Innovation, Business Models, and Catastrophe: Reframing the Mental Model for Innovation Management

The pursuit of dominance in the market to gain control over market access can be called the pursuit of inverse monopolies (Glauner 2016). The market strategies and negotiating power of leading retailers show the mechanisms behind such inverse monopolies. According to a report published by German anti-trust officials in April 2014, 85% of the German food retail industry is dominated by a mere four companies: Aldi, Edeka, Lidl/Kaufland, and REWE. They use their power to force suppliers in increasing dependence, while also engaging in a strategy of flooding the market with discount to premium store brands. Traditional brands are under pressure from three sides, which only reinforces the monopoly-lite power of the big four retailers: First, small to mediums-sized producers are forced to accept often ruinous discounts and bonus payments, and even subsidize the shelf space and marketing campaigns for their products. Second, since the retailers do not expect the same discounts or payments from their own store brands, the independent producers are placed at a natural disadvantage. This is made worse by a third aspect of the strategies used by the major retailers: The creation of store brands often goes hand in hand with more vertical integration, with retailers acquiring or establishing own production and processing facilities. This in turn gives the retailers even more leverage. A recent comparative advertising campaign by Lidl pitted well-known brands against the discount retailer’s own brands, representing a type of price war against products on offer by Lidl itself: A radio advert compared the sound of opening a bottle of Lipton’s ice tea with the sound of a Lidl ice tea, with a voice over asking: “What’s the difference? Lipton’s ice tea, €1.50. Lidl ice tea, €0.49”.

“In 1990, 1.9 billion were living in extreme poverty. By 2015 that number had been cut by more than half, to 830 million, while in parallel the global middle class had almost tripled. And most citizens of advanced economics today command goods and services that were beyond the reach of even kings and emperors only 200 years ago“(Stuchtey et al. 2016, S. 8). Even if these figures sound extremely positive in the abstract, they need to be taken with a pinch of salt: As the Pew Research Center authors Rakesh Kochhar and Russ Oats stress in their study “A global middle class is more promise than reality”, poverty is defined as an income of less than $2 a day, average and high middle-class income as $10.01 to $20 or $20.01 to $50 per day, and high income as $50 per day. People above the global poverty line and up to those defined as the global middle classes therefore have an income of between $730 and $7300 per year: “Even those newly minted as middle class enjoy a standard of living that is modest by Western norms. As defined in this study, people who are middle income live on $10–20 a day, which translates to an annual income of $14,600–29,200 for a family of four. That range merely straddles the official poverty line in the United States—$23,021 for a family of four in 2011” (Kochhar und Oats 2015, p. 6).

Referencing Ayres and Warr (2005, 2009), Stuchtey et al. (2016) have revealed that the exponential growth since the industrial revolution has for the most part been due to the exploitation of fossil fuels and other natural resources: “Taming wind and hydro energy, and inputting them into the economy, once allowed mechanization of grinding, pumping, sawing, irrigation and many other laborious tasks … Taming coal and vastly increasing the amount of energy put into the economy was crucial for the first industrial revolution. While our modern economy has of course moved on from horses and steam engines, it is still striking how many industries continue to depend heavily on natural resources: food, transport, construction and all primary material production, for instance” (Stuchtey et al. 2016, p. 59). The idea “that the success [of modern day wealth creation, FG] is largely built on transforming natural capital, the economist’s word for natural resources, into other forms of capital” (Stuchtey et al. 2016, p. 9) leads them to conclude that today’s untenable rate of resource depletion will lead to an inevitable collapse in the accepted model of constant economic growth: “Since the mid-1980s and with ever-increasing speed, environmental depletion has reached a global scale and scope where it actually starts to threaten the viability of our model of wealth creation itself. Our economy has grown so big, so fast, that it is quickly depleting the very same natural capital on which it thrives. In a way, it is falling victim to its own success” (Stuchtey et al. 2016, p. 11).

One is the human pursuit for differentiation, analyzed by Pierre Bourdieu (1982). It triggers our continuous search for new products, which we want to consume more often than not simple in order to show that we can do it. The other two are the economic spiral of prices and innovations and the need to yield interest on invested capital (Glauner 2016).

This can be shown not only with a view to the formation of bubbles, but even more so for one of the core inventions of economic transactions: the invention of money. Money, whether it be a thousand dollar bill or the Rai stone money of the Micronesian people of Palau and Yap weighing up to 5 tons, always carries its wealth only by force of the trust people put into it and into its owners. Such trust is a social, not a physical construct. As vast numbers of bursting bubbles show, it can vanish in seconds, leaving nothing else behind but waste paper and stones.

