Islamic business model Monash University Conference

SME – Entrepreneurship Global Conference, Melbourne 3-4th July, 2008

Murray HunterSME Unit

University Malaysia Perlis (UniMAP)

Towards an Islamic Business Model: A Tawhid Approach

Images of Islam

The Islamic world today

The Islamic world today

December 26 2004 More than 180,000 Indonesians are killed and over 600,000 listed as missing and homeless after a massive undersea earthquake off Sumatra triggers a series of tsunami

February 21 2005: A landslide sweeps through two West Java villages near a garbage dump on the outskirts of Bandung, killing 96 people

March 28, 2005: More than 900 people are killed after a quake of magnitude 8.7 hits Nias on the coast of northern Sumatra. Around 500 more are injured and 2,000 left homeless

July 20, 2005: Indonesia confirms its first deaths from bird flu. Tests on a father and his two young daughters, who lived in Tangerang on the outskirts of Jakarta, show they contracted the killer virus

Sept 2005 – February 2006 More than 200 people killed in Flash floods and Landslides

January 2007

More than five

hundred people die in ferry

disaster

February 2007 – Heavy rains cause major flooding in Jakarta more than 50 people die over 300,000 have to move from their homes

December 2007/January 2008 Floods and mud-slides in Central Java leave 130+ dead, thousands homeless

Need for an Islamic Model

The nature of man

The amoral society

The underdevelopment of Islamic societies

Islam Espouses a Market Economy

“He who brings goods to the market is blessed with bounty,

he who withholds them is cursed.”

(Ibn Majah & Al Hakim)

A Market Mechanism Is Espoused

“Do not chase after those who are going to the market before

they reach the place.”

(Al-Bukhari & Muslim)

Islam also prohibits price manipulation

“Anyone who withholds goods until the price rises is a sinner.”

(Muslim).

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Faith in one God and a commitment in the teachings revealed by God and His Messengers. Iman affects our world view and daily practices.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

The path shown by Allah (SWT). The divine law.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

A holistic life where one looks after worldly comforts and also prepare for the

hereafter.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

An individual’s obligation to perform one’s religious

duties.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Knowledge. Three sources based on Iman, a) intellect (‘aql), experiences and revelations

(wahy). Guided by Iman.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Work and deeds, pious practice, orientated to Allah, turning away from all weakness and evil. Amal is

based and guided by Iman and Ilmu.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

A collective responsibility for both social and spiritual development

Toyyibaan & Halal

• This day are (all) things good and pure made lawful unto you. The food of the people of the Book is lawful unto you and yours is lawful unto them. … If anyone rejects Faith, fruitless is his work, and in the Hereafter he will be in the ranks of those who have lost (all spiritual good).

Al-Ma’idah5:5

• O you people! Eat of what is on earth, lawful and good; and do not follow the footsteps of the evil one, for he is to you an avowed enemy.

Al-Baqarah 2:168

• From the land that is clean and good, by the Will of its Cherisher, springs up produce, (rich) after its kind; but from the land that is bad, springs up nothing but that which is niggardly: thus do we explain the Signs by various (symbols) to those who are grateful.

Al-A’raf 7:58

• O ye who believe! Eat of the good things that We have provided for you, and be grateful to God, if it is Him ye worship.

Al-Baqarah 2:172

Clean

Healthy

Non Exploitive

No Najis/Haram

Sustainable

Community Benefit

Toyyibaan

Substances and deeds that are good, healthy, pure, clean and lawful.

Prohibited by Allah in the Al-Qur’an

Permitted by Allah in the Al-Qur’an

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Mutual consent

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

A business partnership;a) Shirkah: where two or more individuals pool financial

resources and share profit and loss on an agreed ratio and held liable to the

extent of their capital,b) Syari’ah: each partner is able to operate other

businesses, independent of the principal businessc) Mudarabah:Partnership

where one manages the partnership and another supplies the financial resources.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Worship. Relates man to Allah through spiritual acts. The manifestation of Amal salih

(pious actions).

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Piety

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Recognition of the right and proper place and station, condition in life and to self discipline in

positive and willing participation in enacting one’s role in accordance with that recognition and

acknowledgement. Its occurrence in one and society as a whole reflects the condition of

justice.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Trust by God in man in the all encompassing concept of nature

(tabi’ah)

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Inclination towards destruction

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

The concept of Al-Falah requires Muslims to win and be successful in both this world and the hereafter.

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Islamic community

Tahwid: A relationship with Allah which excludes a relationship with anyone else.

The focus of all man’s reverence and gratitude, the only source of value, where what

Allah desires for man becomes value to him. Man who commits his will to Allah,

recognises no other authority other than His. Comprises Iman, Ilmu and Amal.

