Companies Attempt to Improve Its Social, Environmental, and Financial Sustainability - Essay Example

COMPANIES ATTEMPT TO IMPROVE ITS SOCIAL, ENVIRONMENTAL, AND FINANCIAL SUSTAINABILITY Sustainability is an important feature for businesses of today. Sustainability is defined as the act of balancing activities that have immense impact on different external factors. Sustainability Businesses; either small or large consider three sort of sustainability important social, environmental and financial. These are the factors that contribute in sustainability and viability of business. Social sustainability refers to those activities that are performed to maintain the fruitful relationship with community, employee and customers. Social sustainability means good company profile and the great support of members of staff, consumers and society (Carroll, and Buchholtz, 85-86). For example; a company is manufacturing high quality products and providing great services but it is worthless if buyers are not interested to buy from the manufacturer because he is known as abuser of workers, whose workers are underpaid or he may use child labor. In contrast; if the firm is socially sustainable then community will support it positively. Companies do advertising and run campaigns for social sustainability such as; company advertises that if company sales 20,000 packets of surf in a week then $0.5 earned on each packet will be donated to childcare foundation. Environmental sustainability refers to the use of resources and their impact on environment. It is about the impact of unsafe substances, discharge and waste substance on the environment. The un-sustainability of environment can cause to harm the company’s image and the cost can go beyond downtime and clean-up cost into treatment, compensation, negative marketing, legal cost and customer’s hostile response. Companies that focus on environmental sustainability have positive impact on their marketing campaigns and positive customers and community’s reaction. Companies think on carbon footprints, think about green house gases to make environment sustainable. Financial sustainability refers to those activities that are performed to increase the efficiency, profitability and productivity of business. Financial sustainability is about maintaining those factors that have impact on business performance, and an important task for all firms because each firm tries to maintain the productivity of its business in order to get high profit and market capitalization. The evaluation of financial sustainability can be seen through different financial procedures like profit margin, sale quantity, material cost and overhead cost (Bieker et al., 22-31). Ikea, Nike, Jhonson & Jhonson QMI Services, Phillip Electronics, Earth Tec, Schott, Dell, Tupperware and IBM are the some example of companies that are environmentally sustainable (Planet Save). Businesses are always enthusiastic to earn large profit, make wider set of goals and want sustainability. Today companies are more socially and environmentally responsible than before. Businesses give importance to their employees, community and their well-being. Whilst they are not able to bear the ignorance of short-term cash flow. Companies make mission statement in which they declare their goals; these goals vary with companies and their objectives. Mission statement is a guideline through which companies and employees measure their performance. Responsible companies use external and internal communications tools for measuring the progress of social, environmental and financial sustainability. They develop benchmark against which the progress can be measured. Companies stressed their stakeholders and alert them to those areas where efforts are required and try to be committed with their stated goals. And through the financial reports, employees try to cut the cost that is associated with environmental and financial activities. These reports help the management to increase the return from environment and investment. Many companies publish annual reports that are based on environmental performance and progress. Companies measure their performance and increase their understanding – that how their operations are effecting the environment and how they can improve their activities and can make environment healthy – by setting short and long term goals. At the same time they also try to reduce their cost. Jhonson & Jhonson is the best example of social and environmental sustainability. Companies reduce their cost through recycling the products and get financial and environmental stability. Companies design green teams that are responsible to make environment friendly strategies. For the progress of these strategies adequacy is very essential with the support of employee and top management. Ben & Jerry is another example of financial, social and environmental sustainability. It gives charities around the world. According to Michael and Stephen (professor of economics in Dicknson college, Pennsylvania), “The financial sustainability of the organization is positively associated with social and environmental sustainability” (IISD). Companies that are considered stable in all three aspects such as environment, socially and financially are: Umicore, Natura Cosmetico, Statoil, Nesre Oil, Novo Nordisk, Storebrand, Philips, Biogen