In the Shift

At last we have a due date.  Turnaround Challenge: the new role of business in delivering sustainable growth by Leo Johnson and myself will be published in September.  A special website will be up shortly that will contain the latest information on launch events, public debates and a panoply of other things associated with the themes of the book.

It didn’t make it on to the front pages.  But last week the the Scripps Institution of Oceanography announced that the concentration of carbon dioxide in the atmosphere has passed the milestone level of 400 parts per million.  For anyone who takes business and sustainability seriously, that is a landmark event.

I won’t bang on about the details or why it is so important here.  The UK Guardian newspaper has done a better job than I could.  And it has a great link to an interactive graph that explains what has happened and what will happen in five graphs.

All I will say is that any business that isn’t thinking seriously about how to succeed in a post 450 ppm world is not thinking the future.

A short while ago, I was invited to a day-long workshop to discuss the sustainability strategy for a particular product from a multinational company whose product lines festoon our supermarket shelves.  I won’t say which company because it isn’t really important to the story, and what they are doing is little different to what their competitors are up to – ie trying to figure out how to develop their products so that they are more ecologically efficient.

Anyway, what stood out was not the company employees – who for the most part seemed genuinely engaged and eager to hear a wide range of opinions – but the consultants they had been working with to develop their strategy.  What a bunch of toadying jobsworths!  They seemed to think their role was to defend every move the company made, and explain why the company was up there with the angels when it came to tackling sustainability.

At first, I thought the company had put them up to this, but as the day progressed I could see that the managers were often frustrated and embarrassed by the situation.  After all, this was not a public event: it was an invitation only workshop meant to encourage a frank exchange of views.

Then I thought that maybe the consultants were a bunch of accountants of the kind that have taken over advisory services to governments and companies worldwide.  But wrong again: these were people from the environmental movement by and large.

So how to explain the bizarre situation of a company inviting outside experts to offer their opinions only to be confronted by a barrier of consultants intent on stifling anything that might be interpreted as a criticism of the company?

The answer became clear once I started to talk to the consultants during breaks.  First, this was a huge contract for their boutique firm and what us outside experts were giving opinions on was not in fact the company’s strategy, but the strategy that this little firm had designed with the company. In other words, we were marking their homework.

Second, they were very uncertain about their own knowledge.  And rightly so.  One lady that I shared a table with for far too long, spoke eloquently and at great length about coffee growing  and coffee growers.  In fact she sounded like a student who had memorised every article ever written on smallholder coffee farms.  However, there comes a point when reading and reality part company, and her observations seemed more and more odd.  I eventually asked her what she had observed herself when she visited the farms.  She came back with yet more data.  I asked her again, what had she observed herself.  Silence.  We waited.  Eventually she said that she had never been to a farm herself but she hope to soon.

Let’s be clear.  This person was not only being paid to explain sustainability issues in the coffee industry to a huge multinational, she had spent a day telling anyone who would listen what they should be doing based on her knowledge of coffee farms.  And now, in mid-afternoon, she admitted she had never never never been to a coffee farm.

Anyone who knows my work, knows how much I fear that we as a society have squandered too much time asking the wrong questions and finding ill-informed answers to the sustainability challenges that business is central to.  I do not know how someone like that consultant gets work, but watching her cling on for dear life to a job that she was totally unequipped for was a dismal experience.

There was a lot of  buzz on social network sites and the like that Barrack Obama would make climate change his legacy project for his final term in office, just as he had staked his reputation on health reform during the first.  I’ve written in the past that what the US president says about climate change matters a lot, not just because of the country’s world-leading greenhouse gas emissions, but because we have got used to American leadership and the West takes seriously the signs that come out of the White House.

So, did Obama deliver what the social network sites were hoping for?

Look at the speech and you will see that climate change is in there – 6 paragraphs on page 9 of a 20 page document.  Perhaps he wanted to make it inconspicuous, burying the tricky news so his opponents would take no notice of it.  He certainly tried to make it seem as palatable as possible. Gone is talk of the Climate Bill he championed in his first state of the union address in 2010.  Now he is focused on green growth and the argument that climate change is really a blessing for a stalled economy.

I won’t linger on the details because there is nothing surprising about the US reducing climate change to a market opportunity.  What is worth pointing out though is that for all Obama’s talk about being a world leader, this latest state of the union – like all of its predecessors – shows that the USA has no vision of leadership, and is morbidly fixated with its own pathologies.

