New models of business in society: the four paradigms

7/30/2019 New models of business in society: the four paradigms

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New Models of

Business in Society

Week 1:

Business in Society: The Problem


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Week 1 Syllabus

1.1 Course Overview

1.2 The Dominant Story of Business

1.3 Four Flaws in the Dominant Story 1.4 The Fourth Flaw

1.5 The Global Financial Crisis

1.6 A New Story is Emerging


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1.1 Course Overview

Exciting time to be involved in business. Lots of change going on allaround the world. More and more people becomingentrepreneurs. And, most of alllots of ways to do business. And, Ibelieve that you can make a difference.

Were going to explore some new models of business that have

emerged in the last 25 years. And, were going to talk about why the current story or narrative is

mistaken.

Best of all were going to explore how you can figure out a newbusiness idea that both makes money and makes the world a betterplace.

And if you dont want to start a business, well help you figure outhow you can make a difference as a customer, or an employee or aninvestor or community member.


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1.1 Course Overview

Week 1: Whats the Problem?

Week 2: Some New Models (that are partialsolutionsgood but doesnt go all the way) CSR; Corp Philanthropy; Shared Value, Etc.

Week 3: Environment as a Driver of Newbusiness models

Week 4: Conscious Capitalism and Stakeholder

Theory Week 5: Focus on how to develop a business

idea that makes money and makes the worldbetter. Then well summarize where weve been.


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1.1 Course OverviewAt least 4 ways to learn:

# 1: Watch the videos

# 2: Watch the videos and participate by answering the questions that will be at the

end of the videos. If you do this, well report on the answers during the course, and

you will help everyone learn more.

# 3: You can participate in the discussion forums, and the electronic office hours

well be holding. Ill be participating in this process, as will my team here at Darden.

The more engagement we have with you, the more learning that takes place for youand for us.

#4: You can do more of the suggested readings, visit the suggested web sites, and

watch some of the supplementary videos, for each week. That will deepen your

knowledge and help make the interactions with me and others, even better.

I want to thank you personally for participating. This is an experiment. Not everything

were going to do is going to work for you. Take what works and leave the rest.

At the end of each video there will be some questions to engage you. Talk about these

questions in the discussion forums. Remember that anything you write on the forums

becomes public knowledge.


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New Models of

Business in Society

Week 1:


1.2 The Dominant Story of Business


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1.2 The Dominant Story of Business:

The Opportunity Awaits Us

We can be the generation that makes business better. But, we need

a revolutiondont worry no guns.we need a conceptual

revolutiona different way to think about business. One that

enables us to be at our best.

The Overall Argument in this video: The Standard Story of business that is dominant isnt very useful

anymore.

4 flaws in the current approach. Well talk about these in the

next videos. Suggest that we go in a different direction, but first I need to tell

you what I think the Standard Story is.


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1.2 The Dominant Story of Business:

The Opportunity Awaits Us

What is a Standard Story? What is a Dominant Narrative? Why arethey important to realize?

Think about the old narrative about the Role of women in USsociety, as an example.

Emotional

Role was only in the home Couldnt be trusted to make Important decisions like politics.

Began to question, and gradually changed over the years. Itreached perhaps a tipping point when women began to vote,and perhaps another with the technology of birth controlThe20th Century in the US was partially a Century of the liberation,growth and development of women.

Changing a dominant narrative takes time, repetition, and thewillingness on the part of many people to challenge continuously tofind a better way.


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1.2 The Standard Story of Business

has at least 6 key assumptions

1. Business is primarily about economics: making money andprofits, not about being connected to many other societalinstitutions.

2. The only constituency that really matters are shareholders.

3. We live in a world of limitless physical resources, so we dont

need to pay attention to our impact on the environment.4. Capitalism works because people are completely self-

interested, and will only act for others if they have the properincentives.

5. Given the opportunity, business people will cheat or cutcorners.

6. Business works because people are competitive and greedy,and as if by an invisible hand: the greatest good emerges.

Read the papers, listen to the news. Youll hear this story.


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1.2 Engagement Question

What do you see as wrong with the standard

story of business? Whats right with it? What

changes in business have you seen from your

point of view, wherever you are in the world.

Talk about these questions in the discussion

forums.


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New Models of

Business in Society

Week 1:


1.3 Four Flaws in the Dominant Story


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1.3 The Standard Story has at least

4 Flaws

1. Business is just about economics and the money

Purpose analogy

2. The idea of business ethics as oxymoron

3. People are just motivated by money4. In the next video Ill talk about globalization and

change:

There has been a lot of change in business, thebusiness world is no longer stable and predictable.