idea, Dassault Systems and Westpac (Smith). Use of Cost Accounting to Pursue These Strategies: The business environment has changed and it has become more advanced than before. Consumers want the best products or services at the least possible cost, not the environment and competitor but the game and chemistry of business has changed. There is a strong need of reducing cost and being competitive. Therefore, companies have to curtail the unproductive activities. Companies do strategic planning in order to expand their strong position in the market, maximizing the company’s stock worth, and for financial, environmental and social sustainability. The achievement of these goals is possible only when overall goals (earning per share, customer satisfaction, and product advancement, quality of the product, environmental control, technological advancement, product efficiency and effectiveness) are achieved successfully. Cost accounting plays an important part in the strategic planning of these aspects (financial, environmental and social). Cost accounting provides information for external reporting, and these reports are used by government authorities, creditors and investors. It is also used for routine internal reporting; these reports are prepared periodically and used by company’s managers in order to formulate internal decisions. Cost accounting in addition; provides information for non-routine internal reporting; these reports are prepared via several ways, initial data and information is manipulated in many dissimilar ways in order to support different decisions and projects. Moreover this information is provided to internal and external users. Standardized cost accounting, throughput, activity-based costing, environmental accounting, life-cycle costing, lean costing, target costing, resource consumption accounting and total cost accounting all are the approaches of cost accounting. Many modern companies are using new technologies and utilizing robotic technologies at the place of labor such as Toyota automobile manufacturing company. The control, planning and analytical potentialities of direct costing have been praised for many years by cost analysts, marketing executives and production managers. For internal analysis absorption costing is used, but the direct costing is one of the best techniques. The one key role of management from many is to improve the accuracy of cost accounting. Associated cost with environment, benefits, and potential risks all are reported through the sustainability accounting (type of cost accounting). Through sustainability accounting cost that is required for social sustainability is estimated that can be clearly mentioned. Many efforts that are made to gain sustainability. However these efforts are very weak because they have failed to think about the financial implications of - short and long-term - social and environmental impact. Cost accounting is used to calculate the external benefits, costs, potential and current liability and risk, and direct as well as indirect financial support. Cost that is associated with the impact of climate change, with uncertainty of environment, with social change, all is calculated or estimated through cost accounting (Horngren et al., 77-79). Traditionally, in cost accounting; environmental cost is considered as an overhead cost. Eliminating costly procedures and tools can reduce the risk and improve the financial sustainability. In order to have a through look of the cost associated with these three aspects (social, financial and environmental sustainability) companies implement Activity-Based Costing (ABC). This Activity-Based Costing technique is especially relevant with environment and applied to those processes that have large environmental liabilities and risks (Ekbatani, & Sangeladji). Companies have achieved much progress in cost accounting but still there is not a single company which is able to implement a system through which the company can integrate all future and present, internal and external cost associated with environment into the costing system of its product. Comparison of Traditional Approaches of Cost Accounting: Traditional cost accounting was not able to estimate the cost of social and environmental factors evidently. Actual cost of the product could not be calculated and if the products are diverse, cost of errors and overhead is high and company is facing inflexible competition then cost accounting got fail (Carter, and Usry, 25-26). Traditional method of cost accounting was bond to allocate the cost of manufacturing overhead to all manufactured goods in an organization; the machine hours were considered the major cause of overhead. Due to the inadequacy of conventional method; activity based costing method was introduced (Tatiknoda, 1-5). Now with the new approach of cost accounting called activity-based cost accounting and total cost accounting these measurements are easily done. New techniques allow company to make changes time to time (Just In Time), the pool of fixed overhead can be traced easily and presented as variable. ABC has focused on variability and causality with respect to resources consumptions and operations. The variability of resources consumption and operations can be examined in-depth through dividing the operations and resources into four categories such