Companies have always been keen on measuring organizational performance as a means of tracking progress toward strategic goals and managing business more efficiently. Usually measured through key performance indicators (KPIs), quantifiable metrics are created that reflect the organization's goals. Historically, companies have used KPIs to extract the highest possible efficiency from major operational costs such as headcount, process control, or critical activities like customer satisfaction. But companies are finding that energy is becoming one of their fastest-growing operational costs and this is changing the way they think about energy use, so the familiar approach of KPIs is now being applied to energy use and reduction.
Companies that manage energy and sustainability like a business generate better returns, both in terms of profitability and shareholder value. In fact, companies that align sustainable business practices with organizational performance consistently out-perform in the market. A study from Innovest found that companies that managed environmental and social aspects of their business consistently outperformed the market by over 7 percent. Goldman Sachs found that companies that led in environmental and social issues outperformed the market in terms of stock performance by 25%. Not surprisingly, McKinsey found that the vast majority of CEOs are doing more to incorporate sustainable practices in their organizations. There is a clear leadership trend underway, but in reality the vast majority of cost reduction initiatives -- sustainability-focused or otherwise -- fail due to inadequate planning.
Fortunately, there are some basic measures companies can follow to prevent their sustainability and cost-cutting efforts from going to waste. The following five steps outline how organizations can incorporate energy and sustainability management to measure business performance and ultimately ensure the success of your energy initiatives -- and your company.
1. Establish a performance baseline
This is the key to any successful energy KPI: you need to know where you are starting from so that you can accurately track performance. Ensure your organization has the data management and reporting tools it needs to determine the correct baseline. After all, you can’t manage what you don’t measure.
2. Create energy KPIs that are measurable and actionable -- and tie them to other performance metrics such as compensation
Planning a 15% energy reduction in your data center is one thing, but when you tie energy performance to job performance, the results can be significant.
3. Engage your stakeholders
Whether it’s your employees, customers, shareholders, or supply chain, the success of any energy KPI relies on engagement. Ensure your sustainability program includes your stakeholders -- by providing them with the tools to be successful and work together to achieve efficiency targets, you can generate exponential operational cost reductions. You don’t need to be Walmart or P&G to make your supply chain more efficient through stakeholder engagement; companies are using the same methods with their suppliers of office materials, IT equipment, and outsourced services.
4. Incorporate energy planning into financial planning
Financial results are the benchmark of your company but they need to incorporate the right information, otherwise they can be at odds with the long-term success of your company. For instance, failing to incorporate the risk of rising energy costs, inadequate energy compliance planning, or ignoring sustainability at the expense of shareholder value all represent direct financial risk to your organization. Conversely, incorporating sustainability into corporate financial performance metrics and results ensures that you are taking them into account. This is why the SEC Guidelines for Sustainability exist. Follow them.
5. Drive down costs by improving operational performance
It sounds like common sense, but this point is often lost in our quest for 'better, cheaper, faster.' But companies can generate immediate payback by choosing the right energy and sustainability projects -- often reducing costs by up to 3% of revenue. For a company the size of Walmart, that’s $12 billion in cost savings. For a smaller firm with $10 million in revenue, that’s $300,000 in cost savings every year, simply by improving performance through sustainability.
From a corporate standpoint, energy and sustainability are just as much about business performance as they are about environmental performance. So change the way you think about energy and sustainability in your company -- the market will reward you for it.
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Michael Meehan is the co-founder of ENXSuite, which provides energy management services and software.