What have scholars and business leaders learned about creating the right environment for technology to evolve? According to several speakers at the 11th Wharton Technology Conference, the last few decades have taught us plenty. But Rebecca Henderson, a professor of environmental management at Harvard Business School, challenged industry leaders to stop looking backward and tackle an important piece of technological innovation in real time. The pressing need: addressing climate change.
During a panel discussion titled, “Technological Change and Industry Evolution,” Henderson noted that the basics of developing a system to dramatically reduce pollution from greenhouse gases — finding the right price, managing the necessary research and development, and assembling an “eco-system” where all this innovation can best take place — are highly doable. The problem, she said, is that “the energy incumbents sit on top of this system, politically and structurally. We need to find a way to get through them.”
Addressing her fellow panelists, Henderson added: “We have a place to stand, to speak on this debate. We have expertise; we have understanding. This innovation theme plays extremely well with businesses and with firms…. We have a duty to be engaged.”
Henderson said that her main academic obsession in recent years has been understanding how the accumulated knowledge about entrepreneurship can be applied to the groups of scientists and others seeking to discover and then implement solutions to manmade climate change.
“Some of the models suggest that what could happen is very nasty,” she noted, referring to data that show greenhouse gases from human activity warming the planet at a rapid rate. That could lead to rising sea levels, more frequent natural disasters and lowered food production. The problem is a classic case of risk management, except that the threats are not concentrated within a company but spread across society. “But if we really get moving, I bet we can de-carbonize the economy for much less than people say.”
That is much easier said than done, she acknowledged – in part because there are large legacy companies in fields such as oil and other fossil fuels that have powerful economic incentives to thwart any radical changes in the way that energy is produced and consumed. The way around that, she said, involves building on the knowledge that experts like those at the Wharton conference have developed about innovation. The challenges and opportunities for groundbreaking research in global warming mitigation are enormous because so many sectors are involved – not just energy but transportation, real estate and agriculture, among others, Henderson noted. “These are amazing opportunities to study really interesting stuff.”
“Relational contracts” between employees and their firms could also play a significant role in promoting better entrepreneurship on climate change, Henderson said. Traditional business theory — especially within the high-tech industry that developed at the end of the 20th century — says that companies agree to take care of the financial (and other) needs of key employees in return for their commitment to groundbreaking work. But Henderson believes it’s much more complicated than that.
“Economics is still dominated by people who fundamentally believe that … incentives are just a matter of getting the contract right around the qualitative metrics…. But this is a huge issue — it’s one of the reasons why we had the financial crisis.” A focus on short-term incentives can bring negative consequences, she said. Innovation in the technology world is more likely to come from employees who share a stronger bond and a personal commitment to the long-term goals of the company. Knowledge about how these relational contracts really work could help encourage the innovation needed to tackle global warming.
What’s lacking, she added, is a better academic understanding of where this critical trust and commitment to long-term goals comes from, and how it can be better fostered. “We need to find ways to motivate [employees for the] public good, or at least a longer-term type of view. This focus on short-term, instantaneous optimization is really destructive when we look at some of these big problems,” such as climate change. “And I think it’s really destructive inside firms.”