The Implications of the Use of the Triple Bottom Line Approach - Essay Example

The Implications of the Use of the Triple Bottom Line Approach Table of Contents Key concept of Triple Bottom Line approach 2 Advantages of TBL approach 4 Limitation of TBL approach 5 Application of Triple Bottom Line in event industry 5 Case study of Edinburgh Festival 7 Area need to be improved 8 Reference 10 Bibliography 12 Introduction In the contemporary business environment, companies should not just focus on financial benefit and growth in the profit margins. Though the main aim of a business should be maximisation of investor’s wealth, but solely relying on this aspect cannot help to gain sustainable growth in the long term. Therefore, companies should take into account both social and environmental issues along with the financial aspects. The event industry is the one that has close relation with the society and the environment where it operates. Events are organised to attract the visitors and to improve revenue of the nation. However, these events reflect the cultural and social values of the country. Therefore, it is the moral responsibility of the business to participate in upliftment of the society as well as the environment. In the given project, the concept of Triple Bottom Line approach will be discussed mainly in the respect of event industry. Later on, the case of Edinburgh will be discussed to explain how application of Triple Bottom Line approach can improve performance of festival and event industry; that is how the event industry can gain sustainable growth in long term prospective. Key concept of Triple Bottom Line approach With growing concern on sustainability, the concept of Triple Bottom Line (TBL) approach is gaining popularity among companies throughout world. As coined by Elkington (1997), financial performance that is “the bottom line” is insufficient to indicate long term corporate success of an organisation. Therefore, it is quite essential to pay equal importance towards ecological and social “bottom lines” (Ehnert, 2009, p.37). The key concept of Triple Bottom Line can be summarised as- wealth generation, social benefit and environment protection. This concept is commonly popular as “People, Profit & Planet” (Cayreyre, et al., 2009, p.46). The main motto (goal) of a company is to increase wealth of its shareholders. Thus, it is quite essential for a company to generate profit for its investors (shareholders). Therefore, to attain long term growth in the industry, a company should improve its profitability. Profit generating capability can be measured with help of certain financial indicators, such as gross as well as net profit margin, return on investment, return on capital employed and so on. Company is a part of the society. It acquires all the resources (land, labour, capital and material) from the society. Therefore, it is the moral responsibility of a company to participate in upliftment of the society where it operates. Similar to social aspect, a business should also consider environmental factor while making essential decisions. For a company, environment is one of the stakeholders which do has stake (interest) in the company’s operations. Many of the activities of the company deteriorates environment. As for example the waste generated by a company is either ejected to the nearby water bodies that results in water population, or if the chemical waste is allowed to get absorbed by the soil then it pollutes the land. The gases evolving from the production units consist of different gases that may pollute the environment. Therefore, it is the moral responsibility of the production houses to minimise their effect on the environment and take active participation in upgrading the environment. Thus, companies should take into account the cost-benefit analysis for environment as well as social aspects (Buckley, 2009, p.289). To attain a sustainable growth in the international market, a company has to develop a balance between its financial bottom line, social bottom line and environmental bottom line. Figure 1: Trial Bottom Line Approach (Source: Potts 2004, p.20) Advantages of TBL approach The popular phrase “if you can’t measure it, you can’t manage it” is true even in the case of TBL approach (Norman & MacDonald, 2003, p.1). The Triple Bottom Line approach assists the management to conduct its corporate social responsibility (CSR) by calculating the bottom lines. In the contemporary business environment, companies have to invest in social as well as in environmental issues. They often do this to gain a positive image in the market, so they try hard to gain popularity as far as possible. In certain cases the companies hesitate to disclose the real facts and figured invested in the environmental and social issues. Therefore, the stakeholders fail to get the realistic information. Triple Bottom Line approach is effective in enhancing the transparency because companies have to evaluate the cost and benefit in monitory terms. Therefore, the stakeholders can easily analyse how much the companies are investing for CSR and what is the outcome of it. Even, it becomes quite easy for the governing bodies to determine whether the companies are taking required actions to recover the loss. The companies that implements TBL in their organisation, get a fair chance to convey required information to the stakeholders. Therefore, theses companies can use their market image to avail funds to be invested in the ongoing projects. Apart from improving profitability, the organisation can gain customer loyalty that will result in expansion of its market share. Even the employees feel satisfied that they are part of an ethical organisation that take care of their requirements and actively participate in social development. Thus, it becomes quite easy to retain the employees (Quinn & Baltes, 2007, p.3). These companies enjoy support from the society that too helps in expansion of the market share and profitability. Limitation of TBL approach No doubt the concept of Triple Bottom Line assists companies in gaining a positive image along with sustainable growth in the target market; however it too has some disadvantages. As per the TBL approach, a company should consider the three basic pillars (profit, society and environment) separately. However, in reality these elements are inter-related with each other and it is quite difficult to evaluate the cost-benefit analysis for each of them. Distinguishing between theses inter-related concepts make a complex concept like TBL oversimplified (Benn, 2011, p.224). Instead of considering these three concepts separately it is better to follow an integrated approach so that management can analyse the development in all these factors all other. A more complex and interrelated approach should also take into accounts political, cultural, and governmental issues. Such integrated model will be more effective in achieving sustainable growth in long term (Potts, 2004, p.3). Some researchers think quantifying the social and environmental bottom line is not as easy as financial bottom line. Though companies have developed certain methods to measure and quantify the social and environmental benefit derived from the investment done for PPP but still they are not fully free from biasness. As a result the information derived from TBL approach is often vague and unauthenticated. Some researchers believe that Triple Bottom Line is a disconnected and misconstructed metaphor which has no real utility in the organisation or for the external stakeholders (Brown, Dillard & Marshall, 2006, p