Prof. Yunus’ New Capitalist Development Theory

Yuan’s took the world by storm when he talked about a new capitalist development theory in his book- ‘Building Social Business: The New Kind of Capitalism That Serves Humanity’s Most Pressing Needs’. It originally picked massive traction because of Proof Yuan’s’ massively Impressive reputation as the Godfather of Micromanage. In this book he outlines a model of business that builds from his experience creating the Grahame Foundation and a series of related ventures.

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The stalking point of his described work Is that It employs business sector principles of organization and resource management. But the question arises how good and effective Is this new concept called ‘Social Business’? Is It actually a new pathway of capitalism and a substantial route out of poverty or Just another glorified academic topic? To get a holistic analytical idea of our topic we have to get deep into the core concerns of social business, how it works and its effectiveness thus far.

The term Social Business was defined by Nobel Peace Prize laureate Proof. Muhammad Yuan’s and is described in his books Creating a world without poverty-?social Business and he future of capitalism and Building Social Business-?The new kind of capitalism that serves humanity’s most pressing needs. According to Yuan’s we can create a poverty-free world if we redesign our system to take out its gross faults which create poverty.

He compared poor people with ‘bonsai’ tree and remarked that if we could help poor people out of poverty by creating an enabling environment, then it is a matter of time only to resolve worldwide poverty problem 1. In Yuan’s’ definition, a Social Business is a business: Created and designed to address a social problem A non-loss, non-dividend company- It is financially self-sustainable Profits realized by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact.

Yuan’s has repeatedly claimed that the Social Business model Is not meant to be a substitute or aiming to replace the standard capitalistic business model; It Is merely a new tool In the toolbox to solve human problems, aiming at filling the gaps that the non-profit, government, and business sectors cannot – alone – fill. Besides the Yuan’s’ definition, several other, wider definitions of Social Business are sometimes used by Edie and other sources, Including any business which has a social rather than financial objective. Social Business vs.. ‘MOB’S. ‘NO’S unlike a “MOB” (Profit-Maximizing Business, the term Yuan’s uses to refer to standard (although generating profits is a part of the process). The basic distinction is in the notion where business owners are not receiving any dividend out of the business profits (if any). “A charity dollar has only one life; a Social Business dollar can be invested over and over again. – Professor Muhammad Yuan’s Unlike a Non-profit, the business is not dependent on donations or on private or public grants to survive and o operate, because, as any other business, it is self-sustainable. Furthermore, unlike a Non-profit, where funds are spent only once on the field, funds in a Social Business are invested to increase and improve the business’ operations on the field on an indefinite basis. Background of development: Professor Muhammad Yuan’s, a well-known advocate of the social business model, argues that capitalism is too narrowly defined.

The concept of the individual as being solely focused on profit maximizing ignores other aspects of life. Failures of this system to address vital needs, that are commonly regarded as market failures are actually conceptualization failure. Yuan’s postulates a new world of business in which profit-maximizing enterprises and social-benefit-maximizing enterprises coexist. In addition, a social business would operate much like a profit-maximizing business in that the company as a whole grows financially and gains profits.

The only difference is that the company’s shareholders and investors would be re- accumulating their initial investment as opposed to receiving dividends. He calls the latter social business. Key ingredients to the success of the approach are Education, Institutions to make social businesses visible in the market place (a social stock market), Rating agencies, Appropriate impact assessment tools, Indices to understand which social business is doing more and/or better than other social businesses so that social investors are correctly guided.

The industry will need its Social Wall Street Journal and Social Financial Times. Therefore, a social business is driven to bring about change while pursuing sustainability. Although from a strictly profit-maximizing perspective it seems inappropriate to pursue a goal other than profit, social business’ aim is to achieve retain social and environmental goals. In this perspective, a social business can also be understood as a business-pursuing NAG which is (eventually) financially self- sufficient.

Social business is a cause-driven business. In a social business, the investors or owners can gradually recoup the money invested, but cannot take any dividend beyond that point. The purpose of the investment is purely to achieve one or more social objectives through the operation of the company, since no personal monetary gain is desired by the investors. The company must cover all costs and make revenue, but at the same time achieve the social objective.

The impact of the business on people or environment, rather than the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. These were developed by Proof. Muhammad Yuan’s and Hans Ritz, the co-founder of Grahame Creative Lab: Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit minimization.

Financial and economic sustainability Investors get back their investment amount only; no dividend is given beyond investment money. When investment amount is paid back, company profit stays with the company for expansion and improvement Environmentally conscious Workforce gets market wage with better working conditions Do it with Joy ‘Social Business’ from an analytical standpoint: How this redesign process can be integrated into the traditional way of economic thinking and doing business to help out these ‘bonsai’ people?

