A colleague of mine brought up a very good point about my recent entry “Pursuing a Triple Bottom Line.” He challenged me to think about how this concept applies to our current economic situation.
Recent news has been littered with comments of how we are still in a recession and unemployment numbers are at an all-time high. One cannot deny that the P&Ls of many businesses are under siege and will be for quite some time. My colleague went on to state that time is the one commodity businesses all have ultimate control over, yet he suspects many leaders are having trouble seeing how spending more, or even much time, in endeavors not closely linked to the operational aspects of their business makes sense for them.
To that I reply – you have to change your mindset. As a leader it’s your responsibility to ensure that your organization’s strategies are geared toward the triple return objective. The TBL theory relies on the trifecta effect. This means ALL aspects/endeavors (including operations) impact each other to achieve better results both financially and altruistically. Unfortunately, it’s this holistic approach that most organizations lose sight of when times get tough. Most look to downsize, cut, and conserve in all areas. In fact, this is the time to look for ways to “right-size” your organization and with it strengthen your organization’s environmental and social aspects. Why? Because integrating these factors into your core calculations creates an opportunity to distinguish and elevate the organization in a stagnant marketplace.
Let’s take a closer look at how concentrating on a triple bottom line strategy can positively influence your organization in a recession.
Environmental: In my experience, arguments that it costs more to be environmentally sound are often specious when the course of the business is analyzed over a period of time. Generally, sustainability reporting metrics are better quantified and standardized for environmental issues than for social ones. For example, our current economic state has produced a number of energy tax incentives that may be advantageous to your organization. To view a list click here.
Social: Milton Friedman, the well-known 20th century economist, stated that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits…” A true compliment to the argument that states socially responsible activities take capital and other resources from a firm, putting it at a relative disadvantage compared to firms that are less socially responsible.
However, there can be a synergetic relationship between social and financial performance. It’s important to note that with the TBL theory, one activity does not dominate and drive the other. Simple, cost-effective social activities can involve members of your HR or management team encouraging TBL goals through training, orientation, and performance measures to help build a company’s culture around them. Reinforcing vision and values to employees, such as remarkable client service, have shown to improve a company’s reputation in the marketplace and positively impact its financial performance. Additionally, as I implied in my previous post, applying company time to civic duties enhances your employees’ morale and strengthens your company’s character within the community. In my experience, this strategy will continue to drive positive results to your bottom line and your company's culture.
Profit: While revenue and sale numbers may be low; a finance team might focus on TBL metrics to demonstrate performance beyond financial results. Value added performance indicators may be the key to offsetting some of these traditional P&L items. However, in order to develop metrics that provide a meaningful measure of performance, companies must identify the factors that drive their business value and understand the sources of such value. They should seek to identify and develop measurement indicators that align with needs, expectations, and remain consistent with the company objectives and strategy. For instance, an organization may decide to focus on governance practices and broaden their understanding of the company’s risk profile and exposures. Information on a company’s risk exposures and the management of these exposures may allow it to better align and coordinate risk management and internal control activities for improved performance.
In essence, allowing your organization “time” to pursue environmental, social and non-traditional profit opportunities allows your business to think outside the confines of their current operations. Each TBL area, when leveraged, has shown to increase marketplace performance and awareness. Keep in mind, a weak economy is only a better excuse for leaders to challenge their organization to rethink how they operate and take on the challenge of pursuing the Triple Bottom Line to drive results.
(These are only a few examples; if you have any stories or best practices about incorporating the Triple Bottom Line theory with your organization, I would love to hear about them. Post a comment or shoot me an email.)