Going green and improving profitability at Jazz Event Productions

Business Report

As happened with many service businesses during a recession, Jazz Event Productions experienced a drop in revenues in 2010. For a company that has grown steadily throughout its 15-year history, it was an unwelcome first. The decrease in sales occurred primarily because companies faced with tough economic choices because of the recession either cut back or eliminated entirely their budgets for special events. Whereas many of our loyal customers continued to trust us to produce their special events just as in past years, others were operating with reduced budgets. As a result, Jazz experienced a period wherein sales dropped by about five percent.

With the improved economy, sales have returned to pre-recession levels, however, because they are cautious and careful owners who want to perform their due diligence, Alex and Cindy are looking for ways to ensure that the company stays profitable. They believe that the best approach, given the current economy, is to find ways to both cut expenses and boost revenues. At the same time, they are looking for ways to make Jazz more environmentally responsible and decided that the timing was right to get serious about making some changes. Our team was assigned the task of coming up with specific ideas about going green, bringing corporate social responsibility (CSR) to Jazz. We were asked to investigate what the advantages would be and to also identify any significant cost or downside.

Our research found that going green is more than just a slogan; it is an essential part of businesses being able to compete in a highly competitive global environment. Almost every business asks the same question that Jazz is asking, whether going green is a cost effective strategy.

Our mission was to do two things: (1) Find ways for Jazz to cut back expenses and/or increase sales, and (2) determine how to change Jazz into a more environmentally responsible business.

Our research accomplished these goals. We found opportunities to save more than a half million dollars over the course of 20 years, while at the same time, conserving resources and being environmentally responsible.

Introduction

Because the economy continues to be weak, Alex and Cindy wanted us to evaluate ways to make Jazz Events more eco-friendly without investing a large amount of money. The timing was also important, because Alex and Cindy have had plans drawn up to remodel the office and warehouse during the off-season so as to have minimal impact on the business. The budget for remodeling was already approved and minor changes could be made without significant cost increases or added delay for completion. Also, while the two of them felt strongly about their company becoming a greener business, at the same time they were also concerned about the impact of changes on us, the 27 full-time employees. Alex and Cindy value our contributions to making Jazz successful, therefore they wanted to thoroughly investigate going green to make sure that there would be no negative consequences for us, the employees.

Another significant criterion for deciding whether to proceed with green projects is the cost. According to the U.S. Department of Commerce, even small changes in how buildings are constructed can have a noticeable effect on energy conservation. Businesses are finding that implementing green strategies to reduce energy usage and to use water efficiently is not only good for the environment, but good for business as well (2008).

Our initial research showed how companies can go green in ways that are both environmentally and economically beneficial. According to Miller, Spivey and Florance, their study on Energy star vs. non-Energy star rated office property showed "results are promising for the benefits of investment in energy savings and for the green movement now sweeping our society" (2008, p. 1). They argue that the payoff from wise green investment in sustainable real estate is easy to justify even if it is based purely on profit motives. Even for companies whose main interest in going green is making money or saving money, going green is recommended.

Even so, studies have shown that companies are motivated to be ecologically responsive for several reasons, such as regulatory compliance, competitive advantage, stakeholder pressures, ethical concerns, critical events, and top management initiatives (Bansal and Roth, 2000). Our research led us to similar conclusions, that going green makes sense from an overall strategy perspective.

After some initial research, we were able to show that greening the business would both save money and increase sales. In fact, we identified so many possibilities that we decided to categorize them to make it easier to plan for their implementation. We also quantified projected savings to provide a clear picture of the opportunities being considered.

In reviewing various studies on green companies and the way in which they marketed themselves, we found a significant amount of literature supporting the idea that customers want the companies they do business with to be socially responsible. In fact, it is not only customers who want eco-friendly companies, but other stakeholders as well. According to Maignan, Ferrell and Ferrell (2005), marketing is moving away from a narrow focus almost exclusively on customers to managing relationships and benefits for all a company's stakeholders. Companies who invest in CSR are likely to find that it yields "tangible benefits in terms of customer loyalty, employee commitment, supplier support/partnership, and corporate reputation" (p. 974).

As Alex and Cindy requested, this report discusses ways that Jazz Event Productions could become environmentally friendly. Because our initial findings were so promising, it was decided that our three person committee should put together this proposal. This report presents our findings. We reviewed the literature on sustainability efforts, then described and quantified the benefits. We also detailed the costs involved and found that they are within the budget that was approved for Jazz' green initiative.

In the following sections of this report, we present additional information about how we conducted our research, how we analyzed the information we found, as well as our conclusions and recommendations.

Data Analysis and Results

In this section we present the results of our findings. We discuss the benefits of going green, specific projects, the associated costs, and the details of how these activities form the basis of our green marketing strategy.

Calculating What It Is Worth To Be Green

In today's competitive world, the importance of having a sound marketing plan cannot be overestimated. Increasingly, for a company's marketing plan to be effective, it has to include efforts at being environmentally responsible. Why is this the case? Because more and more customers prefer to do business with companies who are doing their share to take care of the planet's resources. In our research we tried to quantify what this preference means so that we could put a number on potential lost sales if Jazz fails to move forward with a green initiative.

