Not unexpectedly, theories of business exist in a wide range of forms, just as variations of such theories have evolved over the years to conform to social and economic changes. Arguably, traditional theories of business generally relied upon pragmatic concerns, autocratic leadership, and commercial ambitions as dominant. As business itself has undergone immense change, however, new theories are developed to address the modern reality of rapid shifts in markets and potential effects of technologies. Further complicating the matter is how, as business becomes increasingly globalized, human rights and corporate governance become inextricably linked, and the corporation/business is expected to meet high standards of corporate social responsibility (CSR) (Ruggie, 2014, p. 8). In such an immense and volatile climate, it is difficult at best to present any single theory of business which may accommodate the business’ need to survive. Then, it is inescapable that different types of businesses must adhere to theories particularly suited to their individual interests and product/service offerings. Nonetheless, and as is discussed in the following, one specific theory seems applicable to most businesses in the modern world, and this may be best described as thinking that embraces the unforeseeable, or theory based on the confirmed reality that commercial survival often relies upon committing to practices or efforts securing stability while venturing into risk-taking.
To comprehend why risk must be an inherent part of business theory, it is first necessary to note the vastly significant changes which have taken place in Western society, and which invariably dictate the directions in which businesses today move. In plain terms, the industrial age’s having given way to the information age has immeasurably altered business of all kinds, and perhaps the most critical element of this is how largely unforeseen this revolution was. Virtually no one “saw it coming” save those entrepreneurs first determined to create the personal computer, and it is no small matter that electronics giant IBM failed to appreciate this potential. As Drucker indicates, a primary reason for the gradual decline of the once-powerful IBM may be seen in its inability to comprehend precisely how the personal computer would not merely supplant the accepted idea of an informational mainframe, but also create what would become a new and vast market based upon individual usage and choices (1994, p. 99). Viewed in a certain way, this immense example of social/commercial change supports how, before the change occurs, it is often perceived as unlikely or even grossly unrealistic. IBM made the logical assumption that information would be shared from a central mainframe, which utterly ignored the highly attractive “personal” component of the PC. Had the company exercised more in the way of innovative thinking, it might have positioned itself where Microsoft is today.
Moreover, there is significant evidence that companies today are increasingly focused on innovation and risk-taking; a survey of over 4,000 businesses found that the majority of CEOs are insistent upon developing new practices and ideas (Amit, Zott, 2012). It appears that the lessons from the PC, as well as from such groundbreaking corporations such as Starbucks, which applied risk in its strategy of saturation, are not lost on modern businesses. Essentially, the realm of commerce learned within a few decades that it is unwise to dismiss any idea or approach as intrinsically unfeasible, and because there is such vast evidence that the consumer public will often ignore the product most rationally designed to please it and turn to the product frequently presenting challenges. Then, “risk” is not as daunting a process as it may appear. As companies develop and foster innovation, there are degrees of risk which may be undertaken and which do not necessarily threaten the business. It must as well be understood that observed risk is very different from underlying risk; more exactly, business may engage in risk-taking that is controlled/observed and which places the company in no actual danger, provided the innovation approaches are made with caution (Michelacci, Schivardi, 2013, p. 345). Stability and risk-taking, in other words, are not mutually exclusive practices in business. It must also be noted that any risk-taking must be taken with the awareness that knowledge connectivity is central to success. Studies of international business and the multinational enterprise (MNE) consistently indicate that companies which fully engage in knowledge-sharing during innovation processes are more likely to succeed (Cano-Kollmann et al, 2016, p. 258). This, as with an emphasis on securing the business’ platform, reduces the risk in taking risks, and permits more in the way of productive innovation.
Without question, business models have radically altered since the advent of the information age, which in turn promotes the globalization presenting both opportunities and challenges to business. It seems that modern companies,large and small, have accepted the reality that staid theory and traditional models no longer apply, just as advances in technology create exponentially rapid changes in public consumerism. Success today then depends upon the business’ awareness that it must look beyond what appear to be the parameters of public desire, and seek to anticipate – or create – what will be sought after in the future. This in itself encompasses a vast range of products and services, from smartphone advances to wholly green merchandise. Ultimately, then, modern business theory that emphasizes innovation and degree of risk is theory that is increasingly essential. This is theory that may be best described as corporate thinking that embraces the unforeseeable, or an approach centered on the reality that commercial survival often depends upon committing to efforts securing stability while engaging in risk-taking.
- Amit, R., & Zott, C. (2012). Creating value through business model innovation. MIT Sloan Management Review, 53(3).
- Cano-Kollmann, M., Cantwell, J., Hannigan, T. J., Mudambi, R., & Song, J. (2016). Knowledge connectivity: An agenda for innovation research in international business. Journal of International Business Studies, 47(3), 255-262.
- Drucker, P. F. (1994). The Theory of the Business. Harvard Business Review,72(5), 95-104.
- Michelacci, C., & Schivardi, F. (2013). Does Idiosyncratic Business Risk Matter for Growth?. Journal of the European Economic Association, 11(2), 343-368
- Ruggie, J. G. (2014). Global governance and “New Governance Theory”: Lessons from business and human rights. Global Governance, 20(1), 5-17.