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May 8, 2014

RMI Goes to Business School

Spain’s IESE Business School studies Rocky Mountain Institute, fostering business innovation, and how to change the world through markets

 

Although RMI works with businesses, leveraging the power of markets to transform global energy use, RMI itself—RMI the business—can also serve as the learning catalyst for how businesses succeed in fostering radical innovation. At least, that’s what EPFL lecturer and IESE Ph.D. Lorenzo Massa and I have found. IESE Business School in Barcelona, Spain, where I’m a professor, is one of the preeminent providers of MBA and executive-level education in the world. About two years ago, Massa and I wrote the first two of a planned series of case studies about RMI. The case studies have proven to be a fantastic tool to help get MBA students’ heads around a number of key concepts at the core of RMI’s work and philosophy. These concepts have important implications for managing businesses in the world today.

Making ideas real

The cases can be taught together or separately, although they do follow a logical order. The first case, Making Ideas Real, is set in 2012 and looks at the question of whether to expand the Institute’s reach beyond the United States to China and the rest of the world. Starting with the history of RMI, the case study introduces the philosophy of institutional acupuncture, diving deeply into the ways RMI has been influencing industry and civil society through its publications, work with industry (including the famous integrative design charrettes), spin-offs, and alumni, while also exploring its unique hybrid funding model that leverages both traditional philanthropy and industry dollars.

The case study also covers, at a high level, the launch of Reinventing Fire, RMI’s plan to get the U.S. off fossil fuels and onto efficiency and renewables while supporting a 158-percent-bigger U.S. economy. Studying Reinventing Fire forces students to confront their own understanding of national and global energy mixes and the possibilities for changing those mixes in a reasonable time frame.

Reinventing the think-and-do tank of the future

The second case, Reinventing the “Think and Do Tank” of the Future, goes into more detail on the changes that occurred at RMI from 2008 to 2012, which resulted in Reinventing Fire. These changes included the recruitment of a new management team and the development of a number of management processes to create a more focused organization.

This case allows us to look “under the hood” of a very unique and remarkable organization and allows for a number of terrific discussions, such as the balance needed between structure and creativity and the appropriate role of management in an environment of incredibly creative and insightful scientists, engineers, social scientists, economists, and even a handful of MBAs.

The broader lesson learned in this case is that in order to create a more sustainable and low-carbon future, businesses need to rethink critical aspects of management—and to do that, business leaders need to develop a greater appreciation for the core issues of natural systems, natural capitalism, and sustainability. There is a need to transform the decision architecture—the context, structure, order, and support systems for complex decision making—business leaders use to make major decisions.

This is not easy, because, as students find out, well developed and tested decision architecture examples and models based on sustainability do not exist … yet. More than 50 years after Rachel Carson published Silent Spring, large companies routinely publish sustainability reports, track metrics, and have staff functions devoted to the issue, but the deeper logic and mental models required for fundamental system-level change, and their translation into decision making have not penetrated the C-suite and Board rooms of most large companies, or their counterparts in the world of finance.

Enabling critical thinking

Using RMI as a case study allows us to encourage business-focused men and women, normally in their late 20s and early 30s, to open up their own thinking and to begin to question basic assumptions—including those that they are being taught in their other courses. Chris Laszlo, associate professor of organization behavior at Case Western Reserve University’s Weatherhead School of Management, also uses RMI’s Reinventing Fire in his teaching, believing that students benefit from having a way to think about how sustainability contributes to competitive advantage and organizational effectiveness. This questioning and critical thinking has been at the core of the success of the RMI case studies at IESE.

For example, one critical assumption the RMI cases help question is the appropriate time scale of business decisions and investments. MBA students spend a lot of time learning about finance and the time value of money. Finance practitioners routinely discount future cash flows by a discount rate based on the firm’s cost of capital and perception of the risk of a particular action or investment. After a few years—often ten years or less—the value of most future cash flows gets close to zero. However, the RMI case studies show that real change requires ensuring that business decision makers look at the terms of whole careers and major real asset investments in 30- and even 40-year time frames. One of my students, IESE global executive MBA Corina Turnes, knows that well.

“When I was a teenager I was fascinated by the fervent debates the book The Limits of Growth triggered and came to an early view of what finite resources could mean to mankind. The awkward feeling that probably my children will not have a life as good as I have persists and it is an indicator that we do not live sustainably,” she explains. “As an MBA student it is absolutely essential to study the complex issues of environmental sustainability in more depth. This is one of the most burning and serious challenges we will have to deal with not only in our future professional life but also as humanity in general. However, I think that by and large companies are still slow when it comes to implementation of sustainability concepts, and often, they do it because they are pressured by their stakeholders. As young leaders we have the obligation to accelerate this adoption to make sure we do not compromise the ability of future generations to meet their own needs. During the MBA studies at IESE we got equipped to look at the issues involved and learnt about companies that are making a difference. RMI is one of these companies. Their focus on profitable innovations for energy and resource efficiency tackles sustainability at one of its most relevant spots.”

Another perspective that the RMI case studies bring is that fundamental issues such as a the development of competitive advantage over time may also require a longer time horizon. This idea is supported by recent research by Jim Collins of Boulder, Robert Eccles of Harvard, and others that show shareholder value over long time periods is higher—sometime much higher—for those firms that take longer and more holistic and sustainable views.

We believe strongly that the sooner we can get the future leaders of business to look deeply at their own assumptions about the world, and the processes for making decisions that affect the world, the sooner we can change the world. Peeking under the hood of RMI with my students via case studies such as these offers a way to do exactly that.

As RMI is now going through a new evolution and in fact is opening up to the world, I can’t wait to write the next case!

Mike Rosenberg is assistant professor of strategic management at IESE Business School in Barcelona, Spain. He teaches long-term strategy, scenario planning, and analysis of business problems, and has a particular interest in the potential of alternative energy sources to change the competitive dynamics of a number of industries.

Image courtesy of Shutterstock.
 

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