TOWARDS A SUSTAINTABLE BUSINESS MODEL
− Trilok Kumar Jain, − Mr. Sundeep Kumar − Dr. Ruchi Goyal & Prof. Ram Garg
This is a conceptual paper. The authors contend that business model evolves out of economic and political philosophy prevailing in the contemporary times. This paper presents a summery of evolution of the present business model based on the economic and political ideologies, identifies the current challenges and alternatives to the present business models. This paper analyses the alternatives and presents a proposition regarding what should be the ideal business model.
Business model refers to overall concept relating to business, entrepreneurship. It gives fundamental assumptions relating to how a firm / company is going to add value to the society at large and how is it going to survive in the society. Business model refers to the way the organizations see themselves within the societal framework. Business has always been run with a profit motive. However, there have been multiple additional dimensions besides profit. Many of these dimensions have tremendously benefitted the society at large. For example, CSR practices of present companies help our society directly and indirectly. A century ago, we didn’t have the concept of the modern CSR system, however, firms used to spend some money on societal development. Development of Gandhian Educational Instituitons, Schools and Colleges took place under this concept only (from 1910 to 1949). We had the concept of giving back to the society for ages and we do find instances where entrepreneurs and business community have come forward for the cause of the society at large.
Business model has been given more attention after 1975. There are more than 166 articles in ABI Inform Database on business model in the period between 1975 to 1994. Schumpeter (1942) talked about creative destruction. Amit and Shoemaker (1993) talked about resources of the firm. Gulati (1998) introduced strategic networking theory and Williamson (1975) introduced the concept of economies in transaction costs. Brandenburger and Stuart (1996) suggested that firms should innovate methods of value addition. Thus different scholars are advocating different features which can help a business to survive and grow in the society. Thus business model has been looked more from the perspective of the survival of firms. However, business model depends on the economic and political philosophy prevailing at that particular time. The prevailing belief system plays an important role in business model design and development.
CURRENT ISSUES RELATING TO SUSTAINABLE DEVELOPMENT
Over 70% of the Earth’s surface is covered by water, but only 1% of this is fresh water, which can be used by human beings. The
quantum of drinking water is reducing everyday due to our present day technologies. About 5− 10% of used colour in industrial process goes unaltered to residual wastewater, which spoils the waters of rivers, oceans, lakes and other open water reservoirs. This damages our water resources. The decade of 1990 has been the hottest decade so far in the last 2000 years. This rise in temperature is substantially due to human activities. We have involved ourselves in exploitation of nature. These and similar issues force us to think over the issues of present business model. We have to again analyse the business model of today in order to be able to justify our decisions. The present business model is based on the evolution of economic and political thoughts and therefore it is having its roots in the economic and political evolution. We shall look into the evolution of the business model in the origin and growth of economic and political ideas.
HISTORICAL EVOLUTION OF BUSINESS MODEL BASED ON ECONOMIC AND POLITICAL IDEOLOGIES
Political philosophies and Business dimensions have worked together. Capitalism spread and reached its limits. The opposite forces started and we had the emergence of Communism which completely wiped out business entrepreneurship. However, it didn’t sustain for a long time. It was replaced again by capitalism. Capitalism as it implies, create a hunger for capital / money. Ultimately, the impacts are visible. The gap between haves and have−nots increases due to capitalism.
Mercantilism and nationalism
The "mercantile system" advocated greater and greater exports. It believed that the country benefits by increasing exports and collecting payments against the same. It advocated the use of tariff to encourage exports (bringing more money into the country) and discourage imports (which send wealth abroad). In other words, the goal was to maintain a positive balance of trade, with a surplus of exports. This theory advocated the use of the state’s power to ensure local markets and supply sources were protected. This system was responsible for rise of great business powers like East India Company. Nationalism evolved as a result of this ideology, which encouraged use of products made in the home country and was in a way opposite to Mercantilism.
The Quesnay argued that agricultural surpluses, by flowing through the economy in the form of rent, wages, and purchases were the real economic movers. Incomes flowed from sector to sector, and thus class to class.They argued that a "natural state" of the economy emerged when these income flows were in a state of "balance," that is, where no sector expanded and none contracted. The Physiocrats argued that government should leave the economy alone and allow individuals to do as they please and that this would naturally result in economic growth; they called this doctrine laissez faire, or "let them do."
