The Social Construction of Business Models

One of the tricky parts of doing social science is that a lot of the things that we try to study are not actually real. Or, as Steve Horwitz puts it in an interesting post trying to define Austrian Economics:

The “facts” of the social sciences are what people believe and think.

This has some important implications. One of them is that we always need to question the assumptions that underlie what we do. Many of the elements of the markets and environments that we work in are actually socially constructed. This means that they exist and have meaning because we all agree that they exist and have meaning.

One dollar bill

One of the best examples of this is money. A dollar bill doesn’t have any inherent value. We are able to use it to buy things because we all agree that it has value, and moreover, we all agree (roughly) what that value is (here is a paper explaining how this works in a fair bit of detail).

One consequence of this agreement is that we take money for granted – it’s just there and it works. But the form of money that we use has biases built into it – that is one of the points that Douglas Rushkoff makes in this talk summarising some of the points from his book Life, Inc.:

The thing about social constructions though, is that since we’ve built them ourselves, we can also change them ourselves. If we start to question some of these deeply embedded concepts, it actually provides opportunities to create new things. We tend to think of money as the something that we get from banks. But if you start to question the basic assumptions around money, you start to realise that there are range of creative ways that we can redesign the money business model.

If you search for “the future of money”, you’ll get a Wired magazine article, a book, and a web project – just for starters. The web project includes this video talking about some of the ways that money could change once we start thinking about it:

The Future of Money from KS12 on Vimeo.

There are a lot of different ideas about how to best create and exchange value flying around. As people experiment with these, we’ll start to see which ones might work, and which ones aren’t as good. I’d be surprised if we don’t see some significant changes to the way we conceptualise money over the next 10 years or so.

There is an important innovation story in all of this as well: to find opportunities to build new business models, look for socially constructed platforms in the economy, and look for opportunities to redesign them.

Here’s an example closely related to the ideas around money – personal lending. In What’s Mine is Yours, Rachel Botsman and Roo Rogers include an interesting discussion of the evolution of the personal lending market. They include this illustration of the changes (also available on the book’s website):

Take a look at the initial state – personal lending was in the domain of banks. Then we started to see peer-to-peer lending systems, building on the micro-finance idea. The cutting edge in this area right now are collaborative systems that are built around alternative currencies. And the future (and a great source of opportunity) is building reputation-based exchange systems.

None of these innovative business models would have happened if people hadn’t first questioned the basic assumptions upon which money and lending are built. But once these assumptions are questioned, then the opportunity arises to build novel business models that are based on a different socially constructed system. This is one very interesting method for finding innovative new business models.

What’s Mine is Yours has a number of good examples of how new business models can be built out of collaborative systems. I’ll talk more about these later this week.

But for now, just think about this idea of social construction. Most of our economic systems are built on concepts that exist simply because we all agree that they do, and which also have an agreed-upon meaning. If you start thinking about these concepts, you can find ways to build systems based on different concepts.

This is a great opportunity for business model innovation.

(photo from flickr/Sami Keinänen under a Creative Commons License)

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

5 thoughts on “The Social Construction of Business Models

  1. I’m not suprised that the “future of money” project has been gaining momentum in recognition, first with the presentation at Sibos, then a few posts from reputable sites speaking about it and of course the conversation going on around the networks involved.

    And now spread into innovation. Innovation and the mindsets, concepts, frameworks are all going to be very important factors for this, obviously the hard part is unlearning so we can learn new ways, of which i think we first had to learn to trust each other, collaborate and now hopefully learn to share the wealth and if that is going to be done, we must invent “memes” that compliment the new social construction….

    If you read this pots by Venessa

    you will notice that her “rant’ is actually an unsolicited expression on her part that states very key elements of jobs to be done in relation to this…

  2. Thanks for the comment Spiros. I agree that unlearning is a critical part of all of this – that’s a good way to summarise the main point of this post, actually.

  3. “Perception is reality” but while soft constructed reality can be extremely resilient to change – prejudice & bias distort “reality” to keep it consistent with what we think.

    My experience is that its the soft aspects of change (culture) that are the hardest but once culture kicks in then change comes quick and easy.

  4. I would agree with that Martin – one of the other examples that I had in my notes for this post but didn’t include was organizational culture. It’s definitely socially constructed, and like you say, often very difficult to change.

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