Today’s farsighted CEOs know that dynamic energy management will be essential to competitive advantage and profitability in the decades ahead. They also realize that in light of increasing fuel price volatility, growing expectations to operate sustainably, and rapidly evolving energy technologies, the innovative use of alternative energy across their businesses will be essential.
Yet, in advising corporations on environmental strategy, we encounter few organizations truly conversant with the full range of alternative energy options. This is particularly true for renewable energy, a complex area that is young and so fast-moving that few companies, if any, possess the internal know-how to navigate this rapidly evolving terrain. As a result, companies forgo substantial benefits when they fail to identify and implement the innovative solutions available. For example, Hanesbrands has been able to shift more than 33 percent of their worldwide energy usage to renewables while achieving energy costs reductions that have put millions on the bottom line.
In fact, renewable energy today seems similar to information technology back in the 1980s — offering enormous rewards but only to those capable of assembling a coherent vision and implementation roadmap. Just as major corporations in the 1980s looked upwards at steep learning curves to achieve tech-driven productivity gains, so today’s CEOs, COOs and sustainability executives wonder how to identify and disseminate energy solutions across diverse production facilities and geographic locations.
Procter & Gamble presented a particularly challenging case in point. In 2010, CEO Bob McDonald laid out a long-term sustainability plan that included the objective of powering the company’s plants with 30 percent renewable energy by 2020. With 180 operating units spread across the globe, each with a different energy use profile, unique local energy market conditions, varying available subsidies and tax treatments, and a potentially different mix of energy solutions, the innovation challenge was considerable.
Clearly, P&G needed outside expertise on renewable energy. But traditional consulting methods did not offer much promise. Individual experts tend to have very specific expertise that may or may not apply; while educating a team of outside experts on internal operations would be expensive and time consuming — with no guarantee of longer term results. Worse still, neither of these traditional approaches would enhance knowledge of the in-house team.
Instead, P&G worked with consultants to customize an “Innovation Tournament” approach. Pioneered by Wharton Professors Karl Ulrich and Christian Terwiesch, and employed by organizations as diverse as Google, QVC and the Gates Foundation, Innovation Tournaments create a competitive, multi-stage structure by which corporations systematically incentivize, identify and develop exceptional ideas. In the P&G case, the tournament provided an effective alternative energy discovery, analysis and adaptation process that connected the company’s operations managers to a broad range of external expertise.
At the outset, the approach brought a carefully selected set of world-class external experts up to speed on the specifics of P&G’s energy use at a set of target plants. These experts then generated proposals that were submitted via an online idea management platform and vetted through a series of filters, including feasibility analysis and online voting by project participants. Ultimately, the best of these proposals were further analyzed and developed in a workshop that significantly accelerated P&G’s progress along the renewable energy learning curve.
The P&G tournament focused on three distinct production facilities in different geographic locations—Malaysia, Mexico and the United States. For the Malaysian processing facility, whose traditional energy sources were natural gas and electricity, the resulting alternative portfolio included onsite and offsite solar as well as biomass. For a US paper and baby products plant, the portfolio included biomass, hydro, biogas and offsite wind.
These specific site plans are now in the initial stages of implementation. Equally important, however, the tournament produced a phased roadmap for wider implementation that has accelerated P&G’s efforts to achieve the company-wide goal of 30 percent renewable energy by 2020.
In effect, the Innovation Tournament served as an in-vivo problem-solving exercise, identifying impediments and enablers common to P&G production facilities worldwide. On the impediment side, the group pinpointed corporate policies that unintentionally inhibit energy innovation. Regarding enablers, the process identified innovative financing options, refined a model for site-specific data informing alternative energy analysis and selection, and resulted in a better understanding of the capabilities needed to drive implementation.
Are there other means by which large, complex and diversified companies like P&G can explore and adopt alternative technologies? Perhaps, yet each has limitations. Just as with information technology in the 1980s, it will be many years before even the most deeply pocketed global corporations can cost-effectively build and maintain in-house energy expertise with first-rate capabilities. And engaging outside energy experts long enough to absorb sufficient internal production familiarity remains enormously time consuming, if not prohibitively expensive over the longer run. Meantime, our advice to corporations facing similarly complex energy challenges is simple: Let the games begin.
A 20-year veteran of new technology adoption, including stints with Compaq and McKinsey, George Favaloro is Co-Founder and Managing Partner of Viridis Strategy Group, formerly Esty Environmental Partners. Viridis works with clients to build high-impact sustainability strategies that provide significant and enduring business value. The company has offices in Boston, Washington, D.C., and Sydney, Australia. For a white paper and short video on the P&G Case Study go to: http://www.viridisstrategy.com/solutions/breakthrough-acceleration.