Professor Yuan’s answers the question by following the simplest way at the beginning. In his opinion, fundamental change in the architecture of the capitalist economy can be brought by ringing it closer to a complete and satisfactory framework, freeing it from the basic faults, social and environmental ills along with poverty (Page xiv, Building Social Business).

Moreover, he rejects the usual evaluation of global financial crisis of 2008- 2009 period. He thinks that the biggest flaw in the existing theory of capitalism lies in its misrepresentation of human nature, where men are described to be single- minded, that is businesspeople are portrayed as people who are interested to maximize profit only and nothing else (Page xv, Building Social Business).

Well, he goes not reject that humans are selfish beings, but observes that they are simultaneously selfless – the worldwide existing institutions are not only designed to generate maximum individual wealth but also to establish churches, mosques, synagogues, art museums, public parks or health clinics or community centers which are the strong illustrations of selflessness motive of human beings as these institutions don’t make anyone a tycoon.

So, if the flaw of economic theory based on one dimensional person is recognized and replaced with one based on multidimensional person (a person who has both selfish and selfless interests at the name time), then the problem would be solved (Page xvi, Building Social Business). So, a new kind of business known as social business should be self-sustaining, that is, it generates enough income to cover its own costs and part of the economic surplus is invested in expanding the business, while a part is kept in reserve to cover uncertainties.

Moreover, in this kind of business, the company makes a profit, but no one takes the profit (Page xvii, Building Social Business). So, this is the way how social business actually gets started in traditional business. More Industries Are Getting On Boa rd The immediacy of the social business opportunity is growing across industries, another indicator of its move from faddish hype to business value. Between last year’s study and this year’s, respondents from all industry sectors increased the value they place on social business. None remained at the same level.

While Media (entertainment, media and publishing) and Tech (IT and technology) continue to lead demonstrated a marked increase in the value of social business. Of particular note is the Energy and Utilities sector. The number of managers in this sector who feel social is important surged from 7. 1% to 29% from last year. Of the multiple factors driving the growth, this sector’s increasing efforts to engage with customers is the most significant. Pike Research estimates 57 million customers’ worldwide used social media to engage with utilities in 2011.

Pike projects that number will Jump more than 10-fold to 624 million by the end of 2017. 2 While utilities currently use social media to resolve billing issues and provide information on services, they are expanding social media use to include crisis/outage communication, customer education (for example, information on recycling, renewable energy and energy efficiency), customer service, green energy promotion, branding and recruitment. Utilities are beginning to see the value of social listening to keep abreast of consumers’ interests.

This is especially the case as new types of competitors enter the market, including solar power and energy management providers. Market Drivers Business leaders are keenly aware that social is becoming a primary tool that people use to share information and create knowledge. The summarization of technology is making everything from tablets to smart phones as popular inside the enterprise as they are outside its walls. In addition, companies want their brands to be where their customers are -? and where competitors already might be. Social business is capturing significant business attention.

McKinney, for example, reported that social can create as much as $1. 3 trillion in value in the four business sectors it examined (consumer package goods, consumer financial services, professional services and advanced manufacturing). 3 Suppliers are covering all bases from marketing to social enterprise networking. In the social marketing software market, which includes a wide range of vendors from established players like Adobe, Lithium and Salesrooms. Com to a multitude of startups, Forrester predicts that the landscape “will look dramatically different in two years. Leading vendors will partner and merge, and stragglers will be “swallowed or trampled by larger players from outside the social space. “4 In the enterprise collaboration software market, Garter recently announced its revenue projection for team collaboration platforms and enterprise social software -? $2 billion by 2016, with a notable five-year compound annual growth rate of 16. 1%. 5 But perhaps the strongest harbinger of socials growth is the closing generation gap. It’s not Just young people or Millennial,” says Bill Ingram, vice president of analytics and social at Adobe. It’s everyone, including grandparents who want to follow how their children and grandchildren are growing up. ” Dolomite’s seventh annual State of the Media Democracy survey put hard numbers to the closing gap. The survey found that both Generation X and Baby Boomers see increasing value in social media: 81% of Generation X respondents and 70% of Baby Boomers see it as a powerful tool to interact with friends. And both generations have jumped on the testing bandwagon: nearly 80% of Generation Seers and nearly 60% of Baby Boomers see social networking sites, instant messaging and testing as an effective means to stay in touch.

