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Schneider Electric: Expert Q&A: Why Companies Struggle to Achieve Enterprise-wide Efficiency
The race is on for low carbon growth and companies are taking notice with more than 500 companies having set science-based targets alongside equally ambitious energy reduction goals. These companies realize that, when done at scale, efficiency and sustainability investments can deliver meaningful bottom line impact. But for global companies with complex portfolios, scaling a corporate energy conservation program enterprise-wide has been an uphill battle. While the conventional methodology for energy reduction may deliver results locally, it is rarely enough to reach corporate ambitions.
If the traditional models to grow energy efficiency programs don't work, what does? How do you convince the rest of the organization to change? In this executive interview, Schneider Electric’s Jon Cleaver explains why so many companies struggle to achieve their goals and provides tips to overcome the most common roadblocks.
Jon Cleaver, Director, Global Practice for Engineering & Consultancy Service
Jon has more than 25 years of experience in complex engineering solutions and project delivery. He’s passionate about helping organizations find faster and more profitable ways to achieve their sustainability and energy efficiency objectives. Today, Jon leads the team responsible for the design and execution of energy management programs for Schneider Electric’s global C&I customers.
Q: How would you describe the state of corporate energy and sustainability programs today?
Global executives today recognize the increasing relevance of energy efficiency and sustainability to their business bottom line. Consequently, many companies are committed to more ambitious energy and carbon reduction goals than ever before, often part of initiatives like RE100 or Science Based Targets (SBTs). Moreover, the latest Greenbiz and Schneider Electric research report finds that 77 percent of companies realize significant savings from conservation measures, with 93 percent having energy efficiency technology in place.
But when it comes to progress towards reduction goals, most companies are struggling to achieve the speed and scale necessary to reach goals on time. Technology is a key enabler, but change management remains the true barriers to progress
Take the example of one of the companies we work with in the metal industry. We started our partnership at a crossroad for this company’s sustainability journey. It had achieved great results in previous years by implementing locally driven projects and changes. Despite early success, the future looked a little grim. Projects that would move the company toward its goal were complex and outside of core business expertise, making them seem financially unachievable. Just like a marathon, the start of the sustainability race is the easiest part. The hills are what test our commitment towards our goal.
Q: Why are energy management professionals concerned about meeting sustainability targets?
Companies are responding to increasingly complex regulations and international accords to reduce their energy intensity and carbon footprint, which becomes especially challenging as top lines continue to grow. Today, many EU member countries have their own unique requirements, making compliance even more resource-intensive for companies with a global footprint.
Sustainability is also increasingly tied to brand value and business-to-business relations. In fact, sustainability ranking is such a powerful KPI, especially among shareholders, that it has become part of boardroom discussions. For instance, we’ve been working with a global consumer packaged goods company to achieve its sustainability targets. This company not only wants to hit its targets today, but also wants to achieve massive cultural transformation to ensure that sustainability is embedded in the DNA of the next generation of employees. These companies act with such a strong commitment because they realize sustainability is not only about transforming the business’s investment strategy, but also its behaviors and values.
Q: What are organizations’ main roadblocks to scale energy and resource conservation measures across their global portfolio?
The biggest challenges to effectively execute widespread efficiency improvement are almost always bureaucratic rather than technical. Corporate offices are becoming more adept at setting the bar at the right level but hitting those goals at the site level is a far bigger challenge.
That’s because at the site level, key decision makers are tasked with making the core business operate as reliably and efficiently as possible. Resources are tight, and for the local management, efficiency projects and maintenance usually exceed budget. So, conservation projects must be prioritized and those that contribute to core business goals take precedence. At the same time, stakeholders at the site-level are accountable for core business metrics that may not include energy consumption or efficiency. These key decision makers may even perceive conservation to be a conflicting priority to their own KPIs, which makes getting buy-in tough.
A global food and beverage company we partnered with is a great example of this conundrum. The company had identified more than $35 million in potential savings with an attractive payback. But complex and lengthy disputes between corporate and sites meant significant delays in project deployment. Despite a year of time and resources invested into energy conservation, not a single project had been implemented successfully. This is the cost of not dealing with organizational complexity — and it is simply too huge to ignore.
It’s not uncommon for sites to get caught in this vicious cycle and require additional support and expertise to develop the business case and implementation plan to break out of it. But size and complexity of many organizations, especially across a heterogeneous site profile, make it even more difficult to engage individual stakeholders. An effective third-party energy efficiency advisor will help corporate offices to engage at the site-level to ensure they allocate adequate resources to support site performance.
Q: If traditional models to grow efficiency programs don’t work, what does?
It boils down to a quote from a personal hero of mine, John Wooden from UCLA basketball. He says, “Do not let what you cannot do interfere with what you can do.” That quote captures the essence of an effective energy and sustainability strategy.
First, companies need to get clear on what they want to achieve and ensure it is understood at all levels. That means all key stakeholders must be aligned and committed to their contribution to achieving sustainability goals. This approach also allows the program to overcome disruptive changes in the business or energy markets, ensuring efficiency and sustainability investments are translated to long-term growth.
When an efficiency program engages the entire organization and portfolio of sites, it becomes easier to find – and stay on – the fastest possible path to savings. Typically, that starts with leveraging energy savings short-term to prove ROI performance. Those savings can then be reinvested in your next capex project, which remain the toughest, yet most important, initiatives to get approved.
Think about the first example from the metal industry: leaders had picked all the low-hanging fruit and needed to figure out how to get approval for projects that were deemed too capex intensive. Situations like this are commonplace across all industries. Before capital expenditures become roadblocks, they should be anticipated and planned for. Large scale projects may look complex and difficult at the beginning, but when you bring the right stakeholders and experts into a room, the path forward becomes clear.
Q: How can corporate teams convince stakeholders of the need to scale?
Corporate energy managers have many stakeholders to convince, from top floor to shop floor – and low carbon is no easy sell.
While energy or carbon alone may not engage all stakeholders, we’ve discovered that translating efficiency and sustainability benefits together into core business impacts is a powerful way to gain internal interest and commitment. For example, rather than talking about KWh or metric tons, relate the financial value of energy savings to the cost to produce a bag of lettuce, or convert it to the dollars per car produced. When you’re able to put sustainability benefits in a language that employees understand, it can have a huge impact on site-level buy-in.
In addition, don’t overlook the less obvious sustainability benefits. Updating and renovating plants and equipment usually creates other cost savings such as reduced maintenance and capital replacement. What we find most effective is financially linking the individual results of sites and projects under a single more ambitious transformation effort that stays as cash neutral as possible. Leading companies we work with find success in combining sustainability, sourcing and efficiency initiatives so that capex can be optimized, and the organization can move more holistically towards long-range energy and carbon reduction goals.
Download this eBook for case study examples on how to overcome these roadblocks to unleashing efficiency globally.