Abu Dhabi, 21st September — With COP28 fast approaching in the United Arab Emirates, it is important to reposition a business curriculum from that which is heavily reliant on natural resources to economics of a sustainable future intertwined with complex technological systems.
The completion of a business degree, e.g., an MBA, is a benchmark necessary to climbing the ladder of career progression in the world of business, but what does the curriculum teach a responsible leader of tomorrow?
It is important to understand the foundations of strategic management scholarship to grasp our knowledge source. It should not be surprising that a natural resource, e.g. oil, lies at the foundation of it.
As human knowledge about the laws of nature has expanded, people have learned to mechanically expand natural systems, consisting of energy and matter, to create human-made systems of energy and matter and capture profits from them. This system allowed the currently known commercial world to be created in the most economical way at the time—by exploiting matter—natural resources, such as oil—and generating value from this matter in the form of refined products (e.g., gasoline, kerosene, distillate fuel, and residual fuel) and the manufactured products that depend on it, and by cheaply manufacturing these products for mass use.
The ‘Rule of Capture’ defines oil as a migratory good and assigns possession only to those who own land, such that they can extract it from the ground. Any future entrant into the oil industry who acquired land protected by property laws automatically owned the end-product or commodity associated with it. The acquisition of land was generally followed by the rapid exploitation of oil fields, with over-pumping decreasing the market price. This also paved the way for new industries which would rely on this cheap commodity as the raw material for their downstream products, such as the plastics used in the packaging industry and the synthetics used in the textile industry. Artificially low plastic prices, initially caused by exploited oil fields and petrochemicals industry subsidies, controlled by a cartel of producers, have been protecting these products from competing products, such as sustainable packaging materials. It is generally difficult for the latter to compete on price.
The economic model of this resource system, serving as the strategic management metaphor, is generally linear. It resides on the know-how developed to operate in a resource–byproduct economy. It consists of resources, such as crude oil, and their production, transportation, refining, and consumption by end users. It resulted in the linear frameworks that lies at the heart of strategic management scholarship. An example of this would be Porter’s (1980) ‘five forces’, which linearly link organizations as ‘one business unit’ to the industry environment.
However, as the recent study by Trofimova-Elliot et al. (2023) states, there are vast limitations to using natural resource as the metaphor for strategic management scholarship. At the heart of these is our responsibility to a sustainable future. Responsible environmental considerations and interventions will be limited conceptually and practically if resource remains as the key metaphor and guiding principle of strategic management teaching practises at the main business schools, namely the exploitation of natural resources for profit.
The environmental costs of an oil-based system were identified early in the development of the oil industry (see Carson, 1962). However, as climate change was neither explicitly evident nor articulated, fossil-fuel-powered production and its byproducts continued to be scattered throughout complementary technologies around the world. Eventually, as the environmental costs of a fossil-fuel-powered system were made manifest in the narratives concerning climate change, the oil metaphor became the defining crisis of current times.
Equally, multiple countries have committed to the reduction of greenhouse gas (GHG) emissions (produced by oil) to be achieved by a certain time. The IPCC argues that this must be engineered over a short period of time. For example, the United States has committed to reducing national greenhouse gas emissions by 50 per cent by as early as 2030. The IPCC notes that the imminent solution is the replacement of energy generation reliant on petrochemicals with energy generation reliant on renewable energy sources to produce electricity and the further electrification of the economy and manufacturing processes. The quick electrification of energy generation has been possible thanks to extant, mature, clean energy technologies, such as wind and solar, and energy storage technologies.
However, a resource, is not that which lies at the heart of electrification; it is electricity. There are evident differences between them. First, natural resource is a tangible and physical matter. In contrast, an electrical system is not matter; it is motion. It is a system of technologies tiered by an anarchic motion with limitations that are not necessarily known. It successfully diffuses through technological networks to novel applications. This often happens without the control of governments and organisations that created it in the first place.
Motion is the phenomenon in which objects, such as electrons, change their positions over time. Similarly, strategic management scholarship is concerned with the shifting locus of profit-creation opportunities from technological change. A difference between them is that motion, lying at the foundation of technological advancement, is understood by physics and mathematics, whilst strategic management scholarship has failed to integrate this existing knowledge and learn from it. Thus, the scholarship resides in a mental model from the past. In addition, we are funding it; we are expanding an oil-based system by investing in it daily. This occurs via the funders of the business schools—for example, the taxpayers—but also via the students and business leaders who pay fees to the institutions.
These schools are continuing to provide us with knowledge on profit-making in a world of natural resource. They are continuing to disseminate knowledge derived from linear cause–effect models based on a prototype of a world of a resource to measure systematic diffusion, resisting a vast source of knowledge that emanates from the natural sciences. This, in turn, translates into our resistance to learning. This resistance is not new to the sciences. For example, technological development was stunted in the Western world for decades because scholars in the fields of Physics and Mathematics resisted speaking to each other. Only through collaboration and multi-disciplinary alignment did they derive the knowledge that lies at the foundation of the technological system we live in today—for example, to derive the knowledge necessary to design semiconductors, lasers, and transistors, just to name a few technologies that have emerged through collaborations between physicists and mathematicians.
This acute problem facing business schools is understood by some business leaders and schools. The founders behind the Institute for New Economic Thinking, such as George Soros, the University of Cambridge, and the University of Oxford, have placed knowledge from natural sciences at the heart of the study of the economics of a sustainable future intertwined with complex technological systems. A recent study by P. Mealy, P. Barbrook-Johnson, M.C. Ives, S. Srivastav, and C. Hepburn states that the transition to net zero involves a deep structural transformation of the global economy and its associated complex socio-technical systems. They set out a conceptual framework for identifying ‘Sensitive Intervention Points’ (SIPs) in systems where a small or moderately sized intervention could drive outsized impacts and transformational change.
How long will strategy scholars continue to resist this? When we will persuade them to remove the rigid hauberks that they continue to safeguard themselves with in the world of natural resource, open themselves up to the scientific knowledge waiting for them in the natural sciences, and start producing research and teaching curricula that represents the modern world of electricity?
By Ionna Trofimova Elliot, Partner, The Borderless Renewables. Strategy Advisor to private renewable energy boards and NGOs.