Current situation of ‘Social Business”. From the example of Bangladesh, we are already aware of the name and fame of the world’s first Yuan’s-type social business, Grahame Deanne Foods Ltd. (GAFF), which started its Journey in early 2007 and promised to offer its ‘Shooting’ (yogurt) at cheap rates to help poor people, mainly children and women in Bogart district, get nutrient- rich foods. Other objectives of GAFF are to promote local business activity and to indirectly create Jobs in the agricultural industry, or in sales and distribution.

To ensure the initiative’s long-term success, the idea was to offer appropriate micro- financing solutions and professional training tailored to the people from local communities who will be taking part in the project (extracts from press release published by Grouper Deanne on March 16, 2006). The GAFF then planned to set up and launch as many as 50 production plants during the 10 years between 2006 and 2016. The first factory was built in Bogart, with a daily production capacity of 3,000 kegs to 10,000 kegs.

The plant was built only on 75,000 square feet areas which included milk reception, mixing and fermentation, a filling line, packaging station, a laboratory, a cold room, a storage room, and office space (Hussein, Chowder & Hussein, Page 257- 258, Volvo. 2, No. 4, World Journal of Social Sciences, July 2012). At an initial stage though, the GAFF had faced many problems regarding its marketing and distributional procedures but later, after getting matured as a company, it learnt to cope up with present market structure which proves that a social business can indeed be sustained and is better than any other form of charity.

In the words of Professor Yuan’s, “A charity dollar has only one life; a social business dollar can be invested over and over again”. The organization, Yuan’s Social Business (YES), is now currently working in Haiti and Albania. The Haiti Initiative was launched in 2010 by the Yes’s predecessor The Grahame Creative Lab with corporate partner SAP GAG to foster prospective social businesses through financing and incubation. In March 2013, Professor Yuan’s, Sir Richard Brannon, founder of Virgin Unite, and former US President Bill Clinton, founder of the Clinton Foundation, announced the launch of a ewe social initiative called Haiti Forest.

The partnership aims to solve social and environmental problems in Haiti by bringing sustainable, productive and socially responsible forests to the country. Ten thousand hectares of land are being promised by the Ministries of Agriculture and Environment to develop the new, bold Haiti Forest Initiative (WHIFF) in Ammonite and northern part of the country. The WHIFF has full support of the government of Haiti and is in line with the priorities of the government to support long-term reconstruction efforts, especially those that create bobs and promote economic opportunities.

The multi-year project will provide affordable food, timber, and employment in Haiti, and will be organized as a social business – a company set up for maximizing social benefit rather than private profit. The social business movement of Albania is a program started by the YES in April 2012 to initiate and scale up social businesses throughout the country. Started at the request of Albanians Prime Minister, and working hand in hand with an agency created by the Albanian government for promotion of social business in Albania, Anxiety e Busiest Social SSH. A. He program includes the incubation and investment as main focal points. Later in January 2013, Yuan’s signed a memorandum of understanding with Tirana Business Park, an Albanian investment of the German business. The Mom was signed at the Tirana Business Park construction site in Albania in presence of Prime Minister Sail Bearish. Working together with the Department of Human Development (SODS) of African Development Bank (BFD) and financed by the Policy and Human Resource Development Grant of Japan (PHRASED), the YES launched a holistic social business movement in Africa in December 2012.

As part of this movement, the YES and the BFD will first raise awareness through national conferences on social business in Tunisia, Togo, and Uganda and subsequently will establish social business incubators and funds in Tunisia and Togo in the second half of 2013. The national conference on social business in Tunisia took place in March 2013, at CHIC in Cartage, Tunisia. Proof. Yuan’s launched a number of social business initiatives in Brazil during his visit there from May 27-29, 2013.

The Bank of America announced the creation of a Yuan’s Social Business Fund for Brazil during his stay there. SEEM, a leading business school in Brazil, also launched Yuan’s Social Business Centre which will develop academic curricula around social business. Brazil Foods (BRB), one of the largest poultry companies in the world, has announced a Joint venture social business in Haiti for developing poultry business in the earthquake-affected island. Italian city of Patois was announced as first social business city on July 11, 2012. Key Findings (What’s working and what’s not? : In his book, he cites a key principle that may be controversial, which is that- “Nags do a lot of good work in the world. But the charitable model has some inherent weaknesses, which led me to create the concept of social business as an alternative. Relying on charitable donation is not a sustainable way of running an organization. ” There’s lots of talk, a lot less action when it comes to putting together a social business plan that harnesses value from platforms like Twitter, Backbone, and Linked, according to a report by the MIT Sloan Management Review and the consulting firm Dolomite.