I want to take each one in a bit more detail


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4 Flaws: Old Story Flaw #1

Business is just about economics. Money is all that matters.This gets dressed up as:

The purpose of any business is to maximize profits for

shareholders.

I need to make red blood cells to live but making red bloodcells is not the purpose of life.

And, business is a part of society, not some isolated activity

that is about money and profits.

Most entrepreneurs start a business because they are on

fire about something. They are trying to make peoples

lives (or even their own) better along some dimension.


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Business Ethics is an oxymoron like jumboshrimp.

Tell people that you teach business ethics andthey have to manage not to laugh, or else theytell you a stale joke: I didnt know business had any.

Must be a short course.

A strictly theoretical subject isnt it.

This is a real problem.

Most business people want to and actually do actethically.


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People are simple, and motivated by money or

self interest.

Levinsons question: What animal comes to mind

between a carrot and a stick?

Its worse. Treat people like jackasses and they

will start to act like jackasses.

Human beings are complicated and complexcreatures.


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Think about the organizations you are involved

with. Maybe they are businesses, or schools, or

religious organizations, or civic groups, or

governments. What is their purpose? Do theyact on that purpose most of the time? Is the

purpose ever misunderstood?


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New Models of

Business in Society

Week 1:


1.4 The Fourth Flaw


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1.4 The 4th Flaw in the Standard Story:

The World Has Changed

Last time we talked about 3 flaws in the old story.

Business is just about economics and the money

Business and ethics dont mix

People are simple economic maximizers Globalization

New Political Realities

Changes in the micro relationships thatcompanies have

Most driven by IT.


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1.4.1 Globalization

Globalization is not new

Human beings have always traded around the world fromancient times.

Nonetheless, today it is undeniable. When Im travelingaround the world, I put it as even Americans understandGlobalization.

National Geographic has given a great example ofglobalization by calling our attention to the simple pencil.

The graphite is from Brazil and Mexico, the softwood is from Sweden andsouth Africa, the rubber is from Thailand and Malaysia, the metal is fromChina and Mozambique, and pencils are pretty simple to manufacture.

Ideas travel around the world quickly, supply chains areglobalized, and businesses can no longer pretend that whathappens in one society will not affect their own society.


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1.4.1 Globalization

Todays businesses like Toyota operate in multiplecountries, and they must have a strategy thatmakes as much sense in Tokyo as it does inTennessee, in Mumbai and Rio. And, they have to

operate in a way that their philosophy, processes,how they treat people are tied together all overthe world. At Toyota they have a very famousphilosophy called the Toyota Way, but the

company has had to globalize that philosophyso that it makes sense in countries other thanJapan.


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1.4.1 Globalization

A good example is the emergence of State Owned

Enterprises (SOE) in China. SOEs continue to grow andcontrol a substantial part of the business assets inChina. They are connected to important families andgovernment officials at all levels, etc. In short, you

simply cannot understand how to do business in Chinawithout taking SOEs into account.

So, if you think that business stands outside of society;that it isnt intimately connected with society andother societal institutions, you wont do very well inChina.

So, that standard story of business as a purelyeconomic institution just wont do.


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1.4.2 New Political Realities* We have seen a dramatic increase in the number of countries in the

world. In 1980 there were 154 members of the UN. In 2011 there were

193 members. The CIA says that there are 267 world entities.

With globalization has come new political realities. Break up of the Soviet

Union and Iron curtainthe emergence and liberalization of India and

China and their growth economies, as well as the fast developments in

Africa, the BRIC nations etc. has meant an added pressure and addedopportunity to every business. In 1990 there were 69 democracies, while

in 2010 there were 116.

Global companies have to pay attention to how they are regulated in

countries that have very different systems.

What happens in a Bangladesh garment factory is news in Berlin, Jakarta,and Los Angelesand almost instantaneously.

If you think business can ignore these political and social realities, well,

you wont be in business for very long*The World Factbook (https://www.cia.gov/library/publications/the-world-factbook/)


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1.4.3 Information Technology

Much of this change is being driven by radical

advances in information technology. Just as Gordon Moore predicted computing power

is on an exponential path of increase.

We are connected to each other, or at leastconnectable to each other more so than at anytime in history.

Think about the changes wrote by the Arab Spring,and the ability of masses of people to self-organize

politically. This new IT requires a whole new way of thinking

about business.


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1.4.4 Changes in Business Relationships

Globalization, New Political Realities, and IT have

driven changes in traditional relationships. We

buy things on line. We get recommendations

from our friends. We rate our transactions with

companies, and sites like Glassdoor.com give usinsights into how employees see their companies

as a place to work. Even product design can get

crowdsourced now. Take a look at

www.quirky.com
http://www.quirky.com/http://www.quirky.com/


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1.4.4 Summary

Go back to the standard story.

