Renewable Energy (RE) will likely enter business schools under the banner of sustainability. Good though this is, managing energy in all forms increasingly belongs in business strategy – not in technology studies, environmental sciences, or public policy alone – and deserves business school attention in its own right for at least four reasons.
1) RE is the actionable core of sustainability. Sustainability is a hazy concept that finds increasing mention in business and public policy articles. Yet managing energy may be the measurable, concrete, and actionable component of it for businesses. While many aspects of sustainability implementation are one-time design issues, e.g., water harvesting, or LEED criteria used in construction, energy management remains an ongoing business strategic responsibility. It includes the increasing substitution of traditional energy sources with renewable sources, managing carbon credits, efficiency measures, and more. It may not be delegated to facilities management.
2) All energy is increasingly de-commoditized, which merits attention for cost control through smart use. Energy is increasingly differentiated and multi-dimensional. We may distinguish among watts by source, e.g., as originating from coal, renewable, or nuclear plants. Or we may tag watts by their price at different times of day, or choose among appliances for their efficiency. A watt is more than a watt — we have green, brown, or expensive watts — and each needs to be valued and treated distinctly.
3) Energy is the business of all business. As a Deloitte report said, all businesses are in the energy business, or soon will be. Every company needs an energy strategy as a part of its business strategy. This is not a technical matter of kilowatts to be relegated to engineers; rather, energy and associated information is a strategic business resource when collected through AMI (Automated Metering Infrastructure) and the smart grid, and applied to demand response.
4) RE parallels management information systems (MIS). Just as MIS is taught in business schools, so also should be MES — management energy systems or business energy systems (BES). Note that the business aspects are emphasized in the acronyms, not technical administration. Energy’s importance is rising at every stage in the value-chain of any business — hence the need to measure it, manage it, and ensure it is eco-friendly. Usage details are inextricably tied to information systems because of IT and energy convergence, and are essential for understanding and reporting any business’s environmental footprint.
Despite its importance, RE finds poor representation in business schools; this article explores why, and proposes an investment-oriented approach to redress the absence.
RE: Strategy Rich
The changes occurring and expected in the energy business offer extraordinary material for studying strategy in MBA programs. Yet introducing RE content in business schools requires conceptualization and design beyond typical academic norms. Few business schools offer courses emphasizing RE. “Energy” historically and falsely suggests the need for a strong technical component in the curriculum, which while helpful is not essential; many business school case studies routinely deal with technical elements without loss of applicability of business insight. Further, given its inter-disciplinary character, it is unclear what qualifications or background are appropriate for teaching it. Can one individual manage the scope?
At IIM Kozhikode, I have designed a course titled Renewable Energy: Opportunity of the Century that treats the topic as a business issue of investment. To invest in a project or not? Why? How much? The recipients of students’ analyses are investors — public, private, government agencies, or senior managements of corporations. Students present their projects as employees of a firm, entrepreneurs, consultants, or policy advocates. In the effort to address investment options, broad-based learning is expected to occur.
Figure 1: Investment Projects Address Themes, Functions, and Industry Attributes
Emphasizing investment lets students go beyond the numerous themes associated with the field, such as smart grid, peak oil, global warming, the atmosphere as commons, technology evaluations, electric vehicles, automated metering, among others. In Figure 1 (above), such themes are represented on the y-axis. While useful, knowledge of themes per se is not always actionable. Investment projects on the other hand are as vectors, with magnitude, direction, choices presented, and more.
On the x-axis in Figure 1 are business school functional areas, and the oval in the center represents investment proposals, say, business plans. To write such a plan, numerous themes and functional areas in a particular industry have to be addressed simultaneously in a credible way.
Limits of Functional Organization
Industries are routinely classified using NAICS codes, the North American Industry Classification System. Even government departments are organized along education, defense, transportation, energy, and so forth. In business schools, however, there are no specializations along industry verticals, say, pharmaceuticals, entertainment, or food service industries. Instead, while describing a company’s challenges through cases, an industry overview is included as background.
