Converging on Green

An economy in turmoil, an environment in distress, a vast worldwide population living in poverty. All these factors are converging to make it more imperative than ever that businesses—and business schools—focus on sustainability.
Converging on Green

While the current economic crisis has been devastating to many, it actually could be a blessing in disguise for the sustainability movement. This year I attended the World Economic Forum in Davos, Switzerland, where the dominant perspective was one of reformation. Forum founder Klaus Schwab, for example, declared that the world would never be the same, that we will need to reformulate our global institutions to meet the economic reality of the 21st century.

That economic reality appears all the more dire because it must be considered in conjunction with the dark picture growing around climate change. As author Thomas Friedman wrote in a March column for The New York Times, 2008 was the year the problem of depleted natural resources collided with the world’s unsustainable demands for more and more material goods. Friedman quoted Australian environmental business expert Paul Gilding in calling this inevitable moment “The Great Disruption.” More colorfully, Friedman dubbed this confluence of events as the day “Mother Nature and Father Greed have hit the wall at once.”

We’ve reached a point where everyone in the world knows something is fundamentally wrong. Sustainability is no longer preached by a few crazy, wild-eyed environmentalists or social activists screaming from the sidelines. We’ve reached what Malcolm Gladwell calls the tipping point.

It’s the natural instinct of governments to pump resources into the economy, but the bailouts and the stimulus package are in some ways futile efforts to try to restore the world to the way it was. The truth is, we can’t. We’re witnessing the death of the “Chimerica” consumerist model, where Americans borrow money so they can buy more goods so the Chinese can build more coal-fired plants to make more goods. That model imploded, and I don’t think it can come back.

What we’re now experiencing—finally, in earnest—is a transformation to a more sustainable form of commerce and enterprise in a more sustainable world. That’s the backdrop for everything that’s happening now.

Big Green, Little Green

While I believe change is imperative, I don’t expect the existing incumbent institutions to lead the way in developing the new green technology we will need for a sustainable world. In the developed world, powerful embedded interests resist change. They also must operate within a fully built-out infrastructure and a society bound by restrictive rules and regulations.

These huge, centralized, incumbent institutions are likely to produce what I consider “green giant” technology. They want to cover the American Midwest with giant windmills or build solar thermal farms in the Southwest. Those plans suit the institutional structure that’s already in place, so they’re not disruptive.

That kind of technology scares me a little, because governments don’t have a very good track record at creating big, centrally directed solutions to the world’s problems. For proof, just roll the clock back to the 1960s and ’70s and look at nuclear power. The “green giant” solution puts a lot of money on a couple of bets, and they can go very wrong. We’re just not smart enough to predict all the unintended consequences.

I’m much more optimistic about the “little green” model of small-scale ventures offering distributed solutions. Thousands of little ventures run little experiments; they might fail small, but everyone learns big. They aren’t destructive because, if the technology doesn’t work, the experiment is over. It’s the wisdom of the hive operating at a very local level.

That’s the way real innovation happens, not in big-bang top-down solutions. Knowledge trickles up. It’s easy to add cost and features to low-cost solutions. It’s much harder for modified solutions to trickle down.

When technology reaches the tipping point, it’s astonishing how quickly it can scale up. First it works in one community, then five communities, then ten, 20, 50. At that point, it’s ready to tip. I think we’re on the verge of that with many, many different ideas, including distributed generation of renewable energy, point-of-use water treatment, biomaterials, and nanotechnology.

The best early example is wireless cell phones. In less than a decade, we’ve gone from under a billion people who have wireless access to more than 3 billion. That’s phenomenal. Half of the world is now connected. From this example, we know technology can spread very rapidly.

The Rural Revolution

I believe that the new technology for sustainability will be incubated in developing nations where immense growth is occurring, like China’s towns and India’s villages. Take China, for instance, where the central government is intent on relocating people from rural to urban areas. Until recently, migrant workers were moving to factories on China’s east coast, but now many of those factories are shuttered.

Today, migrant workers are moving back to the country—or, rather, to small cities in rural areas. The Chinese call them towns, but they’re human settlements of 75,000 to 100,000 people, and there are approximately 20,000 of them. Over the next decade, 200 million people will move into those kinds of settlements.

