From Innovations, a website published by Ziff-Davis Enterprise from mid-2006 to mid-2009. Reprinted by permission.
As the price of gasoline has raced past the once-unthinkable level of $4 a galloon in the US, everyone is trying to come to grips with the implications of this historic event. Boomers like me remember the last time gas prices tripled in the 1970s. It plunged the US into a protracted recession with 18% annual inflation. Such an outcome is unlikely this time – the economy is much more globalized today that it was in those days – but it’s fair to say that the ripple effects of this shock will continue for years.
But times of crisis are also times of opportunity. The energy scare of the 1970s led to a near tripling of automotive fuel efficiency and much broader awareness of tactics for avoiding waste. It also led to shifts in the balance of power in many markets. Small, efficient players seized the opportunity to chop away at the entrenched rivals and make amazing gains. Toyota, which was a bit player in the US in 1970, was a major force a decade later.
The next couple of years are going to be traumatic. The price of everything is going to go up. The market leaders will sigh and say it’s out of their hands, but you don’t have to be so sanguine.
In many markets, new leaders will emerge among companies that can hold the line on prices by making quantum gains in efficiency. IT will be a competitive edge.
Quantum gains don’t come from adjusting the power options on PCs or turning off monitors at night. They come from rethinking entire processes. The gainers will be the companies that can innovate in reducing energy costs in area like these:
Logistics – Moving goods from one place to another as quickly and cheaply as possible will be a competitive differentiator in many industries. The latest modeling and linear programming tools can identify the cheapest and most direct logistics options. Yield management can optimize resources and help companies choose which under-performers to discard.
Workforce management – Airlines have raised fares 21 times this year and that trend will continue as long as fuel prices rise. Business travel is on its way to becoming an expensive luxury. Back in the office, it’s becoming increasingly pointless for businesses to force their employees to commute to work each day just to sit in meetings. A big part of reducing costs in the future will be reducing real estate footprints, commuting costs and dollars burned on air travel. Technology has a huge role to play here and innovative firms that can create truly mobile and virtual workforces will gain a cost edge over the bigger companies, most of whom still barely even offer telecommuting.
Power management – When it comes to reducing power consumption, IT brings a lot to the table. Data centers consume an estimated 3% of electrical power. Moving processing tasks to off-peak hours, virtualizing under-utilized servers, redesigning data centers to lower cooling costs and switching users from desktops to more power-efficient laptops all have benefits.
The bigger opportunity, though, may be to outsource large parts of the IT infrastructure. I recently wrote about the rise of utility computing services that consolidate many customers into one giant data center. These services are so inexpensive that, for many companies, it simply won’t make sense to buy new servers any more. Even the fully amortized costs of in-house IT won’t match those of a cloud computing service.
Outsourcing –Speaking of outsourcing, the energy crisis lends new momentum to this decade-old trend. Faster networks and better software tools will make it possible for businesses to site operations in low-cost locations, including those with lower energy costs. Many corporations already outsource customer service and software development, but any function that can be performed by distributed teams is a candidate. Look at accounting, marketing operations, data analysis and even help desk as candidates. There is a human factor to be considered in moving work cross-country or overseas, of course, but the vitality of the company may be at stake.
What is your IT organization doing to streamline operations and reduce energy costs? Tell us in the comments area below.