When business schools are functionally organized — departments of accounting, finance, human resources, marketing, operations, and strategy — faculty find it hard to view renewable energy without functional lenses. The challenges too are framed at the functional level, e.g., sustainable marketing or operations, and not as energy management in hospitality or transportation. This is seldom satisfactory. The emphasis remains on the functions, the x-axis.
Renewable energy investment projects encompass several themes on the y-axis, functions on the x-axis, and industry classifications along the z-axis as shown in Figure 1. Thus viewed holistically, the pedagogical challenge of addressing complexity becomes apparent, and offers some explanation for renewable energy’s absence in business schools.
The creation of “centers,” a common practice of universities, offsets the limitations of functional organization, and makes it possible to address multiple and inter-disciplinary issues. But centers from a business perspective are few in energy, while public policy and the natural environment have a greater focus (e.g., at UC Berkeley, Stanford’s Precourt Institute for Energy, MIT’s CEEPR).
Deciphering Events, Few Cases
Consider some select RE events from among the dizzying variety in the past few months: the troubles of Solon in Germany, the collapse of Solyndra in the U.S., the auctions in India for solar generation yielding among the lowest prices for clean electricity, and the gigantic manufacturing scale built in China that has already dropped solar panel prices by more than 50 percent in one year. What does all this mean? Connecting the dots is challenging.
Possible questions that could be raised in an MBA class include: Is a new industry being born? What should existing utilities do? Are entrepreneurial opportunities emerging? What precedents and parallels from other industries or time periods serve as road signs? What should students do after learning about the industry — join today’s utilities or relatively young renewable energy start-ups?
Normally such questions are addressed in part through case studies. But barely half a dozen cases exist in the Harvard Business Publishing for Educators repository in the inter-related field of renewable energy, sustainability, environment, and climate change, and nearly all since 2010. Since industry developments occur rapidly, there are insufficient numbers of companies with history or heft about whom to write cases.
Traditional cases invariably are placed in the past. Students position themselves as outsiders to the events in the case. Their analysis seldom shapes the future of the companies being studied. This makes cases as cadavers at the dissecting table, not living patients.
History Creation, Live
In contrast, when students tackle biofuels or wind generation, climate change and carbon sequestration, and answer the question: “What then do we do,” we recognize their solutions may shape the industry. In renewable energy, students are participants — as we all are — as cases take birth. The “live” cases makes RE studies exciting. Case analyses may be mailed to the CEOs of the companies under review.
In fact, companies are aware of the potential value of student contributions; Schneider Electric, for instance, has a student competition that seeks projects on “Go green in the city,” and Mahindra’s War Room has students make recommendations to the top management of the company through a national competition.
As photovoltaic solar generation costs approach “grid parity” and the distributed generation paradigm takes hold, we confront a singular event in industrial history, comparable in significance to the first appearance of the Mosaic browser. From now on, the energy industry trajectory follows a new curve.
For customers, there may be little difference at first. There will be light, ovens will heat, refrigerators cool, fans turn, and they will make payments to their familiar utilities, but — in smaller and smaller amounts. Why? Because they have economic reasons to generate their own electricity, and they will.
Electricity is not just electricity, by whatever means produced; the underlying technologies make an enormous difference. With altered economics, environmental impact benefits, novel network topologies of distributed generation, and new behaviors such using electric cars, installing solar water heaters, or photovoltaic panels, we arrive at a new world. Viewed as a whole, disruption lies ahead with major industrial restructuring. Timing and the rate of change toward this great transformation remain unclear — but not the direction. The early adopters have begun.
Business schools need to develop a viewpoint on RE in the broad context of sustainability, instructional content, and suitable teaching methodologies in order to guide students as they interpret and act to shape the low carbon future. This is important and urgent, and much needs to be done.
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