SHARED VALUE CREATION - KEYPOINTS
HC1: Introduction: A firm perspective on transitions
Literature: -
This course examines the fundamental technological and organizational transitions that are ahead of
companies and that are required to deal with the grand challenge of sustainable development.
Sustainability
Many definitions (that are not all helpful), but they all emphasize several aspects:
- Limits to growth (after Meadows et al.: Club of Rome)
- Intergenerational aspects
- Transitions (behavioral, technological)
And in the end the wicked nature of the problem that we face.
The concerns
- Industrial Waste (e.g. pollution of rivers, etc.)
- Consumer and commercial waste (packaging; scrap, etc.)
- Non-regenerative resources (exhaustibility; oil, gas)
- Regenerative resources (e.g. fishing)
- Topics: climate change, air quality, geopolitical tensions, global dependencies, inequalities (of
access and ownership).
Towards a solution
- Care for future generations
- Central role for institutions (at local and global level)
- New ways of thinking and perceiving
o Seeing systems
o Collaborating across boundaries
o Creating beyond reactive problem solving
o Need for solid evidence base
A Global Perspective – Emerging Economies
The European and Dutch context
- Emphasis on smart, sustainable and socially inclusive growth
- Netherlands laggard (more details later)
- Policy highly volatile
- Several initiatives to foster technological change
, - From Kyoto to Paris to Trump and beyond.
Growth, environment and technology
- Need to understand link between growth, emissions, material use, etc.
- First step towards empirics: country or firm as a production function
- A simple decomposition:
- So emissions decomposed into:
o Volume
o Technology (energy intensity)
o Sectoral composition
Key messages
- Limits to growth, unless…
o Sectoral transformations towards less energy intensive sectors
o Or improvement of energy productivity
- Drivers: innovation, prices, trade, changing preferences, etc.
- Essence of literature on the Environmental Kuznets Curve
Dynamics in the Netherlands
Manufacturing – International comparisons
Growth energy intensity
,Services – International comparisons
Growth energy intensity
Hypothetical scenarios
Towards explanations
- Low energy prices – Dutch disease type of explanation
- Uncertainty – partly caused by policy
- Advent of ICT – especially in the service sector
- Specialization in response to international trade
- The energy efficiency paradox – a barriers perspective
, SHARED VALUE CREATION – KEYPOINTS
HC2: Transforming the firm: Technology adoption
Literature: Blok et al. (2004) – Chapter 2
Net present value
Basic framework
Firms will adopt a technology as long as it adds to their profits.
- Any technology with a positive NPV should be adopted
- From the NPV-formula, we can derive a closely related figure that characterizes the
profitability of an investment: internal discount rate. This discount rate is equal to the
discount rate for which the NPV would be equal to zero (internal rate of return).
o So, adopt technology if:
NPV > 0
IRR (internal rate of return) > critical discount rate
Model cannot explain the S-shaped diffusion of technologies over time (the model is static in nature)
Two broad approaches can be discerned in the literature that tries to explain the gradual diffusion
of technologies [MOCK EXAM QUESTION 1c]
- The first combines a gradual improvement of technologies over time with heterogeneity
among the potential adopters. When the technology under consideration is still in an early
phase of development, only those firms that gain relatively much from adoption will invest.
As technology gradually improves, more and more firms will find the adoption profitable. The
technology will thus diffuse gradually throughout the economy.
o Known as probit or rank models (emphasizing gradual improvement of technology
and heterogeneity of firms)
o Strong empirical evidence shows that firm size and market share are relevant
indicators of heterogeneity that add to explaining differences in adoption behaviour
- The second approach emphasizes the relevance of information. It rests on the assumption
that at low rate of penetration, the knowledge about the existence of a technology is also
limited. Therefore, the technology is only considered by a limited number of firms. As
penetration increases, more firms will realize the potential of the technology and
subsequently adopt the technology.
o Known as epidemic models (emphasizing the gradual diffusion of information)
Energy efficiency paradox
Evidence that there are many technologies around that are not adopted while being profitable at
reasonable critical discount rates
HC1: Introduction: A firm perspective on transitions
Literature: -
This course examines the fundamental technological and organizational transitions that are ahead of
companies and that are required to deal with the grand challenge of sustainable development.