Classical political economy
Classical economics is widely regarded as the first modern school of economic thought. Its major developers included Adam Smith, David Ricardo, and John Stuart Mill. The classical school focused on theory of wealth, theory of labour and on distribution of resources. This school divides society in three categories : workers, capitalists and land owners with three types of income: wages, profit and rent respectively. This theory advocates accumulation of capital as the main source of wealth of the nation. Thus the business model evoloved in that period focused on capitalism. This extreme emphasis on capital accumulation resulted in a big gap between haves and have− nots, which ultimately created discontent among working class and resulted in rise of communism, which created its own business model.
Communism and Socialist economics
The increased focus on scarcity led Karl Marx to declare that the means of production were the most important components in any economy. Marx took his ideas further and became convinced that a class war was going
to be initiated by the inherent instabilities he saw in capitalism. However, Marx underestimated the flexibility of capitalism. Instead of creating a clear owner and worker class, investing created a mixed class where owners and workers held the interests of both classes, in balance. Despite his overly rigid theory, Marx did accurately predicted one trend: businesses grew larger and more powerful. The business model in the socialist economic system was based on centrally controlled economic planning, which had everything planned out by the government. However, lack of initiative and lack of individual motivation forced this business model to fail and give way to capitalism.
Jevons and the Cambridge school
Coming after the marginal revolution, Marshall concentrated on reconciling the classical labor theory of value, which had concentrated on the supply side of the market, with the new marginalist theory that concentrated on the consumer demand side. He insisted that it is the intersection of both supply and demand that produces an equilibrium of price in a competitive market. Over the long run, argued Marshall, the costs of production and the price of goods and services tend towards the lowest point consistent with continued production.
In addition to the supply of money, Keynes identified the propensity to consume, inducement to invest, the marginal efficiency of capital, liquidity preference, and the multiplier effect as variables which determine the level of the economy’s output, employment, and level of prices. Keynes therefore advocated low interest rates and easy access to credit to raise the overall economy.
But Keynes believed that in the 1930s, conditions necessitated public sector action. Deficit spending, he said, would kick−start economic activity. Keynes therefore advocated both monetary management and an active fiscal policy. Keynes helped formulate the plans for the International Monetary Fund, the World Bank, and an International Trade Organization at the Bretton Woods Conference, a package designed to stabilize world economic fluctuations that had occurred in the 1920s and create a level trading field across the globe..
This theory was developed by John Hicks, and popularized by the mathematical economist Paul Samuelson, who seems to have coined the term, and helped disseminate the "synthesis," partly through his technical writing and in his influential textbook, Economics (1948).
Mainstream economics in the latter part of the twentieth century was largely dominated by the synthesis, being largely Keynesian on macroeconomics and neoclassical on microeconomics (Clark 1998). Introductory university economics courses began with the same approach that pulled the divergent strands of economic thought together, presenting economic theory as a unified whole.
Milton Friedman (1912−2006) advocated that laissez−faire government policy was more desirable than government intervention in the economy. Governments should aim for a neutral monetary policy oriented towards long−run economic growth, by gradual expansion of the money supply. He advocated the quantity theory of money, that general prices are determined by quantum of money. There is likely to be a lag between the need for action and government recognition of the need; a further lag between recognition of the need for action and the taking of action; and a still further lag between the action and its effects (Friedman 1962).