as unit-level expenses (Variation in expenses occur with volume of production in unit, these expenses are supplies and material expenses), product level expenses (These expenses are those that are related to those activities that are being performed to support a particular product-line in an organization), batch level expenses (Quality, examination, procurement and setup expenses that occur in the batch of product that is being manufacture), and facility level expenses (These are common expenses and organizations can not verify according to the specific product). Evaluation and Recommendation: Most of the top companies are applying great practices in order to get environmental, social and financial sustainability. It has become important for businesses to become more responsible socially, environmentally and financially (Walley and Whitehead, 36-44). Activities are different due to the different nature of businesses such as IKEA uses lumber in a large amount (lower cost material) to make the furniture affordable. It is a step towards social sustainability. On the other hand, company uses those techniques that are sustainable for forestry that means company is also environment friendly. Nike is known for greenest soccer shoes. Jhonson & Jhonson uses solar energy for being environment friendly and cut their cost and has become the second largest user of solar energy in US. Even the companies are trying to get sustainability in all three aspects but still there are some limitations such as there are many measures of sustainability that are too confusing, government policies are not clear about sustainability, consumers do not consider about sustainability issues while make purchase decision, companies are unable to motivate employees for sustainability, companies are not able to discriminate between threat and opportunity (Laughland and Bansal). Recommendations: To get social sustainability companies integrated smart public policies that will result in financial sustainability. Companies must have a dialogue on the reasonable consumption of resources with customers through surveys and advertisement because many customers buy things on the basis of increased features and decreased price and do not care about environmental sustainability. Companies need to engage them in environmental sustainability dialogues so the customer can better make decision about reasonable consumption. This activity will make companies cost effective and company will be able to reduce its waste as well. Organizational structure should be designed in such a way that can support sustainability and motivate employees. The structure will vary according to the nature of business. Company should move from position to pervasive approach and should make some ethical decisions. To be socially sustainable, companies should avoid unfair labor practices such as use of child labor and under-paid workers. Companies should measure effects rather efforts because successful business do not measure that how much progress they made in processes or in activities but they scrutinize the effects of their decisions and practices on their customers. Companies should give training in order to build talent because buying the talent require much cost and time and will hurt the financial sustainability. Companies should apply green supply chain management system because this system has an ability to reduce the cost and eliminate the waste. Companies should recycle their products and reduce the emission of carbons. Works Cited Bieker, Thomas, et al. "Towards a sustainability balanced scorecard linking environmental and social sustainability to business strategy." Conference Proceedings of Business Strategy and the Environment. (2001): 22-31. Carroll, Archie, and Ann Buchholtz. Business and society: Ethics, sustainability, and stakeholder management. Cengage Learning, 2011. Carter, William K., and Milton F. Usry. Cost accounting. Thomson Learning, 1999. Drury, C. (2008). Management and cost accounting. Cengage Learning EMEA. Ekbatani, M. A., and M. A. Sangeladji. "Traditional Vs. Contemporary Managerial/Cost Accounting Techniques Differences Between Opinions Of Educators And Practitioners." International Business & Economics Research Journal (IBER) 7.1 (2011). Horngren, C. T., Foster, G., Datar, S. M., Harris, J. K., & Curry, D. W. Cost accounting: a managerial emphasis. Vol. 5. New Jersey: Prentice Hall, 1997 IISD. Sustainable business practices: IISDs checklist. IISD. 2013. 11 Mar. 2014. http://www.iisd.org/business/tools/principles_sbp.aspx Laughland, Pamela, and Tima Bansal. "The top ten reasons why businesses aren’t more sustainable. January/February." Ivey Business Journal (2011). Planet save. (2013). 10 Companies with Eco-Conscious Production Processes. http://planetsave.com/2013/06/21/10-companies-with-eco-conscious-production-processes/ Smith, Jacquelyn. “The Worlds Most Sustainable Companies”, Forbes. Jan. 2013. 11 Mar. 2014. http://www.forbes.com/sites/jacquelynsmith/2013/01/23/the-worlds-most-sustainable-companies/ Tatiknoda, Mohan. “Justin-Time and Modern Manufacturing Environments: Implications for Cost Accounting”. Production and Inventory Management Journal. (1988): 1-5. Walley, Noah, and Bradley Whitehead. "Its not easy being green." The Earthscan reader in business and the environment (1994): 36-44. Read More