Strategic Management from an Islamic Perspective: Text and Cases

Chapter 3

Four Fundamental Problems

Introduction

We have seen that conventional strategic management has a 90 percent failure rate. We have nonetheless acknowledged that the process of strategic management—defining the vision and mission, analyzing the competitive environment, understanding one’s strengths and weaknesses, and then identifying strategic initiatives—makes sense. However, we found that the current mind-set in conventional strategic management is to take on excessive risk, and this leads eventually to corporate failure. In this chapter, we would like to explore in more detail four fundamental problems (FPs) that we believe need to be addressed by the top management of any organization wishing to survive in the long term. In at least three of these four problems, Islamic principles can help remedy the problems.

FP 1: The Use of Interest-Based Loans

There are a variety of books that discuss Islamic finance. We refer to Iqbal and Mirakhor’s An Introduction to Islamic Finance: Theory and Practice (2007). To simplify the discussion, we will focus on the paragraph entitled “Promotion of Profit- and Risk-Sharing” on page 64. Muslims know that interest-based loans are forbidden in Islam. Allah says,

O you who believe, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.

(Qur’an, 3:130)

Allah has permitted trade and has forbidden interest. ...