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The Growing Strategic Importance of Energy

For most firms, energy has traditionally been seen as merely a cost center that needs to be controlled. Yet today, the growing strategic importance of energy is seen in many c-suites as an opportunity for risk reduction and new value.

There are myriad reasons why energy garners more attention in boardrooms these days, including:

    • Emergent environmental, social and business trends, such as carbon regulation and climate change
    • Growing pressures on existing natural resources
    • Dramatic drops in the prices of renewable energy prices

The authors of a recent Harvard Business Review article surveyed executives from 145 companies with $1 billion or more in annual revenue. Researchers asked about 15 energy-related issues, including whether a formal strategy existed, if new technologies were deployed and if financing opportunities were leveraged.

From those answers, the authors identified five best practices among companies that are using energy strategy most effectively to create competitive advantage.

1. Make It as C-Suite Issue. The CEO needs to explicitly state that developing and using an energy strategy is a priority. The CEO should also appoint a senior-level leader to be the champion of and advocate for the energy strategy. The appointed leader should convene a cross-functional team to create and implement the strategy.

2. Infuse Energy Policy into Vision and Operations. The team needs to ask some critical questions, including:

    • How much energy do we use?
    • What does that energy cost us?
    • Are we maximizing our use of renewable energy sources?
    • What is our carbon footprint? What are our suppliers’ footprints?
    • How does our usage and footprint align with expectations from customers, investors and shareholders?

The answers will identify opportunities and gaps. A clear picture of energy impacts allows the committee to recommend specific targets, create incentives for employees to make energy a priority, and advise units on how to incorporate energy into strategic planning.

The team should focus its efforts on connecting two crucial activities: energy procurement and energy use management. Coordinating employees in these two areas allows for better cost savings and risk reduction.

Many companies are increasingly turning to renewable energy sources as prices fall and supplies rise.

3. Track Usage Everywhere. As energy grows as both a cost center and strategic priority, it behooves organizations to make sure they can accurately track usage. Most companies have not invested in the right equipment to quickly measure and analyze energy usage. Comparative data can identify inefficiencies across the organization and allow for predictive modeling that responds to fluctuations in energy costs. Using this data can then allow them to better compare energy prices for cost savings for the future.

4. Explore Renewable and Alternative Energy Sources. The costs for certain clean energies are dropping, meaning companies not pursuing these areas are losing an opportunity to reduce costs. There are some companies out there that need to start implementing ways on how to reduce carbon footprints, as this could make a big difference to the overall management of the business, as well as saving costs. It’s all about keeping a sustainable business and reducing the carbon footprint is just a start.

Among the sources and technologies available today are LED lighting, biofuels, wind turbines, photovoltaic, advanced batteries and fuel cells. Government incentives may make such energies even more reasonable.

5. Connect With Stakeholders. Part of the strategy needs to incorporate a communication plan for discussing the energy initiatives with stakeholders. Stakeholders include customers, suppliers, investors and government partners, particularly at the local and state levels.

Companies that incorporate a coherent energy policy into their business strategy are likely to gain goodwill, improved profit margins and reputational credibility. For those that don’t, it just might be lights out.