You cant hold a company together by just focusing on themoneyyou need something more like purpose.

Ethics issues are front and center. When there is a fire in a supplierfactory due to poor working conditions, todays customers and

politicians want accountability. Not everyone is the same around the world. Some people may in

fact be motivated only by money, but most of what we know is thatissues of purpose, autonomy, mastery, and values like family andcompassion and wanting to be better for themselves and theirsocieties, are better ways to think about motivation.

We must understand business as set firmly in society.

Sothe old story just has to go. And, good riddance to it!


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How have changes in information technology

changed your own life?

What changes do you foresee in the future

and how would these changes affect business.


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New Models of

Business in Society

Week 1:


1.5 The Global Financial Crisis


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1.5 Global Financial Crisis (GFC)

There are many hypotheses about the GFC and why itoccurred:

Rewarding short term gains,

Questionable behavior in the financial services industry becamenormal? Who was responsible when loans were bundled sold off,

and companies routinely bet against their customers. Too much high risk lending and inflated credit ratings

Some bad apples and lots of folks (maybe you and I) got greedy

Total losses have been estimated at 15-20 Trillion dollars,

but thats only an estimate. It doesnt account for thehuman consequences of the loss of millions of jobs, andthe breakdown of many institutions, indeed the fabric ofsociety in places like Iceland, Ireland and Greece.


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1.5 Public Trust in Business

There is a trust gap in business. In the US only 21% of people have a quite a

lot or a great deal of trust in banks and big business. Small business faresbetter at 66%. (Gallup)

There also is a growing trust gap between institutions and their leadersglobally, trust in business is 32 points higher than trust in business leaders totell the truth; trust in government is 28 points higher than it is forgovernment officials.

This trust gap has ethical implications: Only 21% in the US think that business executives are honest.

Only 10% in France trust Business leaders to tell the truth. (the number is 19% globally)

Globally, only 43 % of informed publics trust CEOs as credible spokespeopleand only 19 % of the general population trust business leaders to tell thetruth regardless of how complex or unpopular the truth is.

Trust in NGOs remains high, with an overall 88 % of countries surveyed over50% & (the highest is Mexico, an emerging market, at 83 %; the lowest isJapan, a developed market, at 37 %). The most notable change over time isin China, where only five years ago trust in NGOs was 48 %; today it is 81 %.

(Edelman)


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1.5 Public Trust in Business

So what?

The current story isnt working. We need a new one.

Regulators often regulate based on the old narrative,

hence they are likely to push through reforms whichonly reinforce the old story.


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What have been the main effects of the Global

Financial Crisis in your country? Has it affected you and

your family?

What do you think has been the cause? The lessons wecan learn


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New Models of

Business in Society

Week 1:


1.6 A New Story is Emerging


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1.6 The New Story

So, the old story is no longer useful.

What are elements of the new story?

First, business has to be an integral part of society, andwe have to see it as that and expect it to act that way.

Second, we need to engage in a conversation abouthow business can help societies solve their problems.

Third, we have to stop separating business from ethics.

Fourth, we have to have a much more robust idea of

what makes people tick. So let me try and articulate 5 principles that are

important in this new story.

1 6 Five Principles for the


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1.6 Five Principles for the

New Story of Business1. Business is primarily about purposemoney and profits follow.

2. Any business creates (or sometimes destroys) value for shareholders, aswell as customers, employees, suppliers, and communities. Building andleading a business involve getting these interests going in the samedirection.

3. Capitalism works because we are complex creatures with many needsand wants, and we can cooperate to create value for each other.

Sometimes we act for selfish reasons and sometimes for other-regarding interests. Incentives are important, but so are values.

4. Most people tell the truth and keep their promises, and act responsiblymost of the time. And, we need to expect that behavior.

5. Business and capitalism are the greatest system of social cooperation andvalue creation, ever invented. Competition is important in a free society,since it ensures options. But, the engine of capitalism is value creation.

Lets tell this story and expect it of our businesses andbusinesspeople. We can see this new story emerging all overthe world.

1 6 1 6 But A New Story is Emerging:


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1.6 1.6 But, A New Story is Emerging:

A New Story - China

Tencent (social media); Landwasher (environmentally friendly water-free

flush toilets); Goldwind Science and Technology (Offshore wind farms);

BGI (genetic sequencing) are just a few of the companies that are trying to

implement various parts of the new story, making money and making

society better.