1920

1910

1930

1940

1950

1960

1970

1980

1990

2000

Economic Thought Production Thought Strategic Thought Organisational Thought Management Thought Leadership Thought Creativity/ Cognitive Thought

Pre 1800s

1800s

1900

Richard Cantillon (1725) Self Employment & Uncertainty

Vilfredo Pareto (1897) The Pareto Principal

F.H. Knight (1921) Role of Uncertainty

J.A. Schumpter (1934) Role of Innovation

F.A. Hayek (1937) Entrepreneur as an agent of change

P.W. Andrews (1949) Competition of the firm

E.F. Schumacher (1973) Small is Beautiful

Frederick W. Taylor (1903) Scientific Management

Henry Ford (1923) Mass Production

W. Edwards Deming (1950’s) Statistical Quality Control Joseph Juran (19950’s) Quality Management

Philip Crosby (1979) Quality is Free

Hayes & Wheelwright (1984) Manufacturing Competitive Advantage

Womack, Jones & Roos (1990) Lean Production

Alfred Sloan (1963) Functional Management

Champy & Hammer (1993) Re-engineering

Sun-Tzu (500 B.C.) Art of War

Igor Ansoff (1965) Corporate Strategy

Bruce Henderson (1963) BCG Matrix

George Steiner (1979) Strategic Planning

Michael Porter (1980) Competitive Advantage

Kenichi Ohmae (1982) The Mind of the Strategist

Henry Mintzberg (1994) The Rise and Fall of Strategic Planning

Fons Trompenaans (1993) Cultural Diversity

Asma Abdullah (1995) Going Glocal

Philip Kotler (1980’s) Marketing Management

Procter & Gamble (1931) Brand Management

Thomas Watson Sr. (1950’s) Customer Orientation

Ted Levitt (1960’s) Market Orientation

Jerome McCarthy (1960) 4Ps of Marketing

Chester Barnard (1938) Shared Values

Burns & Stalker (1961) Organic Organisation

Joan Woodward (1965) Technology & Organisation

Fu-Tzu [Confucius] (551-479 B.C.) Moral & Ethics in Organisation

Max Weber (1900’s) Bureaucratic Organisation

The Al Qur’an, the Hadith & the Prophet Muhammad (S.A.W.) (571 A.D.)

Henri Fayol (1912) Management Principals

Mary Parker Follet (1924) Employee Contribution

Elton Mayo (1933) Group Dynamics & Motivation

H.A. Murray (1938) Murray’s Needs Theory

Abraham Maslow (1954) Hierarchy of Needs

Douglas MaGregor (1960) Theory X & Y

Frederick Herzberg (1959) Hygiene & Motivation Factors

Henry Mintzberg (1973) The Nature of Management

Rensis Likert (1967) Four types of Leadership Styles

Mills & Friesen (1995) Empowerment

Gary Hamel (1998) Strategic Innovation

Ned Herrman (1995) Four Quadrant Thinking

Peters & Waterman (1982) In Search of Excellence

Koo, Kao & Jing (2006) Corporate Entrepreneurship

Peter Druker (1954) Management by Objectives

Niccolo Machiavelli (1469-1527) Political Leadership

I.P. Pavlov (1900) Conditional Learning

Ronald Lippet (1934) Leadership Styles

Rensis Likert (1950) Supervision

Ohio University (1958) Continium Leadership

William Reddin (1970) 3-D Model of Managerial Effectiveness

Blade & Mouton (1966) Managerial Grid

Warren Bennis (1989) Modern Leadership

Vroom & Yetton (1973) Managerial Normative Model

G. Polva (1945) Heuristics

Edward de Bono (1967) Lateral Thinking

William Gordon (1961) Synetics

Alex Osborn (1953) Brainstorming

Peter Senge (1990) The Fifth Discipline

De Vries & Miller (1984) Cognitive Organisational Dysfunction

Reg Revans (1979) Action Learning

Argyris & Schon (1976) Double Loop Learning

Kleiner & Roth (1997) Learning History

Rosabeth Moss Kanter The Change Masters (1984) When Lions Learn to Dance ((1989)

Peter Druker (1985) Entrepreneurship & Innovation

K. Harrigan (1980) Strategic Alliance

Emery & Twist (1965) Organisation & Environment

Kenneth Boulding (1956) General Systems Theory

Charles Perrow (1970) Organisation & Technology Change

Andrew Pettigrew (1973) Organisation as a culture

James Thompson (1967) Structure & Technology

Gareth Morgan (1979) Organisation as a paradigm

Lawrence & Lorsh (1967) Technology & Organisation

H.A. Witkens (1977) Field Dependence

Fred Fiedler (1967) Effective Leadership

Erik Berne (1964) Game Theory

Table 1.X: The Evolution of Thinking on Management and Entrepreneurship

Newman, Summer & Warren (1972) Creative Techniques

Kirzner (1973) Incremental Innovation

Geert Hofstede (1991) Dimensions of Culture

Bruce Tuckman (1965) Group Dynamics

David Kolb (1984) Experimental Learning

Steven Covey (1989) Seven Habits of Highly Effective People

David McClelland (1960) Achievement, Affiliation & Power Needs, Achievement Learning