Energy Management - The Litmus Test for Your Sustainability Credentials
By Robert Allender
Do your guests care how much energy your hotel uses, the source of that energy, whether you have targets for improvement, and how you are doing against those targets? And do you care, either way?
Your answers to these questions are a reliable indicator of your position, as a hotel manager, along the spectrum we could define as "primed for profit". Sustainability profit, that is. Because whether you like it or not, sustainability issues are going to bring about a sea change in the way hotels are operated in the future. The opportunities for profiting from these changes are enormous, even though there will be challenges, too.
If your first thought is that, never mind the future, sustainability is already driving or at least significantly influencing my short term and long term business decisions, then an observation by William Gibson, originator of the term 'cyberspace', will surely resonate. He proclaimed "The future is already here. It's just not evenly distributed." And a few seconds thought will leave you convinced that that's true on many levels, and in many domains. Sustainability is just one.
Your hotel's energy management practices are a reliable litmus test for the broader topic of sustainability. Let's drill down into this one particular resource to examine how energy management fulfills this litmus test role, and how you can take advantage of that situation. (Interestingly, energy management has also been identified by more than one rigorous study as proxy for overall management excellence. These studies correlated energy management excellence to dramatically superior share price performance.)
Energy is important in all three sustainability pillars - economic, environmental, and social, or, as some like to put it, profit, planet, and people. As a hotelier you might see energy as a largely fixed cost to be battled against but eventually passed on to guests and patrons, as a major headache, or as a source of pride for the improvements you have been able to champion. Underlying all of these perceptions, however, are sustainability factors that cannot be ignored. Energy costs money, generates pollution, and impacts individuals and societies. Yet at the same time it creates wealth, provides a superhighway to a clean future, and literally empowers community development.
Nonetheless, do guests care? You may have read that, until now, at least, environmentally conscious consumers' actions do not closely follow their words. Despite saying they favor companies and products that support environmentally sound business practices, studies show that consumers will spend little if anything more for more environmentally benign services. There is no reason to doubt that this would apply to energy efficient hotels, where any dollar benefit to the guest would be very hard to identify, let alone any environmental benefit.
But here is the good news: this finding applies only to individuals. If you count corporations, governments, institutions, and MICE business amongst your important market segments, an entirely different paradigm applies. Decision-makers in these sectors face an entirely different set of value criteria.
Corporations are driven by international competition, by ever-expanding regulation, and by a need to be seen to be making progress with such high-profile sustainability metrics as carbon use.
Governments - national, regional, and local - and institutions such as universities are driven by needing to set an example, but also by competition. Governments in countries like the UK, Singapore, and Australia have been very high profile in doing so.
MICE arrangers fall into two sub-categories. Arrangers of corporate events largely follow the corporation model. But arrangers of conventions and conferences, association events, in particular, are driven by peer and attendee pressure to 'do the right thing', even in order to avoid criticism by just a few individuals.
All of these corporate, government, institution, and MICE motivators can be supported by you offering the respective decision makers a hotel which uses less energy, low-carbon energy, or both.
Here is the interesting fact, however: the decision-makers in these three market segments are not really concerned about how much energy your hotel uses, nor where that energy comes from. Whether your hotel is an energy guzzler getting its electricity from a low-efficiency power plant burning fuel oil or a high-performance energy-sipper connected to a hydro-electric plant with zero associated carbon is unlikely to have much impact on your clients' total greenhouse gas emissions.
Even purely service businesses like law firms could barely find 'hotel use' on their carbon emissions pie chart. What they are concerned about is their own needs. And these center around doing their carbon accounting. So let's drill down further into that one particular dimension of energy use, its resulting carbon emissions, to see how this plays out.
How Much Energy, and the Source of that Energy
Many corporations these days, including the vast majority of Fortune 500 companies, measure their carbon emissions, and make this data public. In other words, they practice accountability and transparency.
Similarly, a long and fast-growing list of companies (over 3000 this year) submit greenhouse gas emissions data to the Carbon Disclosure Project. To do so, they need to accumulate carbon numbers from activities like business travel into their overall total. Check how many of your top 100 corporate accounts already participate in this initiative, the growth rate of the CDP, and the value of funds invested by the institutional investors behind it, if you want to be clear just how important this one single driver might be to you.
