By Benedict De Meulemeester on 15/06/2021
E&C turned 16 years old in April 2021. Over the course of these years, we’ve started to work for larger and larger companies. This is probably why I’ve come to appreciate the importance of strategic alignment as a key success factor for energy procurement. There are many aspects that help companies become better at buying energy, such as contract negotiation tactics, market intel, risk management techniques, data availability and quality of the analysis of that data. E&C has developed a whole range of consulting and reporting products to assist clients with this. By deploying them, we’ve put in place many substantial improvements, but none has as massive an impact as the assistance we give customers for defining, finetuning and implementing a well-designed energy procurement strategy.
Strategic alignment is a key component of that success. In two hours, my favourite football team are playing an important game. Regardless of how good the players are, if the coach gives differing instructions, or worse, if the president disagrees and undermines the coach´s instructions, it will not work.
It will only work when there is a consistent strategy for all players, when everyone in the Club is aware of it and communicates accordingly, and subsequent reporting and evaluation is based on that strategy. It is the same situation for a company. These are the three elements or phases of strategic alignment that I want to highlight in this article:
For more details on exactly what you need to consider when aligning your strategy, read our White Paper on this topic.
1. Set up a consistent strategy
Energy markets are unpredictable – most people agree on this. The consequence of this is that you never know what the market will do next after you have fixed or unfixed (part of) your energy price. This means that you cannot be ‘good at buying energy’ by always buying or selling everything at the right moment. Consequently, some companies decide not to do any fixing or unfixing at all. But then, this not fixing is also a choice… On the flip side, if you have had success in buying everything at the best moment it simply means that: a) you were lucky, and b) provoking that luck involved a degree of risk-taking.
However, this doesn’t mean that there’s no such thing as good energy buying. We teach companies to take decisions on fixing, unfixing or not fixing energy prices with a very clear and laudable strategic goal, namely minimizing the impact of energy cost variations on P&L. After 16 years, I´m proud of this achievement: our clients know how to protect their business against energy market volatility successfully.
2. Communicate to align with stakeholders
Energy procurement has a lot of internal stakeholders in an organization. In many cases, we work with a central (international) energy buyer. They have stakeholders inside the central organization. This is of course their hierarchic line within the procurement organization and goes to the CFO and/or CEO. On top of this, there are the finance people, both in terms of impact of energy cost on the P&L and for financial reporting, and stakeholders in the plants or business units where the energy is consumed.
There are also indirect stakeholders who need energy procurement information and performance to achieve their objectives (I’m thinking here in the first place about sustainability). In those energy-intensive organizations where energy cost has a big impact on price setting, the sales department will also be interested in what happens in energy procurement. We have managed to make important turnarounds here with many clients, removing barriers that caused such companies to lose significant amounts of money as the sales practices didn’t reflect the buyers’ practices and vice versa.
Read our White Paper to ensure you have considered the following:
3. Report and evaluate based on aligned objectives
A complex organization necessitates a complex set of rules to organize its activities. As energy procurement touches upon many different fields, it can be challenging to make sure that the rules in all of those fields allow you to put in place the practices you need to execute your strategy successfully. A good example of this that we frequently encounter is contract duration. The main goal of a company is to stabilize its energy cost, but there is a regulation in the company that makes it impossible to sign long-term contracts. You can never achieve long-term cost stability without long-term contracts. Oh, and by the way, there are always practical solutions to solve problems – reasons given for the embargo on such contracts – within the contracts themselves. Therefore, if you are confronted with such a situation, you should address it and ask for an exception to the general rule. Point out the strategic inconsistency and propose practical solutions to deal with the perceived problems.
Another example of lack of alignment in rules is when an organization for whom the main risk is having bought too much when markets go down, doesn’t allow the unfixing of positions. Although, there is a workable strategy possible with buying only also for such clients.
Read our White Paper to ensure you have considered the following:
Are you ready to find out more?
If you´d like more information on how to go about aligning your strategy, please download our White Paper. You can also take our Strategy Alignment test to assess just how aligned you are or, better yet, get in touch to see how we can help. We ensure that nothing is missed and that the strategy you have works to minimize the impact of energy procurement decisions on P&L year after year.