Globalisation and Recent Debates
In the context of globalization, economists have been drawn to develop fields such as development economics which deals with economic aspects of the development process in low−income countries. Its focus is not only on methods of promoting economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education, and workplace conditions. Amartya Sen (b.1933) became well known for his contributions to
welfare economics and his work on famine, the underlying mechanisms of poverty, and gender inequality. Expressing considerable skepticism on the validity of neo−classical assumptions, he challenged the ideas of self−interest as the prime motivating factor of human activity
CHALLENGES IN THE PRESENT BUSINESS MODEL
We are facing challenges in the present business model. We find the following issues : a. Inappropriate marketing practices : we find the present marketing to be short term oriented. b. Inappropriate packaging practices : the outcome of the present day packaging solutions are visible everywhere − as we find a heap of useless and non−recyclable plastic packets spread out every where. This rising use of plastics and other such material will eventually create a problem beyond solution. c. Inappropriate financial practices : Enron, Satyam and many other cases create a lesson for us. Companies pile up numbers, beneath which they create all types of malpractices. d. Inappropriate advertising practices: we have seen a series of advertising practices, which have excessively used inappropriate appeals, which ultimately threaten our wholistic existence. People find it difficult to withstand these advertisements in family and social gathering. These advertising practices are especially targeting younger generation and focusing on their libido. e. Rising discontent among employees and public at large: Inspite of rising pay − packages, employees are exhibiting greater discontent. We can observe rising unrest among employees. f. No care and concern to environment, ecology and systems : a rough estimate points out that we have lost quarter of biodiversity in the last 35 years and we are loosing 1% of our species every year. This all is due to modern form of development, which is the root of increasing pollution, shrinking forests, rising temperature and intensive agriculture. g. Neglect of other living beings : every year large number of species are becoming extinct. Our mad race of economic prosperity has blurred our vision for other creatures living on our planet. Countless number of animals, birds, sea creatures etc are butchered every year for the cause of our never satisfying lust. Agriculture farming, trees and vegetations have enough food for us if we want to live a reasonable life. Now corporate players are also coming in this sector and see to it as a profitable business venture. They are setting up high technology slaughter−houses and other such centres, which will ultimately deprive us of our other fellowbeings from this planet. h. Lack of concern to future : we know it that the continued over exploitation of nature will lead to natural disasters and imbalances in the natural systems. We know it that the mother Earth has limited resources and cannot withstand our over−exploitation. We know it that tempering with the natural systems will eventually disturb our economic system. But we are still casual about our future and continue to adopt policies which are not appropriate for long term developmental objectives.
ALTERNATIVE TECHNOLOGIES AND SOLUTIONS
Our attachment to large organizational systems have created technologies which are appropriate for large scale productions. These technologies are also not appropriate for environment. These technologies have created huge gaps for the present time. These technologies wipe out small scale operations. They are cost effective and therefore they reduce cost of production, which make it difficult for cottage industry to compete. Thus, present day technologies have wiped out small scale and cottage industries.
There is a need of alternative technologies, which are appropriate at small scale also. These technologies can help us in our survival in the long run.
ALTERNATIVE BUSINESS MODEL
There is always a search for better business model. We are still waiting for an alternative to the present business model. The present day business model has its own flaws as documented above and these flaws are getting accentuated every day. We need a better business model, but there is yet no alternative. A few ideas and ideologies are evolving, which may help us in exploring the way out. These ideas are as given below : − a. Relative Economics : this business model has been given by Acharya Mahapragya. This model focuses on environmental issues and is also focused on sustainable development. b. Gandhian Developmental Model based on Gram Swarajya: this model is based on the idea of developing rural economic system using home based small scale productions and cottage industries. c. Chinmaya Vision: Chinmaya Mission has given this model. this model visualizes development based on integrated development with universal outlook. This model emphasizes on spiritual, and emotional development. d. Green Economy : a number of thinkers are thinking on the possibility of creating an economy which they call as green economy. The idea of green economy may be based on any ideology, but it focuses on environment, ecology, nature and our living system. It stresses that we should return to the nature more than what we are extracting from the nature. This economic system will have the following thrust areas: It protects the planet and results in social equality for people as well Creates jobs that contribute directly to reducing environmental risks and provide lower−skilled and lower−income workers with pathways out of poverty "Greening" of the economy i.e. wealth creation and employment opportunities
Why a Green Economy is economically Sound?
It invests in "natural capital," meaning that it uses the natural assets of ecosystems ( e. g. forests, lakes, wetlands) as a source of capital (e.g., the ability to produce goods and services) The stability of these natural assets is vital to public services such as recreation, food, and medicine In this way, the future of economic thought may finally be able to uncover and understand the complex processes and mechanisms which guide economic transactions in human society. The world has moved from ancient times when philosophers and religious leaders were the authority on all things, economic issues included, through the division of disciplines into more specific fields, into an era of globalization and the emergence of a global economy.
Based on the conceptual discussions, we present the following propositions for further studies and discussions :−
There is a need for debate and discussion on the present economic and political ideologies of the nations and we need to evolve economic and political ideas for better economic and political systems. This will help us in development of a new business model. There is a need of a research into the present system of business model. The present ignorance of environmental issues and societal issues may prove fatal in the long run. There is a need of a more symbiotic relation between business, society and environment. Initiative has to come from business, whereby it assures that the business will give to the nature more than what it gets. A business model has to evolve based on an ideology of giving back more to the nature.
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