The Global Reporting Initiative (GRI) is similar underlying motivator affecting some of your corporate business. GRI is a set of guidelines for the production of sustainability reports, and requires carbon emission data to be collected from a wide variety of business activities, including stays in your hotel, and incorporated into various totals. Over 1500 companies will produce GRI-compliant reports in 2011. Are your important corporate clients amongst them?
Sustainability reporting not following the GRI is still likely to be a magnet for carbon data requirements. Listed companies the world over are adding a sustainability report to their annual report, or publishing one separately. Some stock exchanges already make it a requirement. And the body of analysts looking to these reports to inform their overall investment advice is expanding every day. Can you see how this heavyweight activity might play into your hands?
One clear trend from all three of these examples is that they go deeper and become more granular every year. So even if your clients are making do with just estimates this year, don't be surprised if they come to you for specific numbers next year, and maybe specific numbers with third-party verification the year after that.
Governments and institutions are similarly motivated to require their hotel service providers to provide them with data about the carbon dioxide emission attributable to their stays in your hotel. Governments and institutions have been more proactive in setting aggressive targets than corporations, and typically have less wiggle-room once those numbers are on the table. Corporate targets will legitimately change based on acquisitions and divestiture, by change in product mix, and of course by economic cycles. Governments and institutions are seldom in the take-over game.
Corporate meeting arrangers need carbon data for the same reason as those companies' travel bookers. Other MICE arrangers are driven by a somewhat different force. But the pressure both can put on you, the hotelier, can be intense, because they are often making a large single purchase decision based on a scorecard heavily weighted to environmental categories. Why is this? Put it down to behavioral scientists' favorite: avoidance of pain. Robert Cialdini's Six Rules of Influence tell the same story.
Participants in a MICE event may not be paying the bill themselves, nor even care too much about the dollars involved. But they have been conditioned to consider whether the event organizers have made some attempts to reduce environmental impact. And one straightforward metric for that effort is the carbon footprint. Ignore this factor at your peril.
Targets for Improved Energy Usage, and Actual Progress
Having identified some important categories of guests (or more accurately, travel policy setters) who do care about your hotel's energy use, but recognized that this interest is only to up the point that you can provide them with the data they need for their own reporting purposes, our original question resurfaces: do we need to care? Does that lack of concern about your quantity of energy, and the source of that energy, mean you are also under little or no obligation to make improvements, let alone to step up the challenge of making a public declaration about the magnitude of future improvements, and the timeline your improvements will follow?
Sorry. Life is not that easy. Not for you, and not for your corporate, government, and MICE clients, either. Because the one truism for the world we live in, for sustainability, and for carbon emissions alike is that there must be improvement. Without progression there is regression. In the carbon world this manifests itself as emission reduction targets, and by now you will be familiar with the announcements by national governments, states, cities, companies, universities, and even individuals declaring what percentage they are going to reduce their carbon emissions by. And by what date.
What this means to you, managing your hotel, is that when your customers announce their reduction targets, their supply chain is immediately obliged to match suit. Your customer's 20 percent reduction by 2020 against a 2005 baseline, for example, means that everything they buy, goods and services alike, is understood to need to hit the same targets. (Smart hoteliers will monitor the public announcements from their most important customers and prospects and proactively address this golden opportunity to gain some competitive advantage by promising to do so.)
The second line on this topic is your own company. A small number of the major hotel operators have already made their own public pronouncements as to carbon emission cuts, and obviously individual hotels within those groups are required to at least feed their proportional improvement into the overall picture for there not to be serious embarrassment, if not worse, when the designated month arrives.
Any commitment from your head office to targets and quantities will be some comfort to your corporate, government, and MICE clients. In the end, however, it will be your particular hotel's figures that will need to be plugged into their enterprise-wide sustainability reporting software. Avoiding the dreaded red flag will be worth some real effort.
Accountability and Transparency at the Hotel Level
If you decide that, yes, your corporate, government, and MICE customers would find it appealing to know that you understand their carbon data needs and are ready to play your part, what might be your best course of action?
Target setting will be one important element. The hotel industry has not matched other industries in terms of transparency and accountability on the energy consumption front, but the science of setting targets is well documented. Anticipating what challenges you will expect to face, and how your targets are likely to evolve in the future require some serious analysis. Both short term and long term targets are required - short term to show that immediate progress is being expected, long term to map out the milestones to be hit in the future.
