Are we there yet? How board-level management can embrace energy

Energy Expert Peter Garforth explores the impact of energy on companies' management agendas.

By Peter Garforth

When I started writing this monthly column in 2005, the first one was titled, “Where is the Business Leadership?” It explored the paradox of the obvious gap between the proven benefits of effective energy management and the relative lack of senior management attention to the topic. In the past months, the Pew Center on Global Climate Change has supported a study of the energy management practices of some major companies. I was flattered to be invited to be on the advisory committee for this study. As the report findings came together, I was again reminded of this paradox. The question is clearly still on the table: “Is American senior management there yet?” when it comes to embracing energy and climate change management as a strategic business issue.

The companies that participated in the Pew Center’s study were Dow Chemical, Toyota, United Technologies, IBM, PepsiCo and Best Buy, all leaders in their business sector. The study findings were simple and predictable. To all of them, energy efficiency is a core strategy and an ongoing part of the company’s aspirations and metrics. The leadership and support is real, planned and sustained. Energy goals are company-wide, specific and regularly updated. Energy data is current, robust, comparable, and available when and where needed. The resources assigned are significant and directly related to the value of the returns in terms of both cash and human capital. Benefits are measurable, sustained and usually greater than expected. Last, but not least, successes are celebrated and communicated. To these companies, effective energy management is a non-negotiable part of their overall competitiveness.

The final report was unveiled at a recent meeting in Chicago. A number of us were asked to join a panel on “The Changing Paradigm: What's Next for Corporate Energy Efficiency?” The growing challenge of being ready for the uncertainties energy is presenting in the future were underlined by speaker after speaker. The consistency of this message was impressive, coming from industry, utilities and politicians from across the spectrum.

Many projects to enhance America’s energy efficiency and funded by stimulus monies can only be met with non-U.S. products and services.

– Peter Garforth

This column has often commented on the unpredictability of our energy future. Pricing is unpredictable and likely to be significantly affected one way or the other by climate change legislation. Supply reliability and quality are less certain as a result of policy, supply infrastructure and accelerating demand. The recent drilling rig accident in the Gulf of Mexico only underlines how these uncertainties can manifest themselves in specific incidents. Events like this can stall policy for years, in turn affecting potential new supplies. The recent deaths of miners in West Virginia are another tragic marker in a long story of the human price we pay for electricity. It’s hard to see how the safety and climate change concerns won’t have far reaching effects in this part of the energy value chain.

Another drum beat around clean energy and climate change is getting more attention. As the global focus grows, businesses are repositioning their offerings to serve the market needs. Increasingly, these businesses are from outside the United States, often supported by clear national and regional policies that pursue clean and renewable energy supplies and strategic energy efficiency. Again, as I have often pointed out, energy productivity isn’t just about judicious management of operational performance; it’s also about new opportunities in the market. The flip side of this statement is that it’s also about new competitive risks for those who choose to ignore it.

This competitive reality was highlighted with the recent awareness that many projects to enhance America’s energy efficiency and funded by stimulus monies can only be met with non-U.S. products and services. The political outrage, real or simulated, doesn’t really disguise the fact that in many cases, local industry is ill-prepared to respond to the needs.

The changing paradigm seen by the panel members in Chicago was clear. Energy and climate change risks are board-level issues demanding a global perspective and quality management attention. Today’s best practices, so well summarized in the Pew Report, are a given. Companies must be flexible to handle multiple energy future scenarios and teaming on energy issues up and down the value chain and with local communities will be required. Many stakeholders, customers and competitors will be waiting to reward the effective players or to expose the weaknesses of the less effective.

Given the sheer weight of the evidence of the growing strategic importance of energy and the competitive risks of ignoring it, I’m still amazed by how low it is on many companies’ management agendas. My question from the first column in 2005 still stands. Where is the business leadership…are we there yet?

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at peter@garforthint.com.

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