Remember the old line about two friends walking down the street, and one of them says "Look, there's a $20 bill lying on the road," and the other replies "No, that can't be a $20 bill, if it was someone would have already picked it up."
Opportunities in companies are sometimes like that. There can be money available to pick up, but until someone shines a light on the opportunity it just sits there unrecognized.
BP had this experience with its initiative in reducing greenhouse gas emissions, but it is not limited to that. When the Company announced its target to reduce its own emissions by 10 percent, people inside and outside the company started to speculate on how much it would cost. When it was accomplished a few years later, an audit showed that the effort had generated $650 million in positive net present value.
How can this be? How could there be that much value available that was only uncovered after the initiative to cut greenhouse gases, in effect to use energy more effectively, and reduce emissions of gases such as methane and halons? Simply put, almost everyone was busy with other things, and not looking for these savings. And perhaps more to the point, people had accepted a certain way of doing things that was not optimal, but was the way they had been done for a very long time. When you reset the context for the operation, which is what the greenhouse gas target setting did, smart operators find a more attractive solution.
One of my favorite stories relates to valves on a natural gas pipeline in the western U.S. In 1999, following the Amoco merger, we were doing workshops around the world for business managers about the company's climate change targets. Inevitably, there was one guy who sat in the last row, arms folded, with an 'I don't want to be here' air. Usually his comments were "This doesn't apply to my business anyway" or "you guys come here from London and you really don't have the foggiest idea what we do." When one of my staff returned from doing a workshop in Houston he reported that there had been a particularly troublesome individual in this mould at that workshop.
But sure enough, a week later this fellow, whom came to be known as 'Valve Man,' called. He ran a long gas pipeline, and he said he thought he had come up with something to save some greenhouse gas emissions. The pipeline had lots of valves, opening and closing to receive gas from feeder lines, and to send gas out to customers. These valve were pneumatic, they operated on the pressure in the pipeline. And every time the valve turned, it emitted a small puff of methane, a greenhouse gas 22 times more potent that carbon dioxide.
"I've been thinking anyway of replacing the pneumatic valves with electronic valves, and if I did that there would be no more emitting of the little puffs of gas. So I did the calculation the way you showed in the workshop, and I think we would save about 620,000 tons of carbon dioxide equivalents." I almost fell off my chair. The total goal for the company for that year was 750,000 tons. "How much will it cost?" He gave me the number, which a bit of quick arithmetic meant a cost of about $2 per ton.
"Well, of course we will do this no matter what," I said, "but is there any payback from the changeover to electronic valves? Maybe lower maintenance cost?" He replied, "No, I don't think it's maintenance, let me think about it."
The next day he called back. "I figured out the payback. Very simple. Instead of venting the methane gas, we can sell it. This project has an IRR of 42 percent."
So here was one of the best opportunities the company had, and it was only when we reframed the problem that the manager could see how big the opportunity was. That is how you generate a huge net present value from what people start thinking of as a cost.
Great leaders are always thinking about how to do this, in areas from costs of compliance, to tax, to accommodation, to procurement.
About Leadership is a series of 52 columns on corporate leadership -- essential skills, leading teams, managing your career, the strategic and business practices to make a company and its leader distinctive from competitors. These columns will be of interest to people leading small and medium-sized companies today, many of whom have not had much formal training in management skills and techniques; for the many people in big companies who aspire to senior management; and for anyone who thinks: Give me a hint, how can I do this better?
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