The most successful companies know the value of innovation and creativity. They understand how to bring this to the fore within their own organisations, but they also draw on research, insight and expertise from external sources to gain that all important competitive edge.
Business schools and academia have a crucial role to play in empowering companies through such intellectual joint ventures. Paul Walsh, Chief Executive Officer of Diageo, says: “Beyond the obvious research and development and innovation opportunities, it’s inescapable that ideas are the lifeblood of a successful company. Academic institutions not only create those ideas, but they can also bring the genuine fresh thinking about their application that gives them traction.”
A live instance of this can be seen in the field of M&A. Thras Moraitis, Executive General Manager Group Strategy and Corporate Affairs for Xstrata plc, started working with Han Smit, a Criticaleye Thought Leader and Professor of Corporate Finance at Erasmus University, some years ago when he was considering a theory on acquisition techniques (Real Options) during the $20 billion buy-out of Falconbridge. As Han was an expert in the field of Real Options, the academic was, says Thras, able “to bring an intellectual rigour and framework to Xstrata’s long-standing view that increasing optionality was an important ingredient in evaluating target acquisitions”.
He continues: “It was possible to acquire some of the options ‘cost effectively’ as most valuations focus primarily on the current value of future cash flows, not including the value of embedded optionality.”
The blend of Thras’ experience as entrepreneur, advisor and executive, combined with Han’s academic constructs and specialism in corporate finance, have seen the two develop a new field of strategy which can be applied to M&A (termed Strategic Opportunism). “Traditional strategy frameworks and thinking have, in my opinion, not been strong in reflecting the increasingly dynamic nature of the environments in which we operate, nor have they made a strong link between strategic courses of action and the value of a company as reflected in the investment community,” says Thras (for more information about Han and Thras’ theory on Serial Acquisition Options, click here).
Naturally, the best ideas and theories should have some kind of commercial or pragmatic application. Robin Buchanan, a Non-executive Director of Schroders and former Dean and President of London Business School, says: “Great business schools bring new insights by combining the rigour of academic discipline with the relevance of the business world.”
Nandani Lynton, another Criticaleye Thought Leader and Adjunct Professor of Management at the China Europe International Business School in Shanghai, comments: “Business likes to know that there is stringent theory and research behind models before they use them. Academia helps business by providing the scientific testing ground, but it often seems to take a breed of middlemen – practical academics with business experience or specialised business journalists – to take the research insights and present them in a form useful to practitioners, usually with illustrative business examples.”
At present, there continues to be a number of professors who are too insular in their research, operating to the flighty abstractions of academia as opposed to engaging with the earthbound practicalities of business. June Boyle, HR Director Organisation Effectiveness at Lloyds Banking Group, observes: “There are some academics who only have time for their own research and, while it might be interesting, that’s about as far as it goes.”
Likewise, Robin notes that some business schools make the mistake of “recycling conventional wisdom” for business executives which isn’t really about educating and encouraging new thinking, it’s simply training: “The trap that other schools fall into is to get so deep into the research minutiae that the academic comes up with a perfectly polished piece of research into topics that have no relevance to business or even other academics.”
Bill Payne, Vice President, CRM and Industries Global Process Services at IBM, argues that, although the top business schools and academic institutions do generally lock-on and get engaged in business practicalities, it is the next tier where some work may need to be done.
A way to address this, Bill suggests, is for key departments to interact more closely: “This is where business schools can really get their act together. There is a paradigm shift that can happen here where there is a link between business schools, maths departments and finance departments. It is finance and monetisation that drives business, it’s mathematics that powers analytics and it’s the business schools that should have the out-of-box thinking that bring it all together.”
Interaction is the fulcrum for propelling new ideas. Indeed, when business leaders themselves engage with professors to discover the latest concepts, and impart their own expertise and knowledge to galvanise relevance, it becomes a potent combination. Bill says: “There is a wealth of innovation, brain power and out of the box thinking but I see it as being somewhat like a CPU [central processing unit] and the wire needs to plug back into business. There are far too few senior business people like me who put time into giving something back.”
Terms of reference
In the UK, the relationship between business and academia is currently perceived to work best in the technology sector. Michael Kitson, a macroeconomist at Cambridge Judge Business School, argues that this does a disservice to the vast array of knowledge out there.
“There is a view that academia only influences business through science, technology, patents, licences and spin-offs,” he explains. “But that is only a very small part of the picture as there are a lot of hidden interactions going on through informal advice, consultancy, problem solving, student placements and curriculum development.
“The first point I’d make is that these interactions are not about technology transfer, they’re about exchanging knowledge. Secondly, it’s not just all about engineering and science; there are a wide number of disciplines involved, of which business and management seems to be particularly important.”
A good example of this can be seen through the work of Victor Dulewicz, Managing Partner of VDA Assessment & Development Consultants and Emeritus Professor at Henley Business School. He has worked with a number of multi-nationals and financial institutions, pioneering techniques into managerial and director assessment, appraisals and development.
Infact, although people were highly skeptical of these tools 20 or 30 years ago, many are now in the mainstream. “When I am advising companies or doing assessments on managers, it’s widely accepted as something that needs to be done,” he says, adding that corporate non-executive directors of boardrooms are now opening up to such evaluation too.
Paul Walsh describes the relationship between business and academia as a “two-way street”. He says: “Academic institutions have to be highly practical and refine what they offer. In today’s uneven world economy, the competition for talent and ideas is global…[so] only those with a strong, well-based business proposition will thrive.”
Evidently, the best business schools have the professors on board who realise this, individuals who can provide the necessary research, training and education, while also maintaining close relationships with companies. Dr Dennis Gillings, Chairman and CEO of bio and pharmaceutical company Quintiles Transnational, who is also on the advisory board of Cambridge Judge Business School, insists that this is where the future lies. “We need our major institutions putting more of their intellectual energy into what is going to create more value in society.
“It’s exactly what Britain needs: the major academic institutions paying more attention to the value creating, entrepreneurial activities which go on to create more jobs and more value in society. The East is where the manufacturers and commodities will come from in the future, so we have got to have our major institutions leading the way on business-focused skills and knowledge.”
For Han Smit, the benefits to be gained by professors working with the key-decision makers in companies is clear to see: “I firmly believe that the links between academia and the business world should be stronger. I am constantly surprised by the number of great innovations from academia which are not used to their full potential by practitioners.”
Fundamentally, the goal should always be to make innovation happen and this is why Criticaleye has created its Thought Leaders initiative, which pools together some of the world’s leading professors. It provides a platform for professors and academics to share their world-renowned insights and research by entering into a dialogue with the Criticaleye Members, thereby forging a cutting-edge Community dedicated to promoting fresh thinking and radical new ideas for business.
Please get in touch if you have any comments about the issues raised here.
I hope to see you soon