Per Bylund: The Austrian School Approach to Business versus the Business School Approach
Business is a form of applied economics. Its purpose is to make people’s lives better. Profit is the signal from society that business is doing a good job in the customer’s estimation. This is a completely human system, a form of human action and interaction. Business schools take the approach of mainstream economics, that mathematics is the tool of choice, expressed in data analytics, accounting, financialization, and numbers-based plans and strategies. The Austrian school approach offers a very different path. Professor Per Bylund joins the Economics For Business podcast to highlight some important differences.
Key Takeaways and Actionable Insights
Business logic based on understanding subjective value.
The purpose of business to facilitate customer value. The pursuit of new economic value brings new firms into existence, the continuing realization of new value experiences for customers results in business growth, and recurrent refreshment of value propositions keeps businesses thriving and healthy.
Consequently, value is fundamental to business. Yet it is widely misunderstood. Sometimes it’s misconstrued as shareholder value, a function of stock price performance. Usually, it’s financialized as a set of numbers and indexes.
True value is in the mind of the customer. It’s the experience of feeling better off as result of interacting with a business — making a purchase, taking a subscription, or using a service that makes life feel better, and that feels like a superior choice compared to alternatives.
Customers decide what to value, and therefore what to purchase, and thereby decide the success of a business. All businesses must learn this value logic, and Austrian economics for business provides the understanding that points to the implications for business action.
Thinking in subjective terms.
An understanding of subjective value reverses the flow of business thinking. It’s easy and conventional to think in objective terms about products and prices — what a firm produces and offers and the price the firm charges. It’s harder and somewhat counter-intuitive for businesses to think about how each individual customer feels — what’s important to them, individually and personally, about the unique ecosystem in which they make their choices (e.g., their family profile, what kind of a house they live in, or the subjective resource allocation priorities of each of the individual firm they work for).
The customer decides what is valuable to them, and that’s the basis from which business action must proceed.
Business is a creative discipline. Because customer preferences and priorities are continuously changing, because competition is continuously aiming at making a superior customer proposition, because technology is
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