Look at the main items in the address: gun control, taxes, minimum wage, drug costs, immigration, job creation and pulling out of foreign wars.  The USA is pulling up the draw bridge, and nowhere is that more evident than in climate change which it wants to use to create jobs, reduce energy imports and stimulate economic growth.  It also wants to build a vibrant clean energy sector although exactly where that would export to is unclear given the jingoistic sentiments about trade in general.

So, let us be clear: Obama will never treat climate change as a global challenge because he has no appetite for anything but local issues.  Treating climate change as another one of those issues will lead to more mistakes  and wasted opportunities.  When Obama gave his first state of the union, it was estimated that the world would exceed its emissions budget in 2044.  Now it is 2041.  Based on what he is committed to, his legacy will be yet more squandered years.  But, hey, hopefully with less people that shoot each other.

Off the back of a week of somewhat depressing meetings, a couple of things have got my goat.  The meetings were depressing because they reminded me of something that I’d rather not be reminded of – neither society nor its leaders really understands the nature of the challenge it is staring in the face.

The Financial Times ran an article on Tuesday with the headline China retakes renewables investment lead.  I’m guessing anyone who reads that leaps to the conclusion that China has usurped the USA or Europe as king of the renewable energy kingdom.  That’s a bit disappointing for anyone who thinks climate change is an affront to national pride, but in general it sounds like good news : a race to the top in renewable investment could be just what we need.

However …

What the article was really about was that global investment in renewable energy investment was down 11% in 2012.  Yes, at a time when we need to improve carbon efficiency by 5.1% a year every year for the next 40 years, the push towards green energy has become a slide backwards.

That news item came on the back of listening to a whole host of latest data about what is happening with the world’s resources.  The trends all seem negative and they are also overwhelming.  If I was managing a company, it would feel like I was driving into a plague of locusts.  But which statistics are important and which aren’t is tough to figure out.  The price of copper, for instance, could rise 35% in the next few years.  But does that take into account that if climate change predictions are right, economies will not be growing the way they once were?  Or does it factor in how copper will be substituted with other materials as fibre optic and other cable replaces copper cable in some instances?

If you focus on the wrong statistics or, like the FT, miss the key thing about the right statistics, you can wind up being gloomier than you need to be or happier than you have any right to be.  That’s why 11% and 5.1% are much more important right now than the price of copper.

The SSEEChange blog has been dormant for several months.  Sorry.  My web provider changed its software and I lost all of my website content in the process.  Then I got consumed by publication deadlines.

Two books and one article later, that is all behind me.

Business and Sustainability, my new textbook, came out in December 2012.  It builds on the style and principles of Corporate Responsibility (Blowfield & Murray 2011) by taking an in-depth, objective look at the management challenges posed by resource-constrained economies.

Leo Johnson and I have just handed in the manuscript of a new book taking an honest look at what megatrends such as climate and demographic change mean for C21 business.  We started working on that with our 2011 seminar series at the Smith School.  Since then we have been running seminars, teaching, working with companies, reading up on a range of disciplines to see what the real options are for business and society if we are to build a prosperous future.

It has been a long and often depressing journey because, just like we suspected in those first seminars, society is in a pretty unhealthy and incongruent position.  But by the end of it we found we were reluctantly optimistic.  We want to start a discussion about whether our optimism is justified or not, and this blog will be one of the forums for that.

I hope you can keep checking in about this and an exciting year’s programme of work.

Mick

The Author of the Month for June is Dr Mick Blowfield

Dr Mick Blowfield is a senior research fellow, head of the Private Sector Transformation Centre, specialising in corporate social responsibility, particularly the role of business in society. He is currently focusing on the role of business in helping address climate change.

The research on private sector transformation is dedicated to understanding and implementing the major transformational changes of the 21st century involving the private sector. These include transformational business models, instigating behavioural change,  new models of governance, and organisational change. Led by Dr Blowfield, it provides services to business, government, and civil society.

He has lived and worked in 20 countries, written papers for the UK government, the European Commission, the UN, and the World Bank, and has worked on several projects analysing corporate responsibility in developing countries.

The Smith School is an interactive hub within Oxford University that engages with, educates and equips public and private enterprise with the solutions, knowledge and networks needed to address the major environmental challenges facing our planet. Click here to find out more.

