Non-financial Performance Analysis: EduCorp Assignment Bernard Brinkel (493136)

Introduction
Educorp is a student textbook supplier operating in the bottom of the market as regards to
their low-cost strategy, thus it is the cost leader in the market. Besides keeping the production
costs low due to collaborating with less prestigious authors, the company also benefits from
economies of scale due to the large-scale state university classes which are given. As a
consequence of the COVID-19 pandemic the industry for textbooks altered from offline to
online, in which Educorp’s is currently the last company without an online platform.
Throughout this essay the business challenges that Educorp faces for shifting to an online
platform will be addressed and analysed.

Challenges
When Educorp makes the decision to move towards an online business, like its competitors
already are, there are challenges which have to be taken into consideration before making
such decision. In general, digital markets are heavily reliant on intangible assets considering
the software, licensing, and patents for example. The online platform software that Educorp
will have to develop in order to move towards an online business is known as a technological
intangible asset (Explorer, 2020). Entry costs of intangible assets in general are found to be
relatively high, whereas the cost of using existing intangibles is low or can sometimes be seen
as insignificant. What this means is that the competitors who are already operating with an
online platform are able to benefit from low scaling costs which means that there are
increasing returns-to-scale or also called economies of scale.
Currently Educorp operates with by a cost leadership strategy, meaning that it has the lowest
operating costs of the industry which usually also reflects in the lowest customer pricing
within the industry. However, as earlier mentioned, when wanting to switch towards an
online business it is most likely that the company is going to suffer from significantly higher
operating costs due to the high entry costs. The first challenge for Educorp is therefore to
cope with the relatively high entry barriers in this type of market. On the one hand this is an
issue as the entry costs are relatively high which would therefore reflect in an overall higher
cost price in the first place. A higher cost price, and therefore likely higher customer price,
would most likely cause a decrease in the amount of customers using the services by Educorp
as the company specifically also focusses on low-income students.
On the other hand though, when making a new entry in the market the company will have to
provide a service which is superior and cheaper in comparison to its competitors in the
market. The competition in the digitization market is a winner-take-all market which means
Non-financial Performance Analysis: EduCorp Assignment Bernard Brinkel (493136)

that scale is of higher significance than profits in order to become the market leader with the
largest scale, sales and therefore customers. To do this it would be important for the company
to benefit as quickly as possible for economies of scale and ensure that the switching costs
are of no significance to its customers. The result of this would be most likely be a relatively
low selling price which would accordingly result in a lower profit. However, as mentioned, in
this type of market it is of significance to first ensure the scale of the company instead of the
profit. Therefore, it can be concluded that to take on this challenge the most important factor
is to have low price and low profit from the start in order to increase scale in the short term,
and thus potential profits in the long term.

As mentioned, the online market is a very competitive market in which it is important to

diversify from the competition in order to stand out (Popescu, 2013). Considering that
scalability is a significant factor in the challenge to stand out with regards to the competition,
it is important to create a competitive online platform for the business. By this it is meant that
the platform should be built up in such a way that it is extremely user friendly so that it
makes it possible for Educorp to compete with the competition in creating a competitive
advantage on this factor. Thus, the second challenge for the company is to create a
competitive online platform.
In the case it is seen that when looking at Educorp’s customers, there is a relatively higher
satisfaction number when looking at the students with regards to the competition. This is an
important factor to take into consideration as this satisfaction level is currently most likely
liked to the fact that company charges relatively lower prices than its competitors for ‘old
school’ textbooks. The satisfaction level of the teachers, however, is currently at a lower level
than its competitors which is also crucial to consider as this group probably looks more at the
quality than the price. This is most likely because the teachers, as more aged adults, care less
about pricing of products and more about the quality (Collin-Dufresne et al., 2014).
Considering these two customer groups, it is of importance when looking at this challenge to
make a platform that is user friendly for both the students as the teachers, hence making two
different platforms on one website, or making an option to unlock certain documents for
teachers and not for students. The user friendliness of the platform does go a little bit hand in
hand with the switching costs mentioned in the previous challenge as when both the
switching costs are relatively low, and the platform is significantly more user friendly in
comparison to the competition it would make it an easier decision for customers to choose for
Educorp.
Non-financial Performance Analysis: EduCorp Assignment Bernard Brinkel (493136)

The top management and board of directors of EduCorp are currently compensated through a
base salary and equity grants in the form of stock rewards and there are no clawback
provisions for the base salary. The overall design of this compensation system, taking into
account all the base salaries and the provision percentages, is what the shareholders currently
have a negative attitude towards. Therefore, last challenge which Educorp has to deal with
when moving on is the pressure which the shareholders put on the management regarding the
compensation design, and thus the potential re-design of the overall compensation system.
The shareholders want to see a new design is focusses on short- and long-term compensations
that are more aligned with Educorp’s strategic goals.
For the short-term compensation, which is based on an annual compensation, the most
important factor is that this compensation is created to attract and motivate the management
and board of directors. Within the current compensation system, there is a short- and long-
term difference, however, this is based on the financial performance of the firm instead of the
strategic goals. Therefore, in order to motivate the management in the short-term in order to
keep focused on the firm’s strategic goals it is of significance that the short-term
compensation is at the perfect level so that these factors can be achieved. This would be most
suitable with the use of only a base salary for the short-term plan.
For the long-term compensation plan however, it is all about the environmental, social and
governance factors, as these are brought to everyone’s attention in the past decades. The
quote: “It’s crazy. I mean, there’s 1,200 students in my Intro to Finance class and every
single one of us has to buy a 1,000-page brick. It’s 2022. Do these companies, like EduCorp,
really still need to print these books?”, further elaborates on this and shows the current
vigilance on this topic even more. Considering this, stakeholders and the society are urging
companies increasingly to attain positive ESG in the business model and strategic goals. One
of the methods to motivate the management in attaining ESG in the long-term is by using
certain performance metrics based around ESG which relate to compensations (Cohen et al.,
2022). By doing so, the management is more likely to take on ESG in the business model and
therefore positive ESG is likely to be achieved in the long run. There are however some risks
to the implementation of ESG. First, the metrics which are used for the measuring of the ESG
performance is likely hard to acquire. This is because the type of metric that should be
combined to one of the ESG factors is difficult to choose and consider, therefore the actual
performance and thus the compensation potentially difficult to measure. Secondly, besides
Non-financial Performance Analysis: EduCorp Assignment Bernard Brinkel (493136)

the difficultness of measuring the performance, it would also be tough to classify certain
performance to different board members, making all compensations similar.
References
Cohen, S., Kadach, I., Ormazabal, G., & Reichelstein, S. (2022). Executive Compensation
Tied to ESG Performance: International Evidence. European Corporate Governance
Institute–Finance Working Paper, (825).

Collin-Dufresne, P., Johannes, M., & Lochstoer, L. A. (2016). Asset Pricing when'This Time
is Different'. Swiss Finance Institute Research Paper, (13-73), 14-8.

Explorer, 2022. What Are Intangible Assets? A Beginner's Guide. Retrieved 15 July 2022,
from https://explorerfinance.com/what-are-intangible-assets/

Popescu, G. H. (2013). Economic Growth and Competition in Online Markets. Journal of

Self-Governance and Management Economics, 1(4), 38-43.