Lecture 11: Business Models Flashcards
what is circular economy about
Circular economy is about the way firms produce different goods. Change the role of growth in the economic system. Circular economy is related to a system change.
how do you go from a linear to a circular approach of production?
- Using material more efficient and durable
- Reusing the waste in the production process
- Changing the use of inputs and outputs in the production of different goods
- Changing the production process itself
- Considering different types of goods: more durable
milton friedman
shareholder approach
edward freeman
stakeholder approach
shareholder approach
profits
A company should only care about its shareholders. To create a profit for shareholders to have the profit they need (first official theory on firms). Return of investments (even when the environment around the company is destroyed; e.g. bad working conditions). It is about short term profit.
stakeholder approach
social responsibility
Important to make profit and grow, but also while considering the stakeholders around you. The corporate environment should be considered as an ecosystem: important to manage with all the groups and satisfy them, to be able to keep the company healthy and successful in the long term.
dominant approach today
stakeholder
theory of the firm
friedman / freeman
long-term possibilities for a company to grow
First: the responsibility to all stakeholders,
then: the possibility to make profit in the long term.
stakeholders
Stakeholders have a vested interest in the success of the organization or project
shareholders
shareholders are partial owners of the organization of the project and are focused on the ROI
roi
return on investment
CSR
= Corporate Social Responsibility
corporate social responsibility
Corporate Social Responsibility (CSR) has been developed: balancing the three P’s: Planet, people, profit = triple bottom line
triple bottom line
planet, people, profit
CSR framework for …
CSR is important framework to engage firms in sustainable development
Other things involved in the CSR framework
- Economic performance issues
- Social performance issues = impact on society
- Environmental performance issues = impact on the environment
any kind of business strategy should be in line with …
important stakeholders; ecosystem around the business
synergy between performance issues
when you do good on one of them, also another one can profit.
three ways for companies to apply CSR
- win-win
- delegated philanthropy
- insider-initiated corporate philanthropy
win-win
long-term perspective to maximizing (intertemporal) profits = triple bottom line to system value (directly in the strategy of the company).
When a company is really applying the triple bottom line, changing the whole strategy.
win-win example
An example is circular economy. Thinking about the long-term existence of the world, but investing a lot of money right now.
delegated philanthropy
CSR profit sacrifice is then passed through to stakeholders. The idea is to do good things on behalf of your stakeholders. A way to generate marketing strategy and attract specific types of customers. Sacrifice in your profit, to do good for the stakeholders.
example delegated philanthropy
An example is when a company decides to restore a forest in a developing country, or to create a foundation to organize some sustainable activities, or increase the price to buy fairtrade or organic materials because consumers want that to happen.
insider-initiated corporate philanthropy
not motivated by stakeholders’ demands or willingness to sacrifice money for a good cause, but rather reflects management’s or the board members’ own desires to engage in philanthropy (like giving to charity). Its not about changing the strategy of a company, but about individuals like the CEO that wants to do something good for society on individual level. Individual decisions inside a firm.
example insider-initiated corporate philanthropy
donating to charity by an individual
enron
Employees were buying shared, but the board was already aware that the company was going bankrupt –> they sold their own shares, but convinced the employees to buy shares. The bubble burst, everyone lost billions –> one of the biggest bankruptcy filings in history.
Standard & Poor’s Global Rating
American credit rating agency (CRA) and publishes financial research and analysis on stocks, bonds, and commodities. Measures the stock exchanges of the 500 largest companies (biggest and powerfullest)
discrepancy with actions in the field
They say good things, but this is not what they do,
reputation effects, lack of uniformity
why are corporate cultures important to consider
Firms are like any other social group, they can be very different. Different corporate cultures can clash.