Mick took part in a live Q&A session on the 1st June. The full transcript is available here

Continuing extracts from my forthcoming book, Business and Sustainability, here is a draft case study.  It encourages people to think about the role of business schools in building the capabilities of managers whose work will be significantly influenced by sustainability challenges.  The final version will be published as part of a partnership between London Business School and the Pears Foundation.

Between now and publication day, I will continue to be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

A call for action

Professor Marquez, the newly appointed dean of Maxwell School of Management[1], was ten minutes away from a management committee meeting. Maxwell’s new vision was on the agenda. But at this particular moment, sat in his comfortable office, his mind was more on the contents of the piece of paper he kept folding and unfolding in his fingers.

It was a print out of an email he had received earlier that morning from an eminent Maxwell graduate whom the school was trying to get more active on campus. The person in question was a senior executive at a very reputable private bank, and an active promoter of young entrepreneurs. But the email had nothing to do with an idea Dean Marquez had floated by her about an alumni fund-raising event.

Instead, she had emailed Dean Marquez in her typically abrupt style. She wanted to know what Maxwell was doing to teach its students about sustainability. She said she was shocked at the lack of awareness some senior managers had of social and environmental trends, even when they appeared to have material consequences for their operations. Moreover, she was horrified at the very different levels of knowledge amongst her clients on these issues, ranging from panic to obliviousness. Why, she asked, weren’t these issues at the heart of the school’s curriculum?

The school’s management committee was waiting for an update on his thoughts on strategy. He had done his homework and had clear ideas, but this email about sustainability and the curriculum had caught him unawares. Was he missing a trick or should he put it in the dusty file where most alumni brainwaves ended up?

His secretary stuck her head round the door: five minutes until the meeting was due to start.

Maxwell School of Management – a typical business school

Professor Marquez had been dean of Maxwell School of Management for less than a month. He had made his name for his research into equity derivatives, although later on he had distanced himself from trends he saw as confirming Warren Buffet’s view that they can turn into ‘financial weapons of mass destruction.’ He had also published a couple of papers on liquidity and exit strategies for investors in social enterprises.

That all seemed a long time ago, before he became more famous as a ‘turnaround dean’ coming to the rescue of struggling business schools. However, he had been reminded of some of those ideas by an email from an eminent Maxwell graduate whom the school was trying to get to be more active on campus.

Maxwell is a small school, well-regarded by its students, but stuck in the middle of the business school rankings. The appointments committee had made no bones about why they wanted Dean Marquez: they wanted to see the school grow, in terms of student numbers, campus size, revenues, and reputation. They had agreed to give him a free hand about how to achieve these goals, and in turn he had agreed to link his performance to Maxwell’s showing in the all important rankings. Since then, the size of the challenge had become yet more obvious. The plans for a new block of lecture theatres and student accommodation could not be paid for without an increase in student numbers; without more students the school would not have enough income for future improvements and would struggle to improve.

Like many schools, ratings were an important part of this. When they had first been introduced, there had been a lot of protest that the business school experience could not be reduced to a few key indicators. However, today every school tried to interpret the ratings to their advantage, and for the major schools it came down to quality of student experience, salaries on entering and leaving, employability, and quality of faculty. Dean Marquez had every sympathy for the alum’s message about sustainability, but it was not a simple decision. Taking sustainability seriously as an area of teaching would require a significant investment: in terms of new faculty, new research assistants, course development, and promotion. It would probably require the creation of a chair in sustainability or corporate responsibility, and Marquez could see that this would ruffle feathers if not handled properly. Maxwell gave chairs to people with records of academic excellence, typically measured by articles in well-ranked journals. Was there such a thing as a well-ranked sustainability journal? If he was to use school money to create a new chair, was sustainability really his top priority?

At the same time, a senior faculty member had mentioned Beyond Grey Pinstripes (the alternative corporate responsibility business school rankings), and it was rumoured that the government (which provided research funding and also validated Maxwell’s charitable status) was testing a sustainability ranking system for higher education generally. The alum’s ‘suggestion’ that she survey the alumni on sustainability issues for business schools could not be taken lightly. Marquez was also vaguely aware, as she had pointed out, that several schools were developing sustainability electives, trying to integrate sustainability into the core courses, perhaps even create a core course or a capstone on sustainability. However, were these the leading schools that Maxwell aspired to stand amongst? A few of the top ranked schools in Beyond Grey Pinstripes were also prominent in the Financial Times rankings, but most were not, and the Harvards, Whartons, and London Business Schools were noticeable by their absence. Was it going to help Maxwell grow if it was associated with Hixville Little Pixie School of Administration?

