Senior managers increasingly are realizing the wide range of risks and opportunities related to their companies’ energy use. As a result, managers who in the past would have had minimal interest in energy-efficiency programs are becoming more involved in setting energy performance targets. The approaches adopted often are in conflict with historic norms and allocation of resources, which stubbornly have a habit of staying in place in the real world of operations. The result is all-too-often ambiguous management direction and energy team frustration.
At the strategic level, the most common approach to establishing performance targets is to set medium-term energy goals based on best-practice benchmarking. The company’s current energy productivity is compared with the best performers in the same industry or a comparable one, with targets set accordingly. Traditionally, this was a difficult approach to adopt because of the paucity of benchmarking data, but this is less the case today as more-complete data becomes available.
Benchmarking has the obvious advantage that it is based on proven possibilities. The main disadvantage is that today’s best performance may not be enough to capture energy management’s full benefits or mitigate major risks. Companies also may be tempted to rationalize that a less-than-benchmark performance results from uncontrollable factors rather than from the quality of energy management.
This leads to an alternative, built on the conditions for significant competitive advantage. In this approach, the energy goals are driven by a quantified assessment of the short- and medium-term energy-related risks to the business as a whole. Management establishes so-called framing goals for the energy team based more on what is strategically desirable than what is obviously possible. Goals could focus on achieving a clear competitive cost advantage. They could aim to avoid possible future cost uncertainties, such as possible carbon penalties. They may have nothing to do with cost and could be established instead around resilience and reliability factors.
The advantage of strategic framing goals is that they tie directly to the future health of the business and the active engagement of senior management in energy performance. The main disadvantage is that meeting them will almost certainly require out-of-the-ordinary approaches to resource use and management.
The most powerful strategic energy performance goals are a combination: They are set to clearly serve the competitive needs of the business but are informed by global best practices to give them credibility.
Once strategic goals are set, in principle it is not that difficult to identify the “big buckets” of energy use and waste that offer opportunities for efficiency improvements. In a recent industrial project, some relatively straightforward energy mapping was sufficient to identify where actions had to be focused. In most cases, the arithmetic is clear. But this is also the point where leadership expectations and operational practice start to diverge.
Financing and technical teams often dilute interpretation of the strategic energy goals. Under the pressure of day-to-day resource allocation, and factoring in the habits and practices of the past energy efficiency initiative, less and less of the energy plan is implemented. As this happens, the probability of meeting the strategic goals falls.
In a logical world, this divergence would trigger a discussion with leadership about reaffirming strategic goals. If the goals are confirmed, then resources should be ramped up to get back on track. If other priorities have taken over, then the team may choose to slow the energy plan but to do so with a clear understanding of the risks involved. Unfortunately, this step often gets overlooked.
I saw this recently in a community project. The city’s long-term goal was a 50% reduction in energy intensity. More than 40% of energy use was in homes. Despite the obvious conclusion that most homes would need a major increase in efficiency, this was declared “too difficult” to implement.
I have never really understood the ability to declare transformational energy goals but deliver incremental results year after year. True transformation will require closing this gap.