of Wisconsin

based Kolpin Outdoors Inc. a leading aftermarket developer of power sports accessories. “Acquiring

Kolpin Outdoors, Inc. creates a multitude of growth opportunities for our PG&A business, which is a

12Polaris Industries Inc. “Quarterly Report for 2015.” Polaris Industries Inc. - Investor Relations (2015): 7-24.

Web. 21 June 2015. 13 Eicher. Eicher Motors Limited. Web. 21 June 2015. 14"Polaris Acquires Pro Armor." Investor Relations. Polaris Industries Inc., 12 Nov. 2014. Web. 21 June 2015.

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key contributor to Polaris’ top-line growth and profitability,” said Steve Eastman, Polaris’ vice

president of PG&A. “Kolpin is a trusted brand among ORV riders, hunters, outdoorsmen, and

landowners who value the quality and reliability Kolpin builds into their power sports accessories.

Their lineup of exceptional products and deep consumer and retail relationships will help Polaris

expand our aftermarket accessories portfolio and enhance our traditional and online distribution

channels.”15

In January 2015, Polaris’s acquired the electric motorcycle business Brammo to improve its product

offerings. Brammo is a leading electric vehicle technology company. Polaris will begin

manufacturing electric motorcycles in the second half of 2015 at its Spirit Lake, Iowa facility.

Map and Redesign Processes

LEAN enterprise efforts offer a competitive advantage for Polaris. The company has continued to

explore ways to redesign and streamline their manufacturing processes. Recently, the company

opened a 600,000 sq. ft. state-of-the-art facility in Huntsville, Alabama. “The new plant in Alabama

will reduce complexity with the existing plant network and enable logistics optimization. The

facility will have multiple assembly lines providing flexibility to quickly replenish demand and

support continued product innovations.” 16

Approximately 10% of Polaris’ staff is engaged in development and testing of existing products and

research and development of new products and improved production techniques. In 2014 the

company expended $148.5 Million in research and development activities, which is approximately

3.3% of sales.

Polaris recently recruited Ken Pucel as Executive Vice President - Global Operations, Engineering

and Lean in November 2014 to lead the process redesign. This position was created specifically for

Mr. Pucel and he reports directly to CEO Scott Wine. According to Bennett Morgan, Polaris

President and COO, “Ken will be a powerful force, supporting both our continued growth and our

progress toward becoming great at operations and Lean”17

Engage employees and others

Polaris has done an excellent job of creating a culture of ethics and quality. It rallies employees

around the idea of also being fellow riders and even offers free product usage and special product

purchase programs as a unique benefit. A published employee testimonial from their careers page

states, “Working at Polaris affords me the opportunity to drive the latest vehicles Polaris offers, being

able to check out a sled or ATV or RZR for the weekend is a very good way to experience the “ride”

and the reason we work hard to make it a better experience.”18 15"Polaris Acquires Kolpin Outdoors, Inc." Investor Relations. Polaris Industries Inc., 12 Apr. 2014. Web. 21

June 2015. 16 Business wire, 9-Jan-2015 copyright Acquire Media Corporation 2015 17"Polaris Industries Inc. Hires Kenneth J. Pucel as New EVP of Operations, Engineering, and Lean." Investor

Relations. Polaris Industries Inc., 03 Oct. 2014. Web. 21 June 2015. 18 Polaris Industries Inc. Web. 21 June 2015.

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The step by management to include qualitative metrics, like teamwork in employee performance

evaluations says a lot about the culture of the organization and how it operates. The non-union

workforce has a vested interest in the company and is compensated through profit-sharing and stock-

option plans. All employees own Polaris Stock.19

FOUNDATION TENANTS

Genuine Assets

Two genuine assets in particular help Polaris resist the fade of CFROI back to average levels: a solid

brand and their employees. The Polaris brand is a symbol of quality and support. The company

created a new production part approval process in 2001 called Failure Mode and Effects Analysis

(FMEA), to maintain the highest quality supplier partnerships.20 The organization also has a 5 R&D

centers, and a large dealer-network of approximately 3,250 dealers worldwide; with a little over half

in the United States.21 While the company faltered early on by not having enough Indian motorcycle

dealerships to sell the highly anticipated new lineup, it has since aggressively sought to fix the

problem since 2013.

