When reducing operating costs, many methods come with unintended consequences, such as layoffs or budget reductions. While any cost reduction improves short-term profitability, companies need to consider risks that are difficult to quantify, such as the impact of employee morale and customer experience, which directly affect long-term profitability and revenue growth.
“There is no evidence that cutting staff to improve profitability helps beyond the immediate, short-term accounting bump,” says Peter Cappelli, a management professor at The Wharton School at the University of Pennsylvania, in Wharton’s online business analysis journal.
Still, cost cutting remains a priority for many companies. A survey of 210 senior executives at U.S.-based Fortune 1000 companies by Deloitte found that 88% expect to pursue cost reduction over the next two years, even if revenues increase.
The Deloitte survey also found that 59% of respondents are pursuing cost reduction targets of at least 10%, yet 58% failed to meet their targets from the previous year.
Starting with Energy
In order to tackle this dual problem of both reaching cost reduction targets while not hurting customer and employee satisfaction, consultants should help their clients by first looking for efficiencies in energy costs before tackling more complex methods of cost cutting. Since energy accounts for about 19% of costs for the average office building, according to National Grid, any improvement in this area would likely have a noticeable impact on expense management.
Importantly, cutting energy costs does not have to negatively affect businesses in either the short- or long-term. In some instances, customers and employees might not even realize a change, such as upgrading equipment or making slight operational adjustments that add up to substantial reductions in energy costs.
Analytics to the Rescue
Specifically, using energy analytics software (EAS), consultants can help businesses analyze where energy costs are coming from, rather than trying to guess what causes utility bills to fluctuate from month to month.
For example, energy costs for a particular business might spike in the winter, and the company might assume that this is due to additional heating utilization. However, costs could rise for a number of unrelated reasons, such as refrigeration equipment breaking down and becoming less energy efficient or wasted energy usage during idle or unoccupied periods.
With this type of insight derived from EAS, consultants could help clients proactively identify that their refrigeration units are performing abnormally and recommend a more cost-effective piece of equipment at an attractive ROI. Doing so has no negative impact on employees or customers, whereas without this insight, the company would incur unnecessary costs and might take damaging steps such as lowering the heat in the restaurant, which could be uncomfortable for everyone.
Integrating Energy Savings into Broader Cost Cutting
Additionally, consultants can recommend energy management changes that align with other initiatives that they work with clients on.
For instance, if a consultant is helping a client plan a move to a new office to save on real estate costs, they could also look at how to minimize energy costs in the new building. To do so, the company could install an EAS solution with sub-metering equipment to identify opportunities to improve efficiency and provide a more accurate picture of what the new facility should cost the client.
With this type of implementation, the company could see significant long-term savings, and rather than hurting customer or employee experience, the organization could even use that extra money to bolster these areas.
Request a complimentary energy efficiency assessment to find out how Artis Energy’s RTIS® energy analytics platform can provide you with the visibility and insight to transform energy from a fixed cost into a distinct competitive advantage.