Following Pierre Duhem (1908) and Thomas Kuhn (1962) on the paradigmatic nature of scientific theory formation and Heinz von Foerster (1972, 1987) and Ernst von Glasersfeld (1995) on the cybernetic construction of reality, we have to admit that the objects of scientific enquiry are essentially constituted by the theories and observation / measurement processes we bring to the equation. But our perception of the world is not just dependent on the theories we espouse. It is also un- or underdetermined by its objective nature (Quine 1960). What we experience as existent has always been ‘ontologically relative’ (Quine 1969). The world is changing in the wake of new theories coming to the fore—our many scientific revolutions—in its basic form, function, and make-up. This now implies that the world can be described in many different ways and that no single way can lay claim to absolute truth. As Paul Feyerabend argues against the adherents of a positivist science and logical positivism and against the deceptively enlightened methods of rational science, such as Popper’s fallibilism (Popper 1935), all descriptions of the world are allowed. There is no one method with a rightful claim to universal validity: “anything goes” (Feyerabend 1975, 32).

As John Searle argues with good reason, the forms and laws of our social world, that is, the world of our man-made institutions and belief systems, are made by our declarations. Declarations are statements which bring about the fact when uttered, as the statement “You are fired!”, said by a boss to his or her employee, brings about the very fact it states. As Searle concludes with a view to our social practices and belief systems, “all of institutional reality, and therefore, in a sense, all of human civilization, is created by speech acts that have the same logical form as declarations “(Searle 2010, 12f; vgl. 1995, 59ff und 1969, 50ff und 175ff). These declarations are mirrors of the culturally informed hopes and aspirations that we carry into the world.

This explains why even Michael Jensen nowadays prefers to talk about integrity and morality, instead of how to control misconduct. As one of the founders of the principal-agent approach, which was built on the concept of mistrust, his recent thinking on integrity and morality as “powerful access to increased performance for individuals egoism, groups, organizations, and societies” (Erhard et al. 2009, see also Erhard et al. 2016) acknowledges that stick and carrot systems designed to address defection and non-cooperative behavior do not serve to raise trust. Referring to integrity and morality in this sense is an alignment to the humanistic insight that only mutual trust and faith serve to raise what Elinor Ostrom and Richard Sennett call the social capital that is needed if a business wants to excel (Ostrom 2000; Sennett 2006).

This self-fulfilling prophecy becomes most apparent in our mental model of who and what man is. We can see opposite ideas of the nature of humankind: on the one side Thomas Hobbes’ homo homini lupus, assuming that our bio-psycho-social conditioning makes us inherently evil and our actions selfish, uncivilized, and self-interested (Duerr 1988; Dawkins 1976) and, on the other side, the emancipated and enlightened idea of Jean-Jacques Rousseau and Immanuel Kant, who considered man to be empathetic and good by nature, capable of behaving in a civilized and cooperative fashion in normal circumstances (Elias 1939; Bauer 2006, 2008). In fact, and on well-established biological and historical grounds, we have to acknowledge that we are both (de Waal 2005; Harari 2015). Even though this is true, it still remains the case that individual people tend to think one way or the other. And this mere belief alone already triggers an expectancy loop which most often leads to its own fulfillment.

Robert Frank understands this race about relative gains to be the basic principle of the present day “Darwin economy”. Its internal logics consists in “the fact that individual and collective incentives diverge when relative income” or gains matter (Frank 2011, p. 44). Since in most economic games of competition, relative gains of individuals matter more than absolute gains of the group or the whole system, these divergent interests of individuals and groups trigger behaviors and “arms races” that not only cause enormous harm to the group, but tend to lead systematically to market failures which, in the end, offset any lasting advantages even for the most successful individuals in the system (Frank 2011, 30ff).

As Bernhard Kegel says with a nod to Gilbert et al. (2012), the biological concept of individuals should be dropped in favor of the idea of holobionts, that is, of symbiotic systems that engage in value-adding interactions with other similarly symbiotic systems (Kegel 2015, p. 309). Even though this statement is highly problematic if we see it from the human cognitive perspective—i.e. if we take into account that most of our ethical, philosophical, psychological, religious, social, and economic concepts, theories and world views and thus our basic understanding of rights, duties, liabilities, and responsibilities depend on the concept of a conscious, self-reliant and free-willed person—the cognitively necessary concept of an individual can be challenged in biological terms. This is due to the fact that all species of a higher order, such as mammals, birds, insects or fish, have to be understood as complex systems of living entities (cells, bacteria …) which need to interact symbiotically if those smaller entities (cells, bacteria …) and the higher system they constitute want to stay alive. This holds true for all living systems of a higher order, be it a rabbit, a bee, a wolf, or indeed homo sapiens. Another example of this would be the complex root systems of forests. We now know that trees not only live and thrive in symbiosis with mycorrhizae, but actually use that symbiotic network to communicate with other trees to protect each other’s survival (Hachtel 1998).

A good example is Wincor Nixdorf. With its branch of automated teller machines, it competed on a global level with only two rivals, Diebold and NCR. After years of fruitless effort to step up from global number three to either number two or number one, Wincor decided in 2015/2016 to sell its business to the market’s number two, Diebold, as they believed that remaining number three would not suffice to reach the planned turnover targets that could sustain Wincor in the long run.

The micro-level concerns the relationships between companies and people (employees, customers, suppliers, and business partners); the meso-level concerns the relations between companies (suppliers, clients, or competitors); the macro-level covers the relationships between companies and the systems surrounding them, be they external stakeholders, politics, or society at large; and the supra-level concerns the relations between companies and the environment.