The Untapped Value of Energy as a Keystone Metric
The idea of a “keystone metric” was first made famous in New York Times reporter Charles Duhigg’s 2012 book, The Power of Habit: Why We Do What We Do in Life and Business. One of Duhigg’s examples in particular shows the ripple effect that focusing on alternative metrics for business success can have on overall performance.
The story started with a controversial declaration that Paul O’Neill, former CEO of the Aluminum Company of America (commonly referred to as Alcoa) made to investors in 1987, at the outset of his tenure with the company. O’Neill announced that the company was going to make operational safety—a long-standing issue at the company—a top priority. As Duhigg recounted in a Huffington Post article, investors were shocked that, rather than discussing profits or revenue, the new CEO of Alcoa seemed only interested in one metric: accidents in its facilities.
Investors who sold their shares in response to this new shift in business priorities would soon regret it. Less than a year after integrating operational safety into the fabric of the organization, Alcoa's profits reached a record high. By 2000, when O’Neill left Alcoa, the company’s market capitalization had risen by $27 billion and the stock value was five times higher.
What’s eye-opening about this anecdote are the unintended business-wide benefits that came about as a result of focusing on this critical factor. For example, as part of an effort to ensure safety processes were being followed, O’Neill encouraged staff to call him at home to inform him when managers failed to enforce policies, according to Duhigg. The simple act of opening that line of communication led one employee to suggest an idea for optimizing a manufacturing process that would ultimately double profits on a product the company had been struggling to sell.
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For large, energy-intensive businesses, data showing energy usage can serve as a keystone metric. Data centers, for example, use a variety of energy-related metrics as a barometer of their performance, for multiple reasons. If the data shows the expected level of energy usage in its facilities, that is a sign of availability of the web services their servers support. At the same time, real-time visibility into energy consumption can open the door to new opportunities for operational efficiency, cost reduction, and pricing models for its products. In fact, a report from the Lawrence Berkeley National Laboratory released earlier this year explained how technology companies are using energy management as a strategic differentiator.
“The cloud is certainly one of the drivers to more energy efficiency,” said Dale Sartor, a Berkeley Lab researcher and one of the report’s authors. “Data centers used to be considered a fixed cost, but in a cloud environment, whoever is lowest cost provider is going to win. Energy is one of the easier things to optimize.”
Viewing energy as a keystone metric is one of the emerging practices highlighted in Enel X and PwC’s Unified Approach to Energy Transformation, a framework based on research into some of the world’s most successful energy strategies. Successfully accomplishing this requires top-down support and driving behavioral change among employees across departments. It’s not that energy needs to be the only metric that your business cares about, but that it needs to be recognized for what it is—an integral part of your enterprise-wide operations and a potential untapped source of value. If energy is a perceived and managed as a critical part of the business, and employees are constantly keeping it in mind, the ripple effect can lead to advantages that you hadn’t even imagined.