For the second year in a row, researchers surveyed more than 2,000 executives from 25 industries and 99 countries, and conducted interviews tit nearly three dozen executives and social-business thought leaders. Their conclusion: The importance of social is growing across all industries. But the emergence of socially-connected enterprises isn’t fast. According to the report: Between last year and this year, respondents from all industry sectors increased the value they place on social business. None remained at the same level. None reversed course.

However, progress is slow. How slow? When asked to rank their company’s social business maturity on a scale of one to ten, more than half of respondents gave their company a score of three or below. Only 31 percent gave a rating of four to six, and Just 17 percent ranked their company at seven or above. Aptly described by Gerald Kane, a professor at the Carroll School of Management at Boston College, social business has passed “the peak of faddishness” and companies are “starting to crack socials code and turning to it for business advantage, intelligence and insight. Surprising data about how early adopters are integrating social platforms into operational strategies. Where early adopters are using social business Even more intriguing is how some companies are using social platforms to change he way work gets done. Here are three examples: Marketing and Sales. It’s no surprise that respondents rank marketing and sales as the top two functional areas for social media. But “social selling” is becoming more sophisticated. Morgan Stanley, for example, combined Linked and Twitter in a way that helps financial advisors acquires new clients and build their books of business. People reveal life-event information like promotions on social media that can be a gateway to a financially oriented conversation,” Lauren Bowman, director of digital strategy at Morgan Stanley Wealth Management, explained in the report. To that end, Bowman said Morgan is providing financial advisors with materials (vetted by the company’s compliance organization) to help them “build up credibility and develop a trusted reputation” based on their expertise. The results of the campaign are striking.

According to the report: Approximately 40 percent of participants brought in new business and one landed a $70 million account. Supply Chain Management. Pharmaceutical company TVA began its social business program with the goal of reducing time expediters, outside vendors and managers spend resolving supply-chain problems. The solution dubbed Radar came in the form of a Backbone-like social networking environment where employees and partners collaborate, share data, blob, and comment about problems in real time.

Nadine Jean-François, Tepee’s director of supply chain management, told researchers that Radar has improved cycle time and provided greater visibility into operational issues. Recruitment. Covariance, a pharmaceutical services company, turned to Twitter as a major weapon in the talent wars. The idea was to match prospective Job candidates with current employees outside of the actual hiring process. We have learned through years of traditional recruiting that [Job candidates] like to talk to global recruiting & diversity “They want to understand what their experience would be working here.

The best people to answer those questions are the leaders in those roles. ” To build those relationships, Covariance recruiters work with marketing to develop content about research that company scientists can tweet out to their followers. When a position opens up, Covariance follows up with a message to would-be candidates. The flaw in this rapidly evolving social business model is how to measure success. The report, while thought-provoking, does little in the way of presenting a road map of how to tie social tools to operational and financial metrics. Even the anecdotal evidence is light on prescriptive advice.

To be sure, as the authors note, in the time it takes to read the full report, millions of tweets have been posted to Twitter, tens of millions of new postings have appeared on Backbone, and thousands of hours of new video are streaming from Youth. What value all that activity will bring to the socially connected enterprise is anybody guess. Harder still, is how to measure its success. Conclusion and Summary This report reaches a few main conclusions about why social businesses are so difficult to maintain. The first reason, which I mentioned before, is that all new small businesses are difficult to maintain.

In fact, I would’ve liked to have seen a comparison of the staying power of social business start-ups versus nonprofit startups. Outside of that point, the paper argues that there are some “salient differences” between nonprofits and businesses that create an unbridgeable gap for those organizations trying to achieve both. I would like to highlight a few key points s they relate to Yuan’s’ approach: a) The nonprofit approach has as its central mission to fulfill its social mission, while the business approach has as its central mission to generate a positive financial return.

I can see how the difference highlighted here can be perceived as an unassailable problem. In fact, it is not difficult to find examples from the past year in which micromanage institutions have abused their impoverished clientele for the sake of profit. The rebuttal would be, I think, that in a social business the social mission is the central mission and the business is the vehicle for delivery. In edition, the revenue-producing approach might also be viewed as a hedge against poor donor funding. ) The nonprofit approach delivers the bulk of its financial resources to the clients, while a social business makes significant expenditures on infrastructure such as technology and business management. I suppose that upfront costs for a social business are higher than that of a strict nonprofit. However, the idea behind a social business is that all expenditures are aimed at providing people in poverty with means to help themselves become self-sufficient. The upfront costs of a social business do not necessarily have to be unreasonably high.