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New Business Models

New Business Models Challenges to Economic Thinking

The most turbulent international business environment in decades, the globalization process and the major transformations in the social and environmental conditions pressure us into finding new ways to adapt to these rapid shifts. The most important factors that contribute to the development of new business models are the increased role of governments, the greater awareness of companies towards multidimensional risks inherent in change, the need for more efficient scientific solutions for sustainable development and also the emerging power of social media.

The society as investor

Organizations adopt new business models to better cope with: psychological needs, security needs, affiliation needs, and needs to assume the social and communitarian role. Some consider that a business model contributes to a behavioural paradigm shift, provides information and evidence that demonstrate how a business creates and delivers value to customers, outlines the architecture of revenues, costs, and profits associated with the business enterprise and assists new projects in delivering added value. J. Teese said, in this respect, that “the essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit”.

Introducing a new business model into an existing market is very challenging and could veer into so-called “disruptive innovation”, which we value less than we should because of our current risk aversion after a prolonged global recession. Based on these assumptions, it is clear that much of the business theory and practice needs to be reconsidered. As such, more and more analysts have acknowledged that every societal actor will be forced to cope with the process of replacing the shareholder/stakeholder distinction with a new framework of though in which society will become an investor of sorts in every business venture. Such a new conceptual framework could be the “Dual-Investor” model of business in which stockowners provide the “specific capital” for business ventures, while society gives the “opportunity capital”.

Dichotomies revisited

Thinkers in the field of economics need to offer appropriate interpretations to the dichotomies that have shaped our way of thinking about business.

One of these is the public/private dichotomy, reflected in the disagreement between advocates of state intervention in economy and those of functional market forces. Analysts need to rethink strategic goals, the main functions of an organization, tactical means and the most beneficial activities, concepts, and tools.

Another type of dichotomy is that which includes the shareholder/stakeholder correlation based on differences of perceptions between those who emphasize the executive’s duties to shareholders (Milton Friedman) and those who stress the executive’s duties to stakeholders (John Kavanaugh).

The diversification of business methods puts pressure on regulators to adapt their methods, rules and regulations to these new business paradigms in order to deal with consumers’ needs, improve existing frameworks for labour and taxation, map new partnership relations between ventures and cope with a sensitive mix of geo-politics and geo-economics. The important spread of cross-border trade transactions, the rapid growth of every economic flow, the shortened life-cycles for new products and services and modern business tools also divide experts. The manner in which an organization decides to implement a new business model varies in line with its environment, the size of the company, the capabilities and incentives of its executives, the corporate culture of the firm, the sectors in which the firm is active and the requirements of stakeholders.

Sustainable complexity

“Sustainable” and “sustainability” are now core concepts and buzzwords accompanying every description of a new venture, but which everybody interprets in a different way. Things become even more complicated once this conceptual architecture is associated with private undertakings. Each dimension of sustainability (economic, social and environmental) would be a significant challenge by itself. So how can companies be expected to address the three dimensions simultaneously without increasing complexity beyond their management capacity or neglecting their core drive for profit? How do environmental management and corporate social responsibility strategies become relevant for the core business strategies? And how can firms effectively plan and control the implementation of their sustainability strategies?

One challenge is to understand the interdependencies. The most pressing questions to be answered by actors involved in a more turbulent business environment are: To what extent is the integration of environmental and social sustainability into the economic dimension practical and possible? How can firms better learn to develop and track indicators that help them to identify transformations of the competitive field early on? Where are the limits of linking environmental and social indicators to financial performance? What are the business options beyond win-win strategies? Can firms actively embrace sufficiency and ethical strategies? These are very attractive inquiries to be explored in neutral and honest debates at the scientific level.

Reshaping regulations

Another challenge which international organizations, national authorities, decision makers from the company level and civil society representatives need to manage is the increased complexity of associations between societal actors. Describing this phenomenon proved to be very difficult to be inserted into the economic literature and explained. One can find that authors have already employed some extremely challenging concepts such as “on-demand economy”, “sharing economy”, “gig-economy” or “X company-economy”. Different studies are contradictory in terms of the professional and the employment status of the workers, the work mode, the place of work and the final client. Some findings are particularly valuable, because they challenge assumptions that many researchers have traditionally held about production and value chains, outsourcing and globalization.

One of the biggest challenges for a more and more turbulent business environment is linked to how should policy-makers approach the new model of doing business? Even though new business models have been frequently examined in the journalistic literature, the academic literature seems to be rather limited in this respect. This is largely due to the lack of available data to analyse such business models. The few academic contributions that exist are mostly of a descriptive nature and are often based on simple anecdotal evidence. Nevertheless, it is possible to understand and explain the possible lines along which regulation may be improved, and this would be a gain not only for businesses but for the society as a whole.

Resetting globalization

With new peaks of globalization and its associated phenomena in sight, we need to ask ourselves how far we should push this process or whether we have the capacity to be in the “driver’s seat” for these complex phenomena. The majority of scientists are advocates of free trade (or some form of it) as they consider that free trade provided the basis for the phenomenal material prosperity achieved in the last few decades. Paul De Grauwe warned – “it now appears that globalization is reaching its limits”.

These limits exist for two reasons. Firstly, there is an environmental limit due to the fact that globalization leads to very strong forms of specialization, where the lengthening of the production and the value chains means that a vast array of goods are circulating back and forth between many countries before they reach, finally, the consumers. In addition to the worries about energy consumption, we have to consider the dangers that arise from critical dependencies on global networks and their systemic threats. The second downside to globalization is the highly unequal distribution of its costs and benefits (and the real world effects on politics and social issues), and there is a new challenge for scientists to convincingly explain who are the winners and who are losers of globalization to embolden decision-makers to adopt appropriate measures to offer new incentives to some and compensation to others.

The eagerness of technology

This subject needs to be placed on the Romanian policy-makers institutional and regulatory agenda, assisted by academics and involving businesses. The need to discuss, debate, discern and deliver on issues regarding technological modernity with its impact on productivity and social issues is an imperative. It is vital that legitimate interest groups put efficient and effective pressure on the policy apparatus to enact and enforce laws, in order to avoid unfair competition from new businesses. The political economy of the sector is even more interesting because the technological change and its potential downsides materialize much faster than the necessary regulations. This dynamic requires closer ties between researchers and policy-makers, who should combine forces to obtain data and other relevant forms of access which can then be used to further our understanding of the advantages and challenges posed by the new business models.

Encouraging a market for ideas could be an appropriate social infrastructure to deliberate on these issues, to advance new perspectives, to compare alternatives and to encourage a cultural environment attuned to productive novelties.

 
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OEconomica No. 1, 2016