As a large user of energy, you know that one of the key factors in making smart decisions is engaging the services of an energy procurement advisory firm. We have discussed this importance multiple times in our regular articles. These same articles have touched upon various aspects of the relationship between the energy advisor and the energy user. However, we have never fully explored the process used to actually engage and evaluate the advisor.
In the series of articles to come, we will provide your “Definitive Guide” to selecting an energy advisor. This series will explore the best practices employed and the various elements to look for in choosing the right energy advisor for your organization.
Keep in mind that there are a whole host of factors to consider when making a choice. As you are likely aware, there are many, many, many energy consultants and advisors out there in the market. Depending on your location, you could have upwards of 300 different such “firms” calling on you. An Energy Procurement Advisor can range from one individual working out of their spare bedroom to a 100+ person publicly-traded firm with a global presence. In order to help sort this guide by identifiable and measurable pieces, we will investigate the evaluation of advisors based on five key factors:
- Services Provided
- Wholesale Market Expertise
- Strategic Approach
We’ll tackle these in order, one article at a time.
How many times, as a procurement professional, have you heard vendors pitching their goods/services (regardless of the industry or the commodity) say they are “experienced?”
Such a claim can take the form of an “Experience” section in an RFP stating that “our team has over 300+ years of experience” to a brochure touting that “our founder invented the very product you are using today.” Experience is too often boiled down to a measurement of years, most commonly as part of a bid or RFP process. You ask how much experience the prospective vendor has, and they measure it in terms of how many years each of their employees has been in the industry.
However, when considering experience, it is not just quantity but also quality. One individual with 50+ years’ experience could prove vastly more valuable than 50 guys with just a year of experience each. But it is never that simple. A more accurate summary of experience would include a whole host of items:
- Company background: what are the major milestones and accomplishments?
- Years in business: how long as this been a viable company?
- Organizational structure: how will the business operations support our needs?
- Management team: does solid leadership drive the company forward?
- Uniqueness/strengths: why should we choose them over the competition?
- Geographic reach: can they address issues for all of our locations?
- Client numbers/load managed/client types/references/case studies: do they employ best practices, and can they handle our needs?
- Number of vetted suppliers: do they work with all the major suppliers in the marketplace?
- Client retention/satisfaction: does this business have a track record of success with customer support?
- Financials: can this company prove their fiscal strength and endurance?
- Results/awards: what is the tangible evidence of this company’s “experience”?
Given all the various aspects that could be measured, we can narrow it down to three key areas of the evaluation process for purposes of our discussion here: industry experience, breadth and depth of clientele, and geographic coverage.
Again, the simplest measurement is to ask how many years’ experience the consultant in question has in the industry. But remember, an advisor is only as valuable as the tools he can access. You could hire a master carpenter to build you a new office desk, but if all he has is a rubber mallet and some thumb-tacks, even he would have a hard time making you something worthy of a family heirloom. So in addition to the longevity of its people, you need to also consider the years’ experience of the firm itself. This becomes “generational experience” that adds to the collective knowledge of the advisory firm, which provides additional layers in the assistance they can provide to you. Typically, experience manifests itself in resources; When you can find a firm whose work with energy commodities goes back several decades, you are able to access the resources that give you insight into the inner workings of the markets – which, in turn leads, to price discovery.
Breadth and Depth of Clientele
In some areas of business, you want a company that works only with entities like you. If you’re a school district, you want suppliers that specialize in working with other school districts – right? When it comes to selecting an energy advisor, though, you really want to take the opposite approach. An electron is an electron, and there is no difference whether it comes in through the meter on the side of a school gym or a 50-story office tower. In fact, when selecting an advisor, you really want a firm that has experience working with a wide range of customer types and industries. While it is important that your advisor understands the nuances of your industry, you can also leverage knowledge and experiences gained in other industries to create a more comprehensive solution. This is how best practices are developed and fresh ideas are brought in to the picture that you might never discover if you stick with a consultant strictly within your industry. In the evaluation process, pay close attention to references from multiple industries, not just yours.
The vast majority of energy advisors and consultants out there are smaller companies (think: just 1-5 people) that, due to lack of resources, just focus on one region or state. As with the desired industry experience, looking for extensive geographic coverage will get the best bang for your buck. This means working with a firm that has a solid presence and actual experience in the widest range of geographies. This may seem counter-intuitive: You might feel that an advisor focused on your region has the greatest resources to bring to the table. But again, the focus should be on best practices, and you can only develop best practices when you have experience working in a variety of industries and geographies. It is fairly common to be evaluating an energy supply RFP with suppliers that serve in multiple states throughout the US. These suppliers will often offer certain terms in one market that they don’t offer in another – but only a good advisor with reach into those various markets has this knowledge to leverage the best of all possible terms for a client, regardless of which market they are in. The smaller regional advisor would be unaware of what was left on the table.
More than Meets the Eye
When you are evaluating an advisory firm’s experience, don’t just ask, “How many years?” As we’ve illustrated, there is much more at play. The goal is to choose an advisor who can truly strategize and create a customized solution that will bring value to you, the client, for years to come. In discussing energy policy and how the markets may affect budgets, your truly “experienced” advisor will become a trusted team member whom your organization will come to rely on.
In upcoming articles, we will explore other key areas that – along with experience – must be considered when engaging the right energy advisor for your organization. Don’t throw out this issue, as you’ll want to save this entire series. It will make life much easier for you when it comes time to select a new energy advisor.