Although a few of the longest-serving faculty were quite happy with the old vision, Marquez sensed there was an appetite for change at the school: most faculty seemed unhappy with Maxwell’s old strategy that Marquez summarized as ‘adequacy without excellence’. The school did a lot of things fairly well, but did not stand out in anything. This was reflected in two key indicators for students: their salary on leaving the school, and how quickly they got a job. A Maxwell MBA seemed less in demand now there was a recession on: it stood for competence but not irreplaceable.

There had already been some suggestions about new directions. One faculty member was very keen on social enterprise, and Dean Marquez himself was patron of a children’s charity he had set up in his youth. But to put it bluntly what kind of fees would budding social entrepreneurs be willing to pay, and how would the salaries of even senior managers of NGOs affect the rankings? Maxwell ran programmes with a neighbouring engineering department, and one of its strengths over the years had been producing good manufacturing managers. Perhaps there was something that could be developed further here. Finance was the backbone of top schools, and there was plenty of opportunity for increasing Maxwell’s reputation in that area (although finance professors were not cheap).

Whatever route the school took, it would need to help put the school on a firmer financial footing in terms of fees, corporate donations, and alumni gifts. But the good news was that in the short-term there was a reasonable investment fund that could be used to recruit people, establish new programmes, and promote them. At least for now, finances were not a big item on the management’s agenda, although that would change if Maxwell did not rethink itself.

Sustainable Management

The sustainability challenges of the twenty-first century are likely to profoundly affect how companies are managed and what constitutes business success.[2] Transitioning to a renewable energy based economy is one of the most well-known of these challenges but there are others such as water, land use, population growth, climate change, ecosystem management, and biodiversity that companies are already having to actively manage.

Each of these challenges has it own implications for the new competencies managers will need. For example, if the energy transition cannot be achieved, then we are left either managing an increased risk of climate change, or of trying to decouple economic prosperity from growth in energy usage. The challenges are compounded if alongside growing demand for energy, there is increased competition for food, water, land, and non-renewable natural resources as a result of population growth and demographic shifts. Companies will need to become much more skilled at managing their environmental footprints, and living within the Earth’s carrying capacity.

The situation grows more complex still if we factor in human development as a right, and how over nine billion people will experience improving standards of living in a world where there appears to be natural limits to economic growth. Prosperous companies of the future will be ones that succeed in a resource-constrained economy (RCE). There are all manner of changes that this implies. Short-termism by investors and executives, for example, is often blamed for decisions and behaviours that run counter to the requirements of a RCE; for instance, encouraging actions that boost short-term share price irrespective of any negative social or environmental ramifications. Therefore, the capability to manage companies for the long term, and to understand the long-term value of particular investments is an important shift that is often associated with sustainability. Similarly, company performance as currently construed has been criticized for encouraging practices incompatible with sustainability. Management accounting measures such as return on investment and depreciation, the non-inclusion of externalities in company valuations, and the overwhelming emphasis on financial returns rather than social or environmental impacts are all aspects of current practice that might need rethinking in a RCE .

The shift from competition to collaboration is another area that has been highlighted in relation to RCE prosperity. For several generations, company managers have been taught to focus on the competitive enterprise, but transforming successfully to a new business environment is often associated with effective collaborations and partnerships. Effective collaboration involves certain hard skills (e.g. the negotiation of partnerships), but it also requires a change in mindset.

The same is true of the fourth major shift implicit in building companies suited to a RCE. Economic growth rests at the heart of current business models, and there are those who see growth itself as incompatible with a RCE.[3] However, in terms of business competencies, it is probably more appropriate to think in terms of a different kind of growth; a form of smarter growth that is supportive of, and not a threat to, the prosperous RCE.

Sustainability and the Business School

From short-term to long-term, from financial profitability to a triple bottom-line, from competition to collaboration, and from growth to smart growth, each of these represents a fundamental shift in the way companies do business, and the competencies they require to succeed. Business schools fill only one part of the capability jigsaw, but rightly or wrongly they are often placed at the centre of any portrayal of what business is and can be. The one or two years spent at business school are a small part of a manager’s education, but there is a strong sense that what is taught here are the essential building blocks of managerial success: an impression not discouraged by the schools themselves who are some of the most expensive providers of higher education in the world.