Similarly, take a look at India, where about 700 million of its 1 billion people live in rural areas. The thriving business communities in Hyderabad, Bangalore, and Mumbai have taken a hit with the global meltdown. The Indian stock market is down 50 percent, real estate prices have crashed, and investments have been pulled out of the country.

Yet rural India is in relatively good shape. There was a really good monsoon last year, and the farmers have money in their pockets. They haven’t been affected by the subprime crisis because they’re fairly decoupled from the world economy. Rural Indians aren’t particularly interested in moving to the cities right now, because the jobs are no longer there. Again, in India, “rural” is a relative term. Most of the rural towns are small cities with tens of thousands of people.

Rural cities in China and India, along with other ‘base of the pyramid’ communities, will be the epicenter of the next revolution in sustainability.

Right now, one question interests me: How do we invest in and build clean infrastructure that makes for dynamic, attractive living in these rural settlements? In these small cities, we’ve got a chance to get it right the first time. Think of the opportunity to incubate tomorrow’s leapfrog green-tech sustainable way of living! To launch entirely new industries while potentially building enormous wealth in these communities! I believe these rural cities in China and India, along with other “base of the pyramid” communities around the world, will be the epicenter of the next revolution in sustainability.

Green Convergence

Recently, the sustainability movement has been hampered by the fact that it contains what are essentially two separate movements. One revolves around green technology; one revolves around serving the population at the base of the pyramid. Both are exciting, but the problem is that they’re tribal. They don’t talk to each other. The green techies say, “Just give us the venture capital, and we’ll invent the clean tech of tomorrow,” as if it will then spring magically into commercialization. And of course that’s not the way it works.

The people in the base of the pyramid tribe want to address poverty and inequity in developing countries. They say, “How do we innovate business models, extend distribution, and become embedded in the community to build viable businesses from the ground up?” But this tribe doesn’t think much about the environment, as if all this new economic activity will create a sustainable form of development at the base of the pyramid. And we know that way of thinking could take us all over the cliff.

I want to figure out how to bring these worlds together. How do we create clean technology at the base of the pyramid in what I call the Great Convergence? That’s the basis of the three-year Green Leap initiative that I launched with the University of Michigan’s William Davidson Institute along with Cornell University’s Center for Sustainable Global Enterprise and Michigan’s Erb Institute. During the first year, from 2008 to 2009, we’ve been in China, building relationships and partnerships with universities and corporations, and we have more plans under way for the next two years.

Green business at the base of the pyramid was also the focus of the Cornell Global Forum on Sustainable Enterprise held in June 2009 in New York City. We identified and recruited the 100 people—intrapreneurs, entrepreneurs, change agents, financiers—on the leading edge of the Great Convergence. Delegates participated in facilitated working sessions designed to build the social network and determine how to accelerate the rate at which these kinds of ventures are occurring.

The forum concluded with a public roundtable discussion that featured Al Gore; H. Fisk Johnson, CEO of S.C. Johnson & Son; and Ratan N. Tata of the Tata Group. It was moderated by journalist Charlie Rose. (Details and highlights of the conference were posted on www.cornellglobalforum.org.) When we can bring so many champions of sustainability together in one venue, I believe we have a much better chance of solving our most intractable problems.

The Problem with Business Schools

Cornell and Michigan aren’t the only schools that want to make a real impact on sustainable business. Other leading schools with exciting programs include Stanford, Berkeley, Yale, Duke, and North Carolina-Chapel Hill. However, some of those programs are just getting started or are focused more on corporate social responsibility, stakeholder engagement, eco-efficiency, and strategic philanthropy than on sustainability.

But many other business schools do not even seem to be aware that we are operating in a business world that has already changed and a stressed environmental climate that has to change. I attended the recent Dean’s Conference held by AACSB International, where I spoke about integrating sustainability into the MBA curriculum. To me it seemed as though most of the deans in the room were proceeding as if we could still do business as usual.

I also sat in on a special session about operating in a time of global crisis, and I heard virtually no discussion about how the global meltdown will impact business schools. I didn’t hear deans ask, “Are we teaching the right courses? What’s our role in society? Should we be thinking about radical surgery on the core curriculum?” Institutionally, I would say business education is in a heavy slumber. Until the recruiters demand graduates with a grounding in sustainability—and that is increasingly the case—I don’t look for business schools to take a leadership stance.