Though much of the top-management players are new, they have been strategic to include people

with the right backgrounds that compliment future key initiatives and manufacturing expertise. The

board of directors is also brings a diverse background, such as engines, electricity, paint, retail, and

logistics.22 A number of employees are riders and they are encouraged to use their riding experience

to make it better.23

The patents Polaris owns is another set of genuine assets for the company. In the Fall of 2014 Polaris

filed two federal lawsuits alleging patent infringement by rival Arctic Cat regarding the use of

technologies in Side-by-side and all-terrain-vehicles; patents US8827028B2 and US8746719B2.

While many of the patents may not be earth-shattering, they surely help create economic moats on

which to defend their position. 24

19 Polaris Locations. Polaris Industries Inc., 2015. Web. 21 June 2015. 20 Polaris Locations. Polaris Industries Inc., 2015. Web. 21 June 2015. 21 Polaris Industries Inc. “Quarterly Report for 2015.” Polaris Industries Inc. - Investor Relations (2015): 7-24.

Web. 21 June 2015. 22“Polaris Industries Inc.” Bloomberg L.P., 2005. Web. 22 June 2015. 23 Polaris Locations. Polaris Industries Inc., 2015. Web. 21 June 2015. 24 Hammerand, Jim. "Polaris Sues Arctic Cat over Side-by-side Vehicle Patents." Law Blog. Minneapolis / St.

Paul Business Journal, 17 Sept. 2014. Web. 22 June 2015.

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STRATEGIC RISKS

Customer/Market Risk

Polaris faces numerous Customer and Market risks that can have a significantly adverse impact on

their revenue. Arguably the largest risk is to the overall economic condition of the markets Polaris

operates in. In an economic downturn, consumers first stop spending on nonessential items. High

cost recreational vehicles will be at the top of consumers’ non-essential list. This is what makes

Polaris a high beta stock. Liquidity of credit markets also impacts the financial health of consumers.

Many of these vehicles are sold to consumers on credit. Polaris tries to protect itself from this risk by

entering into agreements with external lenders and even has wholly-owned subsidiary lenders, but

they are still exposed to changes in credit market regulation and the creditworthiness of consumers.

Many of the products sold by Polaris are heavily tied to weather – specifically snowmobiles.

Consequently, they are exposed to weather risk. Weather derivatives can be used to hedge against

this type of risk. Additionally, Polaris sells products in numerous countries, leaving it susceptible to

translation risk. Polaris had been successful in hedging against this risk until 2014, when they took a

significant hit.

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Operations Risk

The expansion plan in place comes with high reward, and also high risk. The most obvious area of

risk is in operations. The mergers and acquisitions taking place will result in decentralized systems,

creating complex managerial issues. Success will be highly dependent of Polaris’ ability to navigate

the new systems it creates. Expanding into new markets also requires an understanding of the

cultures in play. Failure to understand the culture of the new operations can lead to disgruntled

workforce.

Regulatory Risk

The nature of Polaris’ products and the markets with which they’ve expanded potentially exposes

them to regulations, and more specifically, import tax regulations. Companies worldwide are uniting

to attempt to control emissions standards. Most of these standards apply to larger vehicles on

production plants, but smaller engine vehicles may be exposed to these regulations, as well. Finally,

there exists a small safety risk with all of their vehicles, which could impact production requirements

and cause significant changes to operations.

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Employee Engagement Risk

Polaris considers its employees as one of its genuine assets. However, some of the current initiatives

run the risk of keeping these employees engaged at their current level. While the LEAN program will

lead to more efficient operations, it will likely involve employee restructuring. The same is true for

the mergers and acquisitions (M&A) taking place. In addition to the restructuring of the workforce,

M&A activity requires that Polaris onboards new employees to its unique workplace culture. Failing

to engage new employees to the level of current employees could reduce the quality of the

production. Polaris mitigates this risk by often acquiring a company but not putting the Polaris name

on it, thus creating some brand separation.