In recent years, business schools have come under fire for encouraging the wrong sort of management, the kind that is too focused on short-term financial returns, individualism, and harmful innovation. This in turn has led to demands that business schools focus more on the type and quality of leadership, and pay attention to subjects that were at best marginal to the curriculum such as business ethics, corporate responsibility, and increasingly sustainability.

Beyond Grey Pinstripes until recently was the most well-known attempt to rank business schools according to how well they tackle these areas. It evaluates schools in four main areas: relevant coursework, student exposure, business impact, and faculty research.  As well as what is taught on core courses, and what electives are offered, it tries to unpack how well the issues are integrated across different subjects, and how much they are treated as specialisms. The Ross School of Management (Michigan) is a consistently well-ranked school in Beyond Grey Pinstripes: its students can take a joint MBA and MSc degree focused on integrating economic, social, and environmental interests, and all students receive a one-week leadership programme exploring ethical leadership and the business-society relationship. Smaller business schools have often been the most innovative in this respect: San Francisco’s Presidio School of Management, for example, and the University of Exeter (UK) have both created MBA programmes solely focused on sustainability management issues.

How much to integrate and how much to separate out sustainability issues is an ongoing debate amongst those responsible for curriculum development. Many people feel that integration should be the ultimate goal so that sustainability becomes the equivalent of a concept like globalization, i.e. present in every part of the curriculum but rarely mentioned explicitly, so strong is its normative power. Others, who might not disagree with this goal, argue that for the time-being it is better to treat sustainability as a specialist area for fear that if it is integrated too quickly it will be lost beneath the conventions and wisdom of the disciplinary status quo.

Tepper Business School at Carnegie Mellon (USA) offers faculty a professional development programme on ethics and governance, and they also receive guidance on weaving sustainability into class projects. Teaching faculty at Brigham Young University (USA) have corporate responsibility and sustainability included in their annual reviews.

Another question being asked in business schools is how much should they rely on the curriculum to enhance student awareness, and how much they should invest in creating a learning environment that also includes extra-curricular activities such as clubs, awards, guest speakers, conferences, and involving the student body in the school’s own sustainability issues such as the design of new facilities, and the environmental impact of inter-continental teaching.

These questions do not exist in isolation: rather, they are relevant to any attempts to improve management. Criticism of business schools has resulted in more attention being paid to leadership, change management, and risk management as part of better decision-making. Many of the competencies associated with sustainability are relevant to this shift (e.g. stakeholder engagement, managing uncertainty, collaboration), and there are signs that soft skills are becoming more accepted as essential to good management generally, not just in a sustainability context. Joseph Wharton, founder of the first business school, wanted business to be as honourable a profession as medicine, the law, or theology, and its practitioners to be equipped to address the social problems of civilization. More recently, Roger Martin, dean of Rotman School of Management (Toronto), blames business schools in part for promoting self-interest to the point where employees are being paid to bet on ‘the high-stakes game’ of modern capitalism.   INSEAD Dean, Dipak Jain, says that the role of business schools should be to turn students “from success to significance.”

Barriers to Business School Change         

Business schools constantly face the dichotomy of what to do, how much, and when. They are one part of a person’s education, and are typically short, intensive experiences that people encounter as the last part of formal learning. Students have varying expectations, but they are willing to pay high fees because they will give a strong return on investment in a fairly short space of time. The link between high fees and high remuneration packages is only made possible by companies’ accepting that what students learn at business school is worth having. Company expectations of the competencies management graduates possess is therefore a key determinant of what business schools offer.

Companies are constantly reassessing this situation, and are well-represented on the governing bodies of schools as well as providing the funding for a significant (if declining) proportion of the class of any given year. Some companies have criticized the established curriculum, but it is hard to detect a strong groundswell for major change. Business schools have come under attack during the ongoing global financial crisis, not least because of the role of financial institutions staffed by many masters in finance and business administration. Some prominent schools (e.g. Harvard) are paying more attention to business ethics as a result of this, but it is hard to discern major changes in what is taught in finance, accounting, or economics – all disciplines that have been blamed in one way or another for what has happened.

