Tuesday, August 12, 2008

Energy Management: Two Philosophies, Two Outcomes

Show me a business factor that is low-cost, stable, predictable, and non-controversial, and I’ll show you a factor that is easy to manage. Until recently, fuel, power, and other utilities were a great example of easily-managed inputs. But as we all know, everything about energy is changing: its availability, its cash flow impacts, and the legal and environmental consequences of its use. Energy use is no longer the one-dimensional factor of years past. As energy becomes more valuable, fuels and power become synonymous with wealth.

Against today’s energy landscape, two distinct management philosophies characterize the way energy is managed by industrial or large commercial organizations. For discussion’s sake, I’ll refer to these philosophies as “business as usual” versus “forward thinking.” The two philosophies have powerful implications for business performance.

The business-as-usual philosophy was developed during an era when energy was still cheap and simple to use. Historically, energy consumption was an internal “utilities” issue. Energy procurement decisions had little, if any, linkage to consumption decisions. A utilities agenda could be easily isolated from that of the larger organization. The utility management goal was quite simple: achieve 100% availability and reliability of heating, cooling, and other energy services. Cheap, reliable energy services at the flick of a switch were the mark of excellence in utility management. For the most part, utility managers went unrecognized until some failure in energy systems became evident. This philosophy obviously breeds a conservative mind-set, one that resists change to existing technologies, assets, and procedural routines. The business-as-usual utility manager becomes proactive only as needed to maintain a functional status quo. For a variety of reasons, the business-as-usual approach is alive and well in countless organizations, despite a growing need for flexibility in the face of volatile energy markets.

The forward-thinking organization’s approach to energy recognizes and responds to change. Energy—impacting the organization’s triple bottom line of economics, social responsibility, and environmental impacts—now has consequences for revenue, expense, and risk performance. In the forward-thinking organization, energy decision-making involves staff in operations, maintenance, engineering, finance, procurement, environmental/health/safety, and marketing and product development. Not that these dissimilar professionals are active participants in the boiler room; rather, energy-smart criteria are folded into their standard operating procedures. This organization monitors energy use as well as the evolution of related technologies, regulations, and cash flow opportunities. Rather than clinging to a functional status quo, the forward-thinking organization effectively “connects the dots” between energy and its business performance. In other words, staff are empowered to make choices that use energy to their organization’s best advantage. Goals, accountabilities, and top-level leadership support this vision.

Today’s energy markets impose unprecedented challenges—and opportunities. Business organizations can and do evolve in response to this environment. Show me an organization that clings to the business-as-usual approach to utility management, and I’ll show you an organization that loses opportunities to conserve, invest, and ultimately grow its wealth.



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