Take Eco-Efficiency to a Higher Level
Shapiro
A silver lining of the economic downturn is that efficiency has moved to the top of the business agenda. The recently enacted U.S. stimulus package includes more than $11 billion in funding for energy efficiency that will hopefully achieve the trifecta of saving energy, money, and jobs. And companies of all types are embracing efficiency to cut costs while improving environmental performance.
For example, KKR, the private equity firm, just announced that a pilot program with the Environmental Defense Fund yielded $16 million in savings at three KKR companies from measures that included reducing truck fuel usage (at US Foodservice), cutting paper consumption (at Primedia), and using more recycled feedstocks (at Sealy). Other companies from GE to Wal-Mart are reporting similar results.
This renewed interest in efficiency raises a question: Do companies really know how to manage and optimize efficiency?
In our experience at GreenOrder, the answer is (generally) no. Despite best intentions, most companies go after the lowest-hanging fruit and stop there, when they could be climbing higher up the tree, as it were, to identify efficiencies driven by true innovation. These are the breakthroughs that produce real competitive advantage. (As I noted in a recent column, the recession may give formerly busy managers the extra time to find those higher-order efficiencies. Of course, they may want to first capture those that are easier to achieve.)
Perhaps even more important, efficiency gains are too often “one-offs,” which don’t get converted into programs that can be replicated, scaled, and made part of the culture of an enterprise.
In short, nearly every company can do more to make efficiency more efficient and thus more valuable. This requires approaching efficiency systematically as a management priority - with diagnostics, training, priority setting, rigorous ongoing measurement of results, and reporting. One of the promising things about the KKR effort is that the firm plans to apply its results across its diverse portfolio companies.
Here are a few lessons my colleagues and I have learned about how to create a strategic “roadmap” to take efficiency to a higher level:
1. Tap the expertise of your existing managers: Efficiency should not be left to specialists. With preparation and practice, functional leaders and P&L managers can make the ability to manage efficiency - like quality management - part of their professional toolkits. For example, building on its commitment to lean manufacturing, GE has conducted more than 200 energy “treasure hunts” in different workplace settings, empowering teams on the ground to identify efficiency opportunities that have yielded more than $100 million in savings.
2. Go beyond energy: While saving energy is the most obvious and lucrative way to reduce cost and environmental impact, there are other attractive efficiency paybacks related to water, materials, and process in everything from agriculture to manufacturing. Savings can also found in waste management, sourcing, logistics, product design and packaging, travel, and everyday employee behavior. For example, instead of disposing of used plastic clothing hangars in a landfill, which costs money, Wal-Mart now sells them to a recycler, generating income.
3. Network broadly: Because efficiency is relevant to diverse company responsibilities, these initiatives benefit from innovative thinking from inside and outside an enterprise. Wal-Mart, recognizing this, has created a dozen networks to share best practices among managers in diverse roles - from energy management to merchandising - with input from stakeholders including suppliers and environmental advocates. You can do this even if you’re a much smaller business: Talk to customers, vendors, and other partners to see what’s worked for them.
4. Involve employees: Efficiency is not only good for the bottom line and the planet, it’s good for employee morale. Imagine your CEO reporting that instead of cutting headcount further, your company has decided instead to cut waste. Companies should provide efficiency training to key personnel, solicit the ideas of every employee to root out inefficiencies, and provide incentives and awards for the best contributions.
As we face the reality of a deep recession along with the ongoing demands on companies to improve environmental performance, efficiency should become a priority for every business. More than just tinkering with processes, it requires creating a culture of efficiency that can be embraced and internalized by your entire organization.
*This story originally appeared on Harvard Business Publishing’s Leading Green blog.
Last 5 posts by Andrew Shapiro
• Business Can Ignore Climate Deniers - December 21st, 2009
• Copenhagen, Meet Columbus - December 12th, 2009
• Make Every Job a Green Job - August 24th, 2009
• Can Obama Become the Green Leader We Need? - May 1st, 2009
• How Detroit's Fate Is Linked With Ours - November 27th, 2008
