Monday, July 7, 2008

Why is it so hard to get to green?

In the past, we have blogged about the reluctance of companies to pull the plug on unprofitable investments. Here is an interview with Amory Lovins on the opposite mistake, the unwillingness of companies to make profitable investments:

And I’m astonished how often chief executives confuse the top and bottom lines. Years ago, I was talking to the head of a Fortune 50 company and was able to tell him about an engineer who had just cut $3.50 per square foot per year off the energy costs in one of the company’s plants. The CEO quickly and correctly translated that into $3.5 million in cost savings. But in the next breath, he said he couldn’t get excited about energy, because it was only 2 percent of his cost of doing business! He forgot where saved overhead goes—straight to the bottom line.

I had to do the arithmetic and show him that if he hypothetically achieved the same result in his 92 million square feet of facilities worldwide, his total net earnings would rise by more than 50 percent. That got his attention. He promoted the engineer, who spread his practices all over the company. Until then, that idea had never occurred to top management, because energy wasn’t an important factor cost.

1 comment:

  1. I have had this exact discussion with people all over the country. My issue is that I don't know which is more shocking... that people don't fundamentally understand the difference or that companies continue to create incentives that only look at the top line