BYD: First company to bring electric to public transportation. The ever-

innovative Chinese automobile company created the world's first purely

electric bus. BYD's e-BUS 12 releases zero emissions, can go for more than

150 miles on a single charge, and uses solar panels located on the roof to

convert solar energy into electricity. The buses have been tested in China,

Southeast Asia, and Europe; Hertz car rentals will use the buses to

transport passengers at LAX. http://www.byd.com/
http://www.byd.com/http://www.byd.com/http://www.byd.com/


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Greenbox: Greenbox is also a pioneer in product safety. "Currently, there

arent strong safety standards for childrens clothing in China," Wu says,

noting that in recent years, apparel containing dangerous levels of

formaldehyde and heavy metals have hit store shelves. Needles have even

been left inside clothing. "Were working with industry associations and

the government to create standards." Wu monitors Greenboxs qualitywith regular visits to production facilities and also champions the use of

environmentally friendly materials and processes. "The fact that Greenbox

delivers a brand thats more than just a name and logo, with good design

and the use of nonharmful materials," Stocker says, "makes it stand out

from many other apparel businesses in China. www.lvhezi.com ;http://www.fastcompany.com/most-innovative-companies/2012/greenbox

1.6 A New Story China cont.
http://www.lvhezi.com/http://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.fastcompany.com/most-innovative-companies/2012/greenboxhttp://www.lvhezi.com/


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1.6 A New Story - USA

REI:

Stewardship at REI -REI is more than great gear. Through volunteerism, giving,responsible business practices and more, we connect people to the outdoors

and help protect the natural places we love. Every year since 1998, it has been

on Fortunes 100 Best Companies to Work For

http://www.rei.com/stewardship.html

FedEx is pushing energy efficient trucks, planes & envelopes; it is moving the

entire industry at a faster pace to minimize environmental impact while

increasing customer service

http://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-

moving-envelope

Steinway & Sonsbuilt the worlds largest parabolic solar installation on its

factory roof that operates a chiller that provides the perfect humidity &

temperature needed to manufacture pianos

http://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-

steinway-sons-journey-sustainability
http://www.rei.com/stewardship.htmlhttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/news/2013/02/22/black-and-gold-go-green-steinway-sons-journey-sustainabilityhttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.greenbiz.com/blog/2013/02/22/mitch-jackson-pushing-and-moving-envelopehttp://www.rei.com/stewardship.htmlhttp://www.rei.com/stewardship.htmlhttp://www.rei.com/stewardship.html


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Unilever

Since launching its ambitious Sustainable Living Plan in 2010, Unilever isbuying more sustainable palm oil and cage-free eggs, putting less salt and

fat in its tomato sauces and spreads, selling water purifiers to poor people

in the global south and rolling out climate-friendly freezers for its ice

cream.

It is doing more to limit its environmental footprint while improving healthand well being and growing its business. Unilevers commitments are wide

and deep. Its no wonder that the firm and its CEO, Paul Polman, have

become darlings not just of corporate-friendly NGOs like the World

Wildlife Fund, but also a favorite of hard-charging activists from

Greenpeace and the Humane Society of the U.S.

http://www.unilever.com/sustainable-living/uslp/index.aspx

http://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-

leadership-pay

1.6 A New Story - Europe
http://www.unilever.com/sustainable-living/uslp/http://www.unilever.com/sustainable-living/uslp/index.aspxhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.greenbiz.com/blog/2012/04/25/will-unilevers-sustainability-leadership-payhttp://www.unilever.com/sustainable-living/uslp/index.aspxhttp://www.unilever.com/sustainable-living/uslp/index.aspxhttp://www.unilever.com/sustainable-living/uslp/index.aspxhttp://www.unilever.com/sustainable-living/uslp/index.aspxhttp://www.unilever.com/sustainable-living/uslp/index.aspxhttp://www.unilever.com/sustainable-living/uslp/


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Can you find some headlines from your own country

about how the new principles of business are being

implemented?

What are some examples of companies that are moreengaged in your society?

Further Reading and Resources for


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Further Reading and Resources for

Week 1

Jihad vs. McWorld article

(http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-

mcworld/303882/)

Three Ethical Roots of the Economic Crisis article by Thomas Donaldson

(http://link.springer.com/article/10.1007/s10551-011-1054-z/fulltext.html)

Hot, Flat, and Crowded: Why We Need a Green Revolution and How It

Can Renew America, by Thomas J. Friedman
http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/http://www.theatlantic.com/magazine/archive/1992/03/jihad-vs-mcworld/303882/

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New models of business in society: the four paradigms