Sustainability
Many definitions (that are not all helpful), but they all emphasize several aspects:
- Limits to growth (after Meadows et al.: Club of Rome)
- Intergenerational aspects
- Transitions (behavioral, technological)
And in the end the wicked nature of the problem that we face.
The concerns
- Industrial Waste (e.g. pollution of rivers, etc.)
- Consumer and commercial waste (packaging; scrap, etc.)
- Non-regenerative resources (exhaustibility; oil, gas)
- Regenerative resources (e.g. fishing)
- Topics: climate change, air quality, geopolitical tensions, global dependencies, inequalities (of
access and ownership).
Towards a solution
- Care for future generations
- Central role for institutions (at local and global level)
- New ways of thinking and perceiving
o Seeing systems
o Collaborating across boundaries
o Creating beyond reactive problem solving
o Need for solid evidence base
A Global Perspective – Emerging Economies
The European and Dutch context
- Emphasis on smart, sustainable and socially inclusive growth
- Netherlands laggard (more details later)
- Policy highly volatile
- Several initiatives to foster technological change
, - From Kyoto to Paris to Trump and beyond.
Growth, environment and technology
- Need to understand link between growth, emissions, material use, etc.
- First step towards empirics: country or firm as a production function
- A simple decomposition:
- So emissions decomposed into:
o Volume
o Technology (energy intensity)
o Sectoral composition
Key messages
- Limits to growth, unless…
o Sectoral transformations towards less energy intensive sectors
o Or improvement of energy productivity
- Drivers: innovation, prices, trade, changing preferences, etc.
- Essence of literature on the Environmental Kuznets Curve
Dynamics in the Netherlands
Manufacturing – International comparisons
Growth energy intensity
,Services – International comparisons
Growth energy intensity
Hypothetical scenarios
Towards explanations
- Low energy prices – Dutch disease type of explanation
- Uncertainty – partly caused by policy
- Advent of ICT – especially in the service sector
- Specialization in response to international trade
- The energy efficiency paradox – a barriers perspective
, SHARED VALUE CREATION – KEYPOINTS
HC2: Transforming the firm: Technology adoption
Literature: Blok et al. (2004) – Chapter 2
Net present value
Basic framework
Firms will adopt a technology as long as it adds to their profits.
- Any technology with a positive NPV should be adopted
- From the NPV-formula, we can derive a closely related figure that characterizes the
profitability of an investment: internal discount rate. This discount rate is equal to the
discount rate for which the NPV would be equal to zero (internal rate of return).
o So, adopt technology if:
NPV > 0
IRR (internal rate of return) > critical discount rate
Model cannot explain the S-shaped diffusion of technologies over time (the model is static in nature)
Two broad approaches can be discerned in the literature that tries to explain the gradual diffusion
of technologies [MOCK EXAM QUESTION 1c]
- The first combines a gradual improvement of technologies over time with heterogeneity
among the potential adopters. When the technology under consideration is still in an early
phase of development, only those firms that gain relatively much from adoption will invest.
As technology gradually improves, more and more firms will find the adoption profitable. The
technology will thus diffuse gradually throughout the economy.
o Known as probit or rank models (emphasizing gradual improvement of technology
and heterogeneity of firms)
o Strong empirical evidence shows that firm size and market share are relevant
indicators of heterogeneity that add to explaining differences in adoption behaviour
- The second approach emphasizes the relevance of information. It rests on the assumption
that at low rate of penetration, the knowledge about the existence of a technology is also
limited. Therefore, the technology is only considered by a limited number of firms. As
penetration increases, more firms will realize the potential of the technology and
subsequently adopt the technology.
o Known as epidemic models (emphasizing the gradual diffusion of information)
Energy efficiency paradox
Evidence that there are many technologies around that are not adopted while being profitable at
reasonable critical discount rates
