In this course we will be discussing the emergence of a new story about business. This new story locates business within a societal framework. Almost every business creates or destroys value for customers, suppliers, employees, communities and society, in addition to shareholders and other financiers. A number of new models of business can be built on this idea such as corporate responsibility, philanthropy, shared value and sustainability. Profits and stakeholder value go together, and this course explains how. The final session explores the idea of how to become a stakeholder entrepreneur and create a business that makes money and makes the world a better place.
The Fourth Flaw
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From the course by University of Virginia
New Models of Business in Society
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From the lesson
Business in Society: The Problem
We will begin the course learning the dominant story of business and discussing the four flaws in the dominant story. We will learn about the global financial crisis and how a new story is now emerging.
Meet the Instructors
R. Edward FreemanUniversity Professor; Elis and Signe Olsson Professor of Business Administration
Darden School of Business
So there are at least three flaws in the story of business.
Business is just about economics and the money, wrong.
Business and ethics don't mix, wrong. And people are simple economic
maximizers, wrong. The fourth flaw I want to talk about.
Is the idea that frankly the world has changed.
Globalization is part of this, but with globalization has come some new political
realities. With those have been often driven by the
information technology. And combined, these have shifted the
normal relationships that we think about in business.
What it means to be a customer, what it means to be a supplier, an employee, a
community member et cetera. Now globalization isn't new.
One CEO from India I know really put it the best.
He said "what's new really is borders and passports for the last couple a hundred
years. Human beings have always traded around
the world from ancient times". So we all remember the story of Marco
Polo and how in a very different world no, no air planes Marco Polo opened up a
whole part of the world to the West. And opened up the West to a whole part of
the East. Nonetheless today globalization is simply
undeniable. as an American who often we don't get a
lot of credit for being very global than the rest of the world.
When I explain this to people when I travel I say you know, even Americans
understand globalization in today's world.
National Geographic has has given a really good example of this.
And I've got a small, demonstration here. They, they, they, they, they say look at
a pencil. You know, the graphite might be from
Brazil and Mexico, the soft wood might be from Sweden, or South Africa.
the rubber, might be from Thailand or Malaysia.
and the metal could be from China or Mozambique.
And pencils can be manufactured pretty much anywhere in the world, fairly
inexpensively. Ideas travel around the world quickly.
Supply chains get globalized. And businesses can no longer pretend that
what happens in one society is irrelevant in another.
A couple of examples, the value of trade goods as a percentage of the world gross
domestic product has increased from 42% in 1980 to 62% in 2007, you can see the
acceleration of trade. And if you look at something called the
stock of international claims which is a fancy word for bank loans and those kind
of things. That's increased from 10% in 1980 to 48%
in 2006. Again showing the increase in the way
business moves around the world. Today's companies like Toyota operate in
multiple countries. And they have to have a strategy that
makes as much sense in Tokyo as it does in Tennessee and Mumbai, and Rio.
And they have to operate in a way so that their philosophy, their process's, how
they treat people are tied together all over the world.
At Toyota they have a very famous philosophy called the Toyota way invented
many years ago. But the companies had to globalize that
philosphy so that it makes sense in places outside of Japan.
Another good example of globalization is the, is the increase in awareness about
state-owned enterprise. a way to think about business in society
that's prevalent in China and, some other places.
35% of all the business activity, in China is represented by over 145, 000
state-owned companies. Controlling a really substantial part of
business assets in China. And these state-owned enterprises are
connected to important family and government officials at all levels.
And simply, you can't understand how to do business in China with the standard
story. You've got to understand that these
businesses are set in a social and societal context.
If you don't do that you won't do very well in China and other parts of the
world. So, the standard story of business as
this purely economic institution, frankly just won't do.
With globalization, has come a set of new, political realities.
We've seen actually, a dramatic increase in the number of countries in the world.
In 1980 there were 154 members of the UN, by 2011 there are 193 members.
the American Central Intelligence Agency says they're 267 world entities.
I'll tell you a personal story when my son was born.
Is our first child and every when [UNKNOWN] your fir, first child
everything is a learning opportunity for, for, for them.
So we bought a shower curtain. that was a map of the world.
That was 1985. And it's really interesting to look at
that shower curtain, which is still there, and look at how many countries are
simply, have simply changed. The world has changed in terms of its
political realities. With the break up of the Soviet Union
taking down the iron curtain. The emergence and liberalization of
economies in China and India and Brazil. growth economies in the so called BRICS
nations and fast emerging economies in Africa.
Has meant an added pressure, but an incredible increase in opportunity for
every business, and opportunities to start new businesses.
In 1990 there were roughly 69 democracies in the world, 2010 there were 116.
Global companies have to pay attention to how they're regulated in countries with
very different systems. What happens in a Bangladesh garment
factory is news in Berlin, in Jakarta and Los Angeles and it's news almost
instantaneously. Now most of this change has been driven
in part by radical advances in information technology.
As the pioneer Gordon Moore predicted, computing powers are exponential path of
increase. If a typical worker wanted to purchase a
computer with the power of let's an the iPad.
In 1982, now some of you in your 30s you remember 1982.
So you want to purchase a computer with a power of an iPad.
It would have taken you 360 years of wages to make such a purchase.
We're connected to each other or at least connectable more so than at any time in
history. Think about the changes brought by things
like the Arab Spring, the ability of masses of people to self-organize
politically. This new information technology requires
a whole new way of thinking about business.
Globalization, new political realities, changes in, the information technology
has meant a change in the way we think about traditional business relationships.
We buy things online. We get recommendations from our friends.
We rate our transactions with companies. there are sites like Glass Door that give
us insights into how employees see their companies as a place to work.
Even product design can be crowd sourced now.
Take a look, if you have time, at Quirky, quirky.com and you'll see a, a site that
uses crowd sourcing really to improve product ideas.
So let's go back to the standard story. You can't hold a company together by
focusing on the money. You need something more like purpose.
Ethics issues are front and center all over the world.
When there's a fire in a supplier factory due to poor working conditions, today's
customers and politicians want, demand accountability.
Not everyone's the same around the world. Some people may in fact be motivated only
by money. But most of what we know is that issues
around purpose and having autonomy, autonomy and mastery, issues of values
like family and compassion. Or we get most of us out of bed in the
morning. And wanting to do better for ourselves
and our fam, and our families and our society are what keep us going.
We have to understand business as set firmly in society.
So the old story, frankly just has to go, and good riddance to it.
I'd like you to talk about, in the discussion forum.
How have changes in information technology changed your own life?
What changes do you foresee in the future?
And, how are these changes affect business.
[BLANK_AUDIO]
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