Value Chain Risk

According to the latest 10-K, Polaris maintains a variety of informal agreements with its suppliers.

While this may be customary within this industry, it leaves Polaris exposed to potential losses if it is

unable to obtain parts and materials in a timely fashion. Increases in the cost of raw materials should

also be considered when developing value chain hedging strategies.

Another issue Polaris faces is due to its mergers and acquisitions. “Recent acquisitions have resulted

in additional decentralized systems which add to the complexity of our information technology

infrastructure”. This could lead to inefficiencies, and hence, unnecessary cost exposure.

Innovation Risk

Innovation is key to maintaining and growing a customer base or market share. The LEAN VIP

program Polaris offers is an integral part to the future success of Polaris Industries. If performance

measures aren’t adequately developed, then it will be very troublesome to gauge the effectiveness of

the program.

Partnering Risk

Polaris has entered into various partnerships, including with Costco, and most recently with Allstate.

Polaris is also part of two joint ventures, one with Eicher Motors and the other being with Brammo.

Aligning with two big names, such as Costco and Allstate, can have a positive impact, but it is also

important to consider the risks associated with potential exclusivity agreements.

Polaris recently acquired a company, Pro Armor, which in 2012 had recalls for latches it

manufactured25. If the process has not been corrected or other products Pro Armor manufactured

were also faulty, it can be detrimental to the Polaris brand.

25"Pro Armor Recalls Latches for Utility Vehicle Doors Due to Ejection and Laceration Hazards." U.S.

Consumer Product Safety Commission. N.p., n.d. Web. 26 June 2015.

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Brand Risk

With two different motorcycle brands, Victory and Indian, it is vital that Polaris is able to

differentiate both lines for them to succeed. The Victory brand is marketed as “American Muscle”

with an “Authentic & Athletic style”. The Indian line is marketed as “Authentic” and “Iconic”. If

this distinction isn’t solidified, then they run the risk of brand confusion26. Also, the Victory brand is

launching an electric model, which may not play well in the mind of the customer looking for

“American Muscle”.

26 Polaris Industries Inc. “Polaris Analyst Meeting - April 30, 2015.” 2015. Web. 23 June 2015.

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RISK METRICS

RISK METRICS: MEASURE, MONITOR & MANAGE

The seven risks discussed fall under the four categories of risks below. The following metrics should

be monitored:

Financial Risk Metrics

● Currency Translation Risk – Polaris generates 15% of revenues from offshore businesses;

hence, its revenues are prone to currency translation risk. The company actively mitigates

the exposure risk from fluctuating foreign currencies by entering into FOREX currency

contracts. Polaris measures the performance of currency contracts by negatively or

positively affecting the currency conversion. (Probability = Moderate & Impact = Moderate).

● Lack of revenue growth – Polaris has been making acquisitions worldwide to continue its

growth strategy; however, it poses risk of making bad acquisitions and thereby affecting the

top line of the business. The company should mitigate such risks by monitoring the topline

of the business, such as historical net revenues versus current revenues and historical revenue

growth rate versus current growth rates. (Probability = Moderate & Impact = Moderate).

● Taxation in foreign countries – MNCs, such as Polaris, are at a greater risk of country

specific political instability or foreign governments targeting US MNCs to collect increased

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taxes, thereby affecting the company's offshore revenues. The mitigating factors are to

closely monitor political events and remain vigilant of country specific tax laws to minimize

tax implications and maximize foreign profits. For example: European governments seeking

to close gaping holes in their budgets by taking aim at United States MNCs27. (Probability =

Low & Impact = Moderate)

Customer Risk Metrics

● Lack of customer satisfaction – This is one of the key metrics showing whether the products

adequately meet the customer demands. In order to penetrate the market and be profitable,

this metric must be continuously improved and monitored. Customer surveys are one of the

best ways to connect with consumers and figure out the dissatisfaction, if any.

● Lack of product innovation risk – Company focuses to develop innovative, customer-centric

products to generate revenue growth. One of the challenges that company faces is to

continuously enhance existing product line and innovate in order to meet the ever increasing

consumer needs and wants. Polaris has been expanding their R&D spending in the amounts

of $127 million in 2012, $139 million in 2013 and $148 million in 2014, respectively.

(Probability = High & Impact = High).

Operations Risk Metrics

● Product quality risk – Lack of product quality could expose the company with significant

contingent liabilities, such as product recalls and repair claims. This risk not only impacts

the bottom line of the business but could also jeopardize the business reputation. Hence,

periodic quality checks must be made to monitor the quality of the products. (Probability =

High & Impact = High).

● Adverse weather risk – Drastic weather changes could adversely impact net sales of certain

products and reduce demand. For example: Lack of snow in any particular geographic

region may negatively impact the retail sales of snowmobiles. Hence, continuous weather

monitoring and usage of predictive weather models could help the company to set production

quota and minimize losses. (Probability = High & Impact = High).

Learning / Growth Risk

● Employee turnover rate – Polaris considers its employees as genuine assets. High turnover

rates across different departments should be monitored closely to find the root cause of the

issues. Department supervisors and managers should be held responsible to provide

explanation for high turnover rate. (Probability = Low & Impact = Moderate)

● Lack of employee professional development – Companies should provide periodic training

opportunities to sharpen the employee's’ skillset, keep them engaged and motivated.

Professional development must be promoted by paying for advanced education, providing

access to professional tools (softwares), and seminars. In addition, companies should

provide their employees with 360 degree reviews to understand their strengths and

weaknesses. Such transparent feedback would create mutual respect between employees and

management, thereby improving professional development of the employees.

27 Eric Pfanner. “European Countries Seek More Taxes From U.S. Multinational Companies.” Web. June 23,

2015.

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Eric Pfanner. “European Countries Seek More Taxes From U.S. Multinational Companies.”

Website. June 23, 2015.

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Below are Risk Disclosures noted on Polaris’s 10-K filings from 2011-2014:28

Disclosure Strategic Risk 2011 2012 2013 2014

Safety, environmental, & other

government regulations

Regulator Risk X X X X

Material product liability, warranty

claims, or product recalls

Investor Risk

Brand-Reputation

Risk

X X X X

Change in weather Planning Risk X X X X

Intense competition; failure to

compete effectively

Market Risk

X X X X

Termination /interruption of suppliers Supply Chain Risk

X X X X

Foreign currency exchange rate

fluctuations

Financial Markets

Risk

X X X X

Economic conditions affecting

consumer spending

Emerging Events Risk X X X X

Failure to establish/maintain

appropriate dealer/distributor

Partnering Risk X X X X

Credit market deterioration/volatility Financial Market Risk X X X X

Acquisitions, investments, alliances,

joint ventures may be risky and harm

business

Partnering Risk X X X X

Increase in raw material, commodity

and transportation cost

Operations Risk X X X X

Insufficient provisions to protect

proprietary rights of intellectual

property

Genuine Asset Risk X X X X

International market expansion risks Financial Markets

Risk

X X X X

Inability to enhance and develop new

products in response to customer

Customer Risk X X X X

Additional tax expense/exposure Financial Market Risk X X

IT system failures, network

disruptions and breaches in data

security

Operations Risk

Fraud Risk

X X

Attracting/retaining skilled employees

Genuine Assets X

28 Polaris Industries Inc. 2014-2011 Annual Report, 2015. Web. 21 June 2015.

29

Below are Risk Disclosures noted on (Competitor) 10-K filings from 2014: 29

Disclosure Strategic Risk Kawasak

i

Deere Arctic

Cat

Safety, environmental, & other

government regulations/laws

Regulator Risk X X X

Material product liability,

warranty claims, or product

recalls

Investor Risk

Brand-Reputation Risk

X X

Change in weather Planning Risk X X X

Intense competition; failure to

compete effectively may impact

business

Market Risk

X X X

Termination /interruption of

suppliers

Supply Chain Risk

X X

Foreign exchange rate

fluctuations

Financial Markets Risk X X X

Economic conditions affecting

consumer spending

Emerging Events Risk X X X

Failure to establish/maintain

appropriate dealer/distributor

Partnering Risk X X

Credit market

deterioration/volatility

Financial Market Risk X X X

Acquisitions, investments,

alliances, joint ventures may be

risky and harm business

Partnering Risk X

Increase in raw material,

commodity and transportation

costS

Operations Risk X X X

Insufficient provisions to protect

proprietary rights of intellectual

property

Genuine Asset Risk X X

International market expansion

risks

Financial Markets Risk X X

Inability to enhance and develop

new products in response to

customer needs

Customer Risk X X

Additional tax expense/exposure

could impact performance.

