Sustainable business lays the foundation for profitable business
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Facing rising input costs and increasing global competition, it seems an unlikely time for companies to embrace green initiatives. But it is exactly these initiatives that can help organizations thrive in an integrated global economy.
With business costs rising, it is increasingly challenging for businesses to stay profitable. In the United States, residential electricity prices alone are expected to increase 5.2 percent in 2008 and a further 9.8 percent in 2009.1 As a result, the environmentalist’s notion of “reduce, reuse and recycle” takes on new business meaning. More than ever, reducing waste and inefficiency can determine whether a company’s bottom line is red or black.
The fundamental question to reducing inefficiency is “where do we start?” For most companies, it will mean implementing necessary checks and balances to monitor processes for inefficiencies. For some companies, this will result in incremental changes, such as better ways to manage and use production inputs. Still other organizations will identify innovative ways to dramatically reduce seemingly fixed costs. The net effect, though, will be to reduce the needless consumption of inputs.
The fundamental question to reducing inefficiency is “Where do we start?”
Let us look at how the changing business environment has served to effectively align real-world business objectives with eco-friendly practices. As an example of this new way of thinking, data center and server energy consumption – an often overlooked operating cost – can be reduced to dramatically decrease a company’s environmental footprint and energy bill.
Past Resistance to Going Green
Previously, business practices that were branded in environmental terms were often seen as superfluous and unaligned with an organization’s legal obligation to maximize shareholder value. As a result, a commitment to environmentally friendly practices was not considered a virtue among serious and successful business executives.
Certainly in times of strong macro-economic growth, companies supported environmental initiatives as a means to improve reputation or brand image, but in most cases, these activities were the first to be cut or scaled back when times got rough. Viewed from one perspective, these decisions made sense. With operating inputs generally being cheap, recouping the often higher initial costs for green programs could take years, making them an untenable business proposition.
The Green Transition
We are in the midst of a worldwide green transformation. It is hard to pick up a magazine or read a newspaper and not see issues like climate change garnering attention. At the same time, consumers are starting to change their purchase behavior, focusing on increased efficiency. For example, in only four years, U.S. car purchases have strongly shifted to more fuel-efficient cars.2
No doubt, environmental issues have been high on consumers’ minds for years. So what was the tipping point that drove consumers from merely thinking about the issues to actually acting on them? It is likely the tangible impact of higher costs on their lives. The cost of products that consumers use daily has increased dramatically, driven by resource scarcity, increased demand and/or market speculation.
A growing percentage of consumers are predisposed to purchase products that are energy efficient. What is more, consumers are seeking out organizations that share their concerns and operate in a sustainable way. As shareholders, customers and employees make businesses aware of their interest and commitment to green issues, achieving a domino effect that has changed government and industry policy and practices in a variety of ways. Here are some examples:
In-house policies. In the telecommunications field, Verizon, one of the giants in the U.S. market, recently added energy-efficiency criteria to its purchasing guidelines.3 Competitive advantage. Input costs are now so high that eco-friendly efficiency measures make good business sense. Even after factoring in up-front costs, there is a strong business case to be made for these measures.
Reducing waste and inefficiency can determine whether a company's bottom line is red or black.
Government regulations. In Europe, the EuP (Energy-using Products) and WEEE (Waste Electrical and Electronic Equipment) guidelines have shifted the way entire industries address the efficiency of products and their life-cycle management.4
Efficient/Green Data Center
Let us drill down a bit more into a single aspect of business operations: the data center. Consider that energy use by the nation’s servers and data centers doubled in 2000–2006 and, under current efficiency trends, this consumption could nearly double again by 2011 to more than 100 billion kilowatt hours (kWh), representing a $7.4 billion annual electricity cost.5 In total, data centers consumed about 1.5 percent of U.S. electricity production in 2005, according to the U.S. Department of Energy’s Energy Efficiency and Renewable Energy Office.6
There are several reasons data centers consume so much energy. First, they run continuously, and as a result are always drawing power from the grid. Also, data centers have to be able to absorb high peaks in demand and often have capacity far in excess of their average utilization rate. Finally, with the ongoing exponential growth in data storage demand, data centers are often oversized to allow for growth.
Even a small change in the design of components used in data centers can make a big difference. Consider the costs savings of currently available hardware that can reduce power consumption 30–40 percent. For a business running a 2,500-user network, efficiency gains can result in an annual reduction of 336,000 kWh and savings of $65,000 dollars per year. (All estimates for potential savings were generated using the Nortel Energy Efficiency Calculator.7)
In environmental terms, this savings is equal to about 206 metric tons of carbon dioxide emissions in the United States, based on calculations using the Greenhouse Gas Protocol.8 Over five years, this carbon emission abatement is equal to the lifetime savings of installing 51 single-dwelling rooftop wind turbines.9 Clearly, efficiency across a network or data center can have big impacts.
That is why it is important to utilize a total cost of ownership (TCO) approach to procurement. A TCO approach takes into account both direct and indirect costs. Even for products with similar up-front purchase prices, the TCO can differ significantly due to a large variation in operating costs. This approach is inherently green, since it better accounts for inputs that may fall under emerging regulatory regimes and/or incur significant environmental costs such as air pollution, CO2 emissions and waste water.
One component of responsible green business practices is knowing and understanding the results and consequences of day-to-day operations. TCO helps companies move in that direction. The purchase and management of data center and other information and communications technology (ICT) equipment are obvious areas where this approach can be applied, since it is possible to model most major inputs with a high degree of accuracy for extended time horizons.
Prioritizing Efficiency
Every business needs to carefully examine its operations for increased energy-efficiency opportunities. We’ve presented the case for efficient data centers, but there are many other areas where gains can be made. By prioritizing efficiency in operations, businesses can achieve an important double benefit: improving the bottom line via increased operational effectiveness and reducing environmentally harmful emissions. Ultimately, a sustainable business is one that continues to grow and meet the needs of its customersfrom a product and environmental perspective.