Is it, therefore, a case of business schools being resilient to change, or reflecting the demands of their market? In the past, they have changed; for instance, in the shift from Wharton’s vision of a professional institution to something akin to a vocational college teaching the essential tools of management practice.  There are calls (perhaps growing) for business schools to rediscover their social purpose, and this reflects the debate about the new competencies needed to manage sustainability challenges. This raises the question of how much business schools should lead in the rethinking of business rather than disseminate accepted best practice.

Supply and Demand

In 2010, Accenture and the UN Global Compact conducted a worldwide survey of CEOs, and found that 96 percent believed sustainability should be fully integrated into the strategy and operations of their companies.[4] Ninety-three percent of respondents also believed sustainability is critical to their company’s future success.  Eight-eight percent pointed to the need for new competencies from business schools and other parts of the education system as necessary to reach a tipping point where sustainability is embedded within companies. Peter Lacy, Accenture’s then Managing Director for Sustainability in Europe, the Middle East and Latin America, divides these competencies between execution and transformation. Execution competencies are knowledge of science, technology, and engineering, plus certain  management competencies. Transformation competencies are those that require a more fundamental shift in the way business helps society address sustainability challenges, and broadly equates to the new skills, capabilities, and mindsets – what are often called soft skills (Exhibit 3).

This distinction echoes the findings of a 2009 report, Developing the Global Leader of Tomorrow, which identified three sets of required competencies[5]:

•           Context: Understanding and being able to respond to changes in the external environment

•           Complexity: Having the skills to survive and thrive in situations of low certainty and low agreement

•           Connectedness: The ability to understand actors in the wider political landscape, and to engage and build effective relationships with new kinds of external partners

The overall interest in sustainability as an area for building new competencies is evident from a variety of studies, typically at senior management levels (Exhibit.1).

Sustainability in management education is a recent phenomenon, appearing as academic theory in the 1990s.  It appeared not because of any internal demand from business, but due to rising public awareness of environmental issues. NGOs that had targeted business since the 1980s, began to consider how to educate it on sustainability: for example, the World Resources Institute developed an online resource for relevant case studies, and initiated biennial social and environmental assessment of business schools’ curricula and research. These initiatives became Caseplace.org and Beyond Grey Pinstripes[6], and there are now also publishing houses such as Greenleaf, Earthscan, and Island Press that have helped increase the amount and quality of teaching resources.

For an area to flourish in academia, it also needs good quality journals for academics to publish in because this is a significant element of their career progression. Gladwin et al published a groundbreaking article in the prestigious Academy of Management Review in 1995, and there has been a trickle of articles in top-ranked journals since then. However, only a handful of journals in the influential Financial Times top 45 business journals regularly publish articles on sustainability (e.g. Journal of Business Ethics), and most articles on the business-sustainability relationship appear in smaller, specialist journals such as Journal of Global Responsibility and International Journal of Sustainable Strategic Management. As Starik et al point out[7], there are many aspects of management such as human resources, operations, supply chains, and accounting which have only very recently paid attention to sustainability as it affects their disciplines.

Since the World Resources Institute’s initial efforts, a number of initiatives have emerged aimed at effecting change in how companies are managed. These include the Global Foundation for Management Education, a joint initiative by the Association to Advance Collegiate Schools of Business (AACSB) and the European Foundation for Management Development (EFMD), the Aspen Institute’s Business and Society Programme, the Graduate Management Admission Council’s TeamMBA initiative, the European Academy of Business in Society (EABIS), the Global Responsible Leaders’ Initiative, and the MBA network organization, Net Impact. The achievements and difficulties of these initiatives inspired the creation of the Principles for Responsible Management Education (PRME), organized by the United Nations. PRME signatories agree to six principles concerning the learning and educational activities within business schools (Exhibit 2). The more than 400 strong signatories include INSEAD, Shantou University Business School, London Business School, and Babson College. Many of the top business schools in Europe are on that list, but few of their USA counterparts have endorsed the principles.

For deans such as Marquez, making sense of this new and largely unexplored space was something that seemed less and less prudent to ignore.

We are now nearly half way into the extracts from my forthcoming book, Business and Sustainability.  Between now and publication day, I will continue to be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

Each chapter has a Case Study to allow students to explore in more detail the ideas in the chapter.  The following is the case study for a chapter on Innovation.  As you will see, there are three sets of questions at the end designed to stimulate discussion.  There will also be case studies available at the book’s online resource centre.

