HOW TO MEASURE YOUR COMPANY’S PROFITS IN MORE WAYS THAN ONE
Imagine going to work every day for a company that you are truly excited about and proud to be a part of. Sure, the pay is decent and there’s a company crèche, but those aren’t the only reasons why you love working there. You’re proud to be a part of this company because they’re honourable.
Imagine going to work every day for a company that you are truly excited about, and proud to be a part of.
They stand out from the typical “cut-throat” business world by the way they treat suppliers, their commitment to environmental sustainability, their ethical investments, and their desire to empower and promote their team members instead of dragging them down. There is a constant air of excitement and possibility at the office, and you love coming to work each day.
Sounds pretty amazing, right? Well, a company like this isn’t just a fantasy anymore. And one approach to building a company like this, and monitoring what it does, is to use “the Triple Bottom Line.”
WHAT IS THE TRIPLE BOTTOM LINE?
The Triple Bottom Line was first fully explained in a book by John Elkington. It’s a bottom line that continues to measure profits, but also measures the organization’s impact on people and on the planet. The triple bottom line is a way of expressing a company’s impact and sustainability on both a local and a global scale.
The concept behind the triple bottom line is that companies are responsible first and foremost to all their stakeholders, and these include everyone that is involved with the company whether directly or indirectly, as well as the planet we’re all living on. This approach sees shareholders as part of the stakeholder group, but only as one part of it among others.
‘The triple bottom line is a way of expressing a company’s impact and sustainability on both a local and a global scale.’.’
At first, this approach can seem naive. However, a number of important trends support the need for organizations to be benevolent, at least to some extent:
- Many organizations’ success is critically dependent on hiring, motivating and retaining good people. At the extreme, think of leading sports teams or media organizations, in which the people earning big money are the stars, not the shareholders. These organizations have no option but to be focused on their people.
- In many parts of the world, particularly in certain industries, good people are in short supply. Baby Boomers are moving out of the workplace into retirement, and there are fewer people in the following generations. Organizations that don’t look after their workforces will quickly find they can’t attract and retain the people they need.
- Different generations have different attitudes toward work. While earlier generations may have tolerated poor work conditions, people in generations X and Y are likely to be looking for more meaning. Unless they find this meaning, they’ll move on.
- Consumers and potential recruits have many more choices than they had in the past, and are more aware of the ethical and environmental stance of large companies. Some base their purchase and career decisions on these things.
THE THREE PS OF THE TRIPLE BOTTOM LINE
So, let’s look at the three bottom lines – People, Planet and Profit – in more detail.
Companies that follow the triple bottom line way of doing business think about the impact their actions have on all the people involved with them. This can include everybody from farmers supplying raw materials, on up to the CEO of the company. Everyone’s wellbeing is taken into consideration. The company offers health care, good working hours, a healthy, safe place to work, opportunities for advancement and education, and does not exploit their labour force (by using child labour or offering sweatshop wages). In some cases, the “people” bottom line can also include the community where the company does business.
While the concept of the people bottom line is certainly attractive, the difficulty comes in deciding how far you go with this. Do you apply it to employees? Their families? Suppliers? People near company buildings? How near? And what should you do if you need to restructure the business to remain competitive and shed some staff? Should your concern for people mean that you refuse to make redundancies even though this risks the long-term viability of the organization for all staff?
‘Triple Bottom Line companies take pains to reduce or eliminate their ecological footprint. They strive for sustainability, recognizing the fact that “going green” may be more profitable in the long run.’
Triple Bottom Line companies take pains to reduce or eliminate their ecological footprint. They strive for sustainability, recognizing the fact that “going green” may be more profitable in the long run. But it’s not just about the money. Triple bottom line companies look at the entire life cycle of their actions and try to determine the true cost of what they’re doing in regards to the environment. They take pains to reduce their energy usage, they dispose of any toxic waste in a safe way, they try to use renewable energy sources and they don’t produce products that are unsafe or unhealthy for people and the planet.
The financial bottom line is the one that all companies share, whether they’re using the triple bottom line or not. When looking at profit from a triple bottom line standpoint, the idea is that profits will help empower and sustain the community as a whole, and not just flow to the CEO and shareholders.
THE TRIPLE BOTTOM LINE IN PRACTICE
While you may or may not consider the Triple Bottom Line appropriate for your business, it makes sense to recognize the way in which the workplace is changing and consider whether you need to adapt your approach to business to reflect this.
If you decide to explore the concept further, start out by researching what other companies are doing to make a positive change in the way they do business. Looking at the steps they’ve taken will save you time brainstorming on ways to improve your own business.
‘By taking the time to start using the triple bottom line approach, you might be surprised at just how positive the reaction will be from your colleagues and your customers.’
Some examples from different industries include:
- An international shipment and packaging company has taken drastic steps to reduce its ecological footprint, and currently has about 30 percent of its stores using renewable energy.
- An ice cream business has set a goal to reduce its carbon dioxide emissions by 10 percent over the next few years. It also has started investigating more environmentally friendly ways to package its ice cream and plans to cut waste by at least 1,000 tons.
- A coffee company only buys its beans from farmers who grow coffee in an environmentally friendly manner, and it takes pains to ensure that all its workers are treated fairly, and receive a living wage for their skills.
- A computer company focuses a lot of its community efforts towards training and education programs. It helps underprivileged kids by giving them access to technology and has goals to recycle 60 percent of its annual waste.
By taking the time to start using the triple bottom line approach, you might be surprised at just how positive the reaction will be from your colleagues and your customers.
WHEN TO USE THE TRIPLE BOTTOM LINE
The Triple Bottom Line is essentially a reporting system. Of itself, it doesn’t actually improve the company’s impact on people or the environment, any more than the action of producing a set of management accounts would affect profits.
‘As with all measurement systems, the cost of monitoring and calculating three bottom lines can be considerable. And you can only justify this cost if you can do some greater good as a result of having the figures.’
However, it can be used to drive improvements in the way an organization impacts people and the environment by helping managers focus on what they need to do to improve all of the bottom lines, and keeping this work high on their agendas.
As with all measurement systems, the cost of monitoring and calculating three bottom lines can be considerable. And you can only justify this cost if you can do some greater good as a result of having the figures.
What’s more, you certainly don’t have to have Triple Bottom Line reporting in place to treat people well or be conscientious about your impact on the environment. In many cases, money that could be spent on monitoring the Triple Bottom Line could better be used on people- or planet-friendly initiatives.
The Triple Bottom Line is a way of measuring an organization’s impact on people and the environment as well as its finances.
Some companies find that using it to monitor more than just the financial line helps them improve the way that they treat people both within and outside the organization, and reduce their adverse impact on the environment.
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