Effective Energy Efficiency Strategy

Global warming is an example of a converging global crisis which is driving energy efficiency as a key megatrend in the electronics industry. This is supported through a study by Ernst and Young, where 46% of CEO respondents admitted that one of the main drivers for their responsible management activities is the increasing costs of carbon and its contribution to global warming (Laasch and Conaway, 2015). Similarly, energy efficiency is important for Phillips because around 40% of the world’s energy is derived from oil and 21% from coal which are both non-renewable energy sources (Hordeski, 2011).

Therefore, if Phillips’ products use high amounts of non-renewable energy, then they may be branded by consumers as energy inefficient thus building a negative reputation for Phillips through an association of them contributing to global warming. Especially in comparison to one of their competitors, ‘Panasonic’ has developed a cogeneration system which generates up to 39% lower heating value efficiency (Hordeski, 2011). This implies that in order to maintain Phillips’ responsible management reputation, they must keep up with their competitors investing into energy efficiency R&D which is also highlighted in Figure (a1).

Likewise, Oberseder et al., (2013) states that consumers are becoming more interested in companies who are investing more into R&D in environmentally friendly products and production methods (Khojastehpour and Johns, 2014). This research illustrates that consumer interest is also a driver for energy efficiency and further implies that as this megatrend becomes an increasingly important topic for consumers, if Phillips does not adapt to the megatrend, it has the potential to affect their responsible image.

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This megatrend offers many opportunities for Phillips such as reducing costs through developing an effective energy efficiency strategy. For example, Harvard Business Review (2011) stated that some of Phillips’ competitors such as Cisco and HP, follow a gold standard globally by using a single norm to regulate all of their manufacturers worldwide which has benefitted them through having optimized supply chains and economies of scale. Likewise, Hay, Stavins and Vietor (2010) state that creating products which have less environmental impact during their lifecycle whether it be through the manufacture of that product or through product disposal, it means that consumers are willing to pay a premium for that product. Adding to this, environmental product differentiation and charging increased prices for these products means that competitors will struggle to compete as Phillips will be able to promote the environmental attributes which would reinforce the barriers to entry and mobility within the industry thus increasing environmentally responsible brand reputation with stakeholders (Hay, Stavins and Vietor, 2010). Likewise, Husted and Allen (2007) stated that because product differentiation is difficult in the electronics industry, reputation can be used as a key competitive advantage which can be used to manage stakeholders (Khojastehpour and Johns, 2014). Furthermore, by finding uses for returned products normally identified as scrap, this can help demonstrate to stakeholders that the company is taking action on reducing environmental damage through waste reduction (Harvard Business Review, 2011).

Another opportunity is that energy efficiency could help to improve Phillips’ risk management. For example, by over complying with environmental regulations, they are then insuring themselves against risks such as consumer boycotts, business interruptions and regulations caused by the behaviour of consumer activists (Reinhardt and Stavins, 2010). Similarly, Harvard Business Review (2011) supports this as they stated it’s better to over comply with energy efficiency rules before they are enforced because this can create a first-mover advantage. Likewise, this can make the company more resilient to shocks, more adaptable and more likely to build stakeholder relationships through attracting better employees, holding customers, reassuring banks, insurers and regulators (Hay, Stavins and Vietor, 2010). Reinhardt and Stavins (2010) also support this as they state that if energy efficiency is used as a risk management strategy, even if it reduces the company’s future cash flow, it could potentially save them from even bigger losses and help them to survive market imperfections.

One constraint that energy efficiency can have on Phillip’s reputation, is the threat of greenwashing. If stakeholders think that a company is giving a misleading impression of their energy efficiency, it may give the company a bad reputation through stakeholders accusing them of greenwashing (Laasch and Conaway, 2015). This could lead to Phillips experiencing bad publicity in the media and potentially lose environmentally conscious customers. Moreover, energy efficiency and regulations can constrain Phillips financially through giving them a disadvantage in comparison to competitors in developing countries where regulations are not as strict or enforced (Harvard Business Review, 2011). This implies that some of Phillips’ competitors cut costs through not spending as much on energy efficiency regulations. Likewise, studies have found that when companies increase their costs to reduce carbon emissions or charge above-market prices to subsidise, the companies would see margins and customer growth fall (Reinhardt and Stavins, 2010). In addition, Phillips would gain a bad reputation with shareholders if investments into energy efficiency fail to gain shareholder financial benefits (Hay, Stavins and Vietor, 2010). Similarly, there’s an argument that energy efficiency can constrain a company as social responsibility isn’t always tangible or measurable therefore it’s difficult for shareholders to measure the effects of their responsibility implementation (Garbaccio, Krolik and De Moura Maciel, 2017). However, some studies contradict the effectiveness of ‘shareholder theory’ as they’ve found that corporate environmental responsibility initiatives are often associated with lower levels of company risk which could be a better long-term futuristic business approach (Cai, Cui and Jo, 2015). This implies that energy efficiency isn’t always detrimental for shareholders when managed correctly.