Part of the problem lies with the current model of business school scholarship, which is pinned on peer-reviewed journal publishing. To publish quickly enough to achieve tenure, professors either have to use pre-existing databases—secondary data—or generate data that can be easily collected, often through surveys. I believe that we have to be much more geared toward action research. In other words, researchers need to become part of the phenomenon they’re studying.

Over the course of the next decade, we need nothing less than a fundamental turnaround in our attitudes about business.

For instance, with my graduate students Erik Simanis and Duncan Duke and other colleagues, I have written about new protocols of doing business at the base of the pyramid. This BoP Protocol does not involve large multinational corporations coming into urban slums or rural areas and simply marketing products they believe the indigenous population needs. Many examples have proved that this approach will fail. Nike’s inexpensively priced “World Shoe” and Procter & Gamble’s water purification system were created by the corporations without the input of the communities they were intended to serve, and they were not embraced by their intended consumers.

Instead, we advocate an approach of “business co-venturing,” in which corporations work in partnership with the population at the base of the pyramid. By engaging in actual dialogue with this population, and by sharing a commitment to business co-creation, corporations can design products that create value for themselves and their customers. Erik and Duncan are at the dissertation stage, but they’ve also been field leads for applying the BoP Protocol. They’re not only studying co-creation at the base of the pyramid, they’re putting it into play.

For example, with companies like S.C. Johnson, DuPont, and Ascension Health, we have been working to co-create new sustainable businesses in Kenya, India, and American inner cities in communities such as Flint, Michigan. We are also engaged in the launch of a startup company, the Water Initiative, aimed at co-creating distributed potable water solutions in Mexico.

If we’re going to make rapid headway in sustainability, more business school faculty members need to get out into the world, make things happen, and write about their experiences, instead of staying in their offices, spinning data tapes, and looking for significant correlations.

One Bright Spot

What I find most reassuring and hopeful about business education is the volume of students who come to business schools with sustainability as their primary aim. At Cornell, 40 percent of the applicants say that sustainable enterprise is the main reason or a major reason they applied to the Johnson School. There’s been a similar uptick in interest at Michigan’s Erb Institute.

Many of these are individuals who wouldn’t have considered business school in the past. They would have chosen law or public policy or social work. More and more people see that business can be a positive force, and they are motivated to attend business school for that reason. I don’t think business schools will take the lead in reinventing business, but I think students will.

At the same time, there are increasing numbers of companies that are looking for graduates with this mindset. In fact, at Cornell we’ve gathered data about the job and internship opportunities available to students in the Sustainable Global Enterprise (SGE) immersion program compared to the rest of the MBA students at the Johnson School.

Last September, 100 percent of the second-year students in the SGE program had already accepted job offers, compared to 93 percent of Johnson’s other MBA students. First-year students in the SGE program also finalized internship opportunities more quickly than the rest of the MBA pool. I think it’s clear that businesses want—and need—workers who understand sustainability and who can lead corporations into the new economy.

What Lies Ahead

Over the course of the next decade, we need nothing less than a fundamental turnaround in our attitudes about business. To use architect William McDonough’s line, we’re sailing rapidly in the wrong direction. We have to figure out very quickly how to tack and change the sail alignment, so we can not just slow the rate of movement in the wrong direction, but actually change course. We’re not even close to doing this yet.

If the current economic crisis has taught us anything, it’s that the age of mercenary capitalism is over. We’re entering a new era. It’s time to hit the reset button, because we’re playing an entirely new game.

At this point in time, there are two questions I think business schools should be asking. How do we refocus to think less about financial manipulation and more about strategy? And how do we enable radical leapfrog innovation around inherently clean and sustainable technology that serves the base of the pyramid? Those are our two biggest challenges and opportunities if we’re going to get to a sustainable world—and if we’re going to do it rapidly. There really isn’t that much time left.

Stuart L. Hart is professor of management and Samuel C. Johnson Chair in Sustainable Global Enterprise at Cornell University’s Johnson School in Ithaca, New York. He also has an appointment at the William Davidson Institute at the University of Michigan in Ann Arbor.