CASE STUDY

SELCO-India – bringing energy to the rural poor

Like many of the largest emerging economies, India is fuelling its economic growth with high carbon energy plus nuclear power. The country has substantial coal reserves, and in international it is at pains to assert its right to exploit these just as OECD countries have done in the past. Yet, according to SELCO founder, Harish Hande, coal and nuclear – the backbone of India’s electricity grid – are an irrelevance to vast sections of the population. Forty-four percent of Indians lack mains electricity, and for many more the supply is erratic.

Hande established SELCO in 1995. It is based in Bangalore and employs nearly 200 people at its HQ and 21 branch offices across South India. SELCO’s purpose is to provide sustainable energy services to photovoltaic solar home systems to low income households and businesses. It has served over 150,000 customers, and in the process developed a unique business model that  makes solar energy available at an affordable price to underserved markets.

SELCO’s success hinges on two types of innovation that are welded together in the company’s business model. The first type is technological innovation. SELCO designs and sells photovoltaic energy systems for the home. These are primarily to provide lighting that is cleaner, more reliable, and more affordable than the kerosene lamps found in most rural homes. A typical unit is sufficient to power four 7W compact fluorescent lights, although consumers also use electricity for radios and fans. SELCO’s engineers install the systems which typically comprise a 35W PV module on the house’s roof, and a lead-acid battery to store the power inside. Both the cells and batteries have been specifically designed to meet the needs of their users so that, for example, the batteries can cope with daily discharge in a way that would destabilize conventional car batteries.

Technological innovation is not limited to PV and batteries. SELCO helps customers modify their homes to get the most use out of their installations. For example, a lamp installed in a corner can serve several rooms if parts of the dividing walls are removed; or bulbs can be moved from one room to another if sufficient wiring and sockets are installed. Whether it be the hardware, the installation, or the subsequent service contract that forms part of the package, SELCO sources as locally as possible. Its PV modules are made in India, although the success of the Indian solar energy industry has resulted in one supplier ceasing manufacture of the smaller units SELCO needs. SELCO has developed a network of local installers in what has become a new trade in the areas the company operates.

Installations typically cost about Rs. 18,000: a significant outlay for customers whose daily income could be Rs. 400 (under £5) a day. However, energy is a significant outlay for poorer people, and while SELCO’s target market could not afford Rs. 18,000 in one payment, paying in instalments of about Rs. 400 a month over five years is an attractive proposition. Moreover, in many cases the extra productivity that a steady supply of light throughout the day is more than sufficient to pay for the installation and maintenance. For street traders, PV modules might be too expensive, but a battery and a fluorescent lamp are within their means, so SELCO has encouraged a network of PV battery-charging businesses. To pay the initial deposit and to organize monthly payments, potential customers can go to local development banks that India’s state-owned banks were compelled to set up in the 1980s. Government has also supported SELCO’s expansion with 33 percent subsidies of installations, but this agreement has now ended.

SELCO itself says its model is sustainable. It has a long-term financing partnership with E+Co , a non-profit that provides debt and equity investments in clean energy businesses in developing countries. More recently it has received support from the Lemelson Foundation (USA) and Good Energies (Switzerland). Amongst its proudest claims is that its success has demonstrated that clean energy need not be expensive, and that a low-carbon economy does not have to deprive poor people of electricity. The next step in innovation will be making better use of the power people have access to. For example, many women would like to power sewing machines, but the PV modules do not generate enough watts. However, on further investigation, the problem is that the sewing machines on the market are over-powered for what rural women need them to do, and if a less powerful machine were available it could run off the current modules and still meet the women’s aspirations.

Questions

1. SELCO-India is an example of innovation by a social enterprise.

a   What are the essential elements in the company’s success so far?

b   Is the SELCO model replicable in other countries?

c   Is the SELCO model only applicable in rural areas?

2. The company has won various awards for creating a viable business model that addresses social and environmental issues.

a   What are the main sustainability impacts the company delivers?

b   Could a mainstream energy company adopt a similar approach?

c   What will the company need to do differently in order to increase its impact?

3. SELCO-India is an example of technological and financial innovation .

a   Under what conditions is PV technology more affordable than coal-based energy?

b   How could you develop a similarly innovative approach to a different sustainability challenge such as clean water?

c   Are there other examples of clean energy being provided to poor communities? How are they similar and how are they different to SELCO?