We were unable to find any studies that looked at exactly the same or even similar data as we were interested in. Nevertheless, our research left no doubt that the trend toward corporate social responsibility is growing, and so are customers' expectations that companies will have sustainability programs in place. In the interest of not disappointing our loyal customer base which has come to expect exceptional performance from us, and in the interest of not being at a competitive disadvantage when competing with other event planners, we are satisfied that going green will result in increased revenue for the company.

Additional intangible benefits come with being socially responsible. A better reputation, brand and market value result from being known as a green company. Likewise, employees also want to be associated with a company that is not just financially successful but sustainability conscious too. For many employees, there is satisfaction in working for a company that takes significant steps to conserve resources. This fact helps to make it easier for Jazz to attract and keep good employees. Moreover, some sustainable practices, such as offices with cleaner interior air and less use of volatile organic compounds in building materials, actually have a direct positive effect on employee health and physical well-being.

Calculating Energy Conservation Savings

Several proposed energy conservation practices produce savings for the company that can be verified. The math here is simple: less waste = lower costs. If Jazz wastes less, whether it is energy, water, paper or materials, then it is going to save the company money.

According to energy conservation experts, turning off computers and monitors when they are not in use produces savings of $20-$60 per device per year. Since Jazz has 31 office computers, the potential savings from just this one conservation practice runs from $620 to $1,860 per year.

Building Tax Credit

The remodeling project for Jazz office and warehouse, already in the planning stages, qualifies for a federal tax incentive for improving building energy efficiency. The project will result in 20% savings of projected annual energy costs for lighting and heating and cooling. These projected savings qualify Jazz for a one-time federal tax deduction of $.60 per square foot for our 8200 square foot building, which comes to $4,920. The cost for certification by a qualified engineer comes to $225, for a net savings of $4,695.

Electric Vehicle Tax Credit

Alex and Cindy have been considering replacing the delivery van, which has nearly 200,000 miles on it. The company qualifies for the electric vehicle tax credit if we purchase an electric vehicle to replace the van, which has lately needed repairs more and more often. For example, if we purchase a Ford Transit Connect van with a 105 kW electric motor with an estimated 55/54 kWh/100 mi and 62/62 MPGe fuel economy, the company would receive a tax credit equal to $7,087: (100 kW X $417/kW) + $2,500 + $417 = $7,087.

Net Present Value of Green Buildings

Researchers calculated the value of green buildings which incorporate energy efficient improvements to heating and cooling systems. According to Miller et al. (2008), their study showed the 20-year net present value of the financial benefits of green buildings to equal $50 to $65 per square foot. Most of the financial benefits, approximately 76%, are related to improvements in productivity and health. For our 8200 square foot office and warehouse facility, the net present value of remodeling the building to green standards ranges from $410,000 to $533,000. In addition to these significant savings, these energy efficient improvements produce benefits that accrue over the life of the building, including reduced energy and operating costs, improved employee well-being, and reduced insurance costs. The long-term financial benefits plus the low initial cost can make green buildings a significant contributor to a business' bottom line (U.S. Department of Commerce, 2008).

Identifying Our Best Options

In this section we present information about our options.

We can continue operating as we currently do. This is clearly not the best option because we pass up the opportunity to cut costs and we miss out on the benefits of being an environmentally responsible business.

We can implement those changes which require little or no cash outlay. All of the energy conservation practices listed under the Department of Energy checklist can be accomplished for a total expenditure of less than $200 for CFL bulbs, power strips and hot water heater blanket.

We can expand the planned remodeling project to make our office and warehouse energy efficient, and we can purchase a fuel efficient electric vehicle. Since office remodeling and delivery van replacement were already approved projects, only the incremental cost of making these projects greener and more energy efficient needs to be considered.

Determining Our Decision Criteria

Initially Alex and Cindy gave us only one decision criteria, which was that changes to make Jazz environmentally responsible not involve a significant cash outlay. When we asked for clarification as to what amount would be considered significant, we were given a budget of five percent over the original budget to work with for the construction and delivery vehicle projects. Any recommendation that required spending up to five percent more than the original budget for these projects would still be acceptable.

Conclusion

Each of the proposed energy efficiency measures can be done without exceeding the budget established by Cindy and Alex. Although we did not get detailed construction costs from the general contractor in the form of a revised bid, he assured us by way of a conference call that the changes we were considering added incremental costs to the remodeling project of less than five percent of the construction budget. His estimate was consistent with U.S. Department of Commerce claims that "Green strategies can be incorporated into building design, resulting in a cleaner, greener, healthier building at little or no additional cost" (2008, p.3).

Recommendation

We recommend that Jazz proceeds with its green initiative. Our research has documented the benefits to Jazz of going green. These benefits include not only significant savings, but also extend to enhancing the corporate brand and reputation. By going green we save money, please our customers and employees, and we conserve precious resources, truly a win-win situation all around.