Financial Market Risk X

29 Arctic Cat Inc. 2014 Annual Report, 2015. Web. 21 June 2015. Deere & Co. 2014 Annual Report, 2015. Web. 21 June 2015. Kawasaki. 2014 Annual Report, 2015.Web. 21 June 2015.

30

IT system failures, network

disruptions and breaches in data

security

Operations Risk

Fraud Risk

X X

Attracting/retaining skilled

employees

Genuine Assets X

31

SUMMARY AND CONCLUSIONS

32

33

Works Cited

Arctic Cat Inc. 2014 Annual Report, 2015. Web. 21 June 2015. Choudhury, Santanu. "Meet the Multix, India’s Newest Pickup Truck With Extra Charge." Wall Street Journal, 22 June 2015. Web. 25 June 2015. Deere & Co. 2014 Annual Report, 2015. Web. 21 June 2015. Eicher Motors Limited. 2014 Annual Report, 2015. Web. 21 June 2015. Frigo, Mark L., and Joel Litman. Driven: Business Strategy, Human Actions, and the Creation of Wealth. U.S.A.: Strategy & Execution, LLC, 2007. Print. Hammerand, Jim. "Polaris Sues Arctic Cat over Side-by-side Vehicle Patents." Law Blog. Minneapolis / St. Paul Business Journal, 17 Sept. 2014. Web. 22 June 2015. Kawasaki. 2014 Annual Report, 2015.Web. 21 June 2015. Polaris Industries Inc. 2014 Annual Report, 2015. Web. 21 June 2015. Polaris Industries Inc. 2013 Annual Report, 2014. Web. 21 June 2015. Polaris Industries Inc. 2012 Annual Report, 2013. Web. 21 June 2015. Polaris Industries Inc. 2011 Annual Report, 2012. Web. 21 June 2015. Polaris Industries Inc. “Quarterly Report for 2015.” Polaris Industries Inc. - Investor Relations (2015): 7-24. Web. 21 June 2015. "Pro Armor Recalls Latches for Utility Vehicle Doors Due to Ejection and Laceration Hazards." U.S. Consumer Product Safety Commission. N.p., n.d. Web. 26 June 2015. Polaris Industries Inc. “Polaris Analyst Meeting - April 30, 2015.” 2015. Web. 23 June 2015. Polaris Industries Inc. Thomson ONE: Thomson Reuters, n.d. Web. 23 June 2015. Polaris Industries Inc. MTS Case Study: MTS Systems Corporation, 2012. Web. 25 June 2015. Polaris Industries Inc. Crush Report, 2015. Web. 25 June 2015. "Polaris." ATV, Snowmobiles, RANGER, Victory: About. N.p., n.d. Web. 22 June 2015. Pfanner, Eric. “European Countries Seek More Taxes From U.S. Multinational Companies.” The New York Times November 2012. Web. 23 June 2015. Polaris Industries Inc. “Polaris Analyst Meeting - April 30, 2015.” 2015. Web. 23 June 2015. “Polaris Industries Inc.” Bloomberg L.P., 2005. Web. 22 June 2015. Polaris Locations. Polaris Industries Inc., 2015. Web. 21 June 2015. Polaris Industries Inc. Business Wire: A Berkshire Hathaway Company, 2015. Web. 23 June 2015.

34

"Polaris Acquires Kolpin Outdoors, Inc." Investor Relations. Polaris Industries Inc., 12 Apr. 2014. Web. 21 June 2015. Polaris Industries Inc. Code of Business Conduct and Ethics. Web. 21 June 2015