Understanding Business Models and Corporate Governance

Subprime mortgage crisis

An example of poor corporate governance.

Principal-agent problem

Considered legal issues according to agency theory.

Managerial functions to avoid adverse selection

Organization and Control.

Fiduciary responsibility

A legal duty to act in another party's interests.

Stock options

The recipient is given the right to purchase stock at a predetermined price sometime in the future.

Corporate governance

The mechanism used to guide a company toward meeting its strategic goals within the bounds of the law.

CEO to average employee pay ratio

About 350 to 1 in the United States.

Agency theory

The idea that a corporation is simply a collection of legal contracts.

Leveraged buyout

A single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company and assumes control of it.

Incentives alignment

Under agency theory, a manager should seek to align incentives between principals and agents to minimize opportunism.

Poison pills

Following the rise of institutional investors, their use to avoid hostile takeover has become rarer.

Board of directors

Elected to represent the interests of shareholders.

Securities and Exchange Commission

A federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws.

Executive profit from stock options

An executive can legally earn a significant profit if the firm performs well and the actual price per share exceeds the negotiated strike price.

Business ethics

The code of professional conduct based on societal norms and expectations.

CEO pay debate issues

The size of the CEO compensation in relation to average employee pay and the relationship between firm performance and CEO pay.

Pavel's ethical decision-making

He will act in a manner that reflects his company's organizational culture.

Key characteristic of a leveraged buyout (LBO)

It changes the ownership structure of a company from public to private.

Business model

Describes how firms turn strategy into action.

Goal of a poison pill

Minimize the threat of a hostile takeover.

Effective business model implementation

Firms must transform their competitive strategy into a blueprint of initiatives and actions that support their goals and implement it through processes, procedures, culture, and structure.

Financial statements by public companies

Must be audited by certified public accountants and adhere to generally accepted accounting principles (GAAP).

Razor-razor blade strategy profit

Companies make their profit from complementary goods.

High-profile accounting scandals

Examples of poor corporate governance.

Subscription-based business model

Customers pay for access to a product or service.

Ethical behavior in organizations

Employees who work in organizations that emphasize ethical behavior are more likely to act ethically.

Zoooomm business model

Zoooomm operates on a pay-as-you-go model.

Business model

It essentially explains how the firm intends to make money.

Business model

It indicates the way the firm works with buyers, suppliers, and partners.

Business model

It details the firm's competitive tactics and initiatives.

Dropbox business model

Dropbox operates on a freemium business model.

Business model implementation

Managers implement the blueprint of their business model through processes, culture, and structures.

Telecommunication companies' business model

The business model used by telecommunication companies when they provide a basic cell phone at no charge when the customer signs a two-year contract is a combination of razor-razor blade and subscription models.

Video-game console business model

When a company offers video-game consoles at a steep discount, but charges customers high fees for games, they are operating on a razor-razor blade business model.

Freemium business model evolution

The freemium business model can be considered an evolutionary variation on the razor-razor blade model.

Industries using subscription model

Magazines, cellphone providers, and Internet providers use a subscription model.

Disruptive business models

Producers are more likely to breach existing rules of commerce when the business models are disruptive.

Pay-as-you-go model

The pay-as-you-go model is gaining momentum.

Business model innovation

A useful and novel way to provide value to customers.

Freemium services

Premium services that cost money, with complementary basic services, is a description of the freemium business model.

Pareto principle

Also known as the 80-20 rule, the Pareto principle states that approximately 80% of the effects come from 20% of the causes.

Churn rate

It is crucial for telecom providers to keep their churn rate, or the proportion of subscribers who leave, down.

Long-tail concept

Companies that employ the long-tail concept of business model innovation focus on selling a small number of units from among a very large selection of items.

Freemium business model

The freemium business model evolved from the razor-razor blade model and involves a firm providing a base product for free, then finding ways to monetize the usage.

Stakeholders' primary desire

Stakeholders want fair treatment above all else.

Producers and commerce rules

As a consequence of the rapid development of business models, producers may breach existing rules of commerce.

Reasons for business model innovation

It reduces the likelihood that the firm's competitive advantage will be made obsolete.

Reasons for business model innovation

It is a new and useful way to deliver value to customers.

Reasons for business model innovation

It raises the barriers to imitation, allowing the firm to extend its competitive advantage.

Long-tail revenue generation

Firms obtain a large portion of their revenues by selling a small number of units from almost unlimited choices.

Critical aspects of stakeholder relationships

Transparency and fairness are critical aspects of maintaining good relationships between a firm and its stakeholders.