Deciding what targets to set also entails considering what benefits to expect to derive from making them transparent, rigorous, and, above all, stretching. Any target which is easy to achieve is guaranteed not to produce any innovation, any business value, or any future-proofing. Your corporate, government, and MICE clients will be looking for a breadth of ambition beyond the simplistic "change the lightbulbs" announcements that sufficed twenty years ago.
Of course the best way to be sure your performance and targets will satisfy your corporate, government, and MICE clients is to ask them. These clients, along with regulators, institutional investors, labor unions, and other stakeholders expect to be involved, not simply informed, in your decision-making on issues like this. They expect to enjoy the benefits, too, so be sure you communicate in a way that delivers that message.
After you have discovered what your clients, prospects, and other stakeholders will consider 'satisfactory', a strategic review of your current situation is called for. One well-tested approach is to apply the same solid steps that you follow during your annual strategic management process for this review, but this time deal with only the narrow subject of energy management. Such an exercise will yield the depth of understanding to create a solid foundation for going public with your energy and carbon goals.
A common-garden variety energy audit might help this process, but you will be better off crafting your own "scope of work" based on your specific requirements, then securing some competitive bids. More upfront effort on your part, but a vastly more valuable outcome will be your reward.
Twenty-first Century Energy Management in Practice
Actually reducing a hotel's energy consumption and carbon-emissions-per-room-night can also be reliably achieved through solid management planning and execution. As Alan Schlaifer advised in another article on this website, a systematic approach is of utmost importance. He confirmed that "close examination of resource usage" is a practice common amongst industry leaders.
The Westin Resort in Macau offers a perfect example of this practice. This little hotel has intensely examined their energy use 52 times a year for 15 years in a row. Not just at a high level - total electricity, gas, and oil, for example - but broken down into 16 individual departments. The resort's system for managing energy thereby puts in place two cornerstones of sustainability success - transparency and accountability. These are bolstered by a third favorite of behavioral scientists, target setting.
At the Westin Macau, specific weekly targets are set for each department. These targets are adjusted by an algorithm polished by 780 consecutive weeks of input. The algorithm takes into account variations in business volume, outdoor temperatures (degree days), and changes in equipment. As our scientists would have predicted, the human brain's predilection towards goal seeking has seen this target-setting process contribute even further to the resort's outstanding result of US$3.5 million in net profit improvements over the life of the program.
The resource-intensity of providing a single room night is going to be a metric scrutinized more and more intensely from now on.
Identifying all the Benefits
Using energy management as a pilot, any hotel management team will readily be able to identify other business opportunities on both the revenue and the expense side which offer sustainability-linked opportunities. One way to ensure that these initiatives get as much support as possible is to make sure to identify all the benefits as they flow in. For example, hoteliers often cite improved image as their reason for undertaking sustainability initiatives. Yet seldom is this reason translated into a dollar figure.
Tracking this during your weekly sales and marketing meeting will allow you to close this common gap. Identify how much new business and how much retained business can be placed squarely under the column headed "Derived from Our Sustainability-excellence". Then feed these figures up and down the chain of command, to encourage the front line staff and to nurture high level backing at the same time. Hoteliers need to make their sustainability strategies not a way to keep up with the Joneses, but as a way to get comfortably ahead of them, with lasting business benefits.
You might have noticed a studious avoidance of the word green up until now. The term 'green' is destined to go the way of the dinosaur. William Gibson's words apply here as well. Many companies headed by sophisticated management teams and astute boards of directors have already seen the future writ large, and decided that they don't need to tell customers they are green any more than they need to say their products and services are safe and hygienic. The hotel industry serves the same customers. So claiming that a hotel which is responsible for 10,000, 20,000, or even more metric tons of carbon dioxide emissions every year is somehow environmentally benign is destined to damage brand image sooner rather than later.
Corporations, governments, institutions, and the MICE business are willing to spend real money satisfying their own sustainability aspirations and commitments. Identifying the opportunity and finding a way to meet it in a unique and profitable way is sure to be a road to success for many hotel managers over the next ten to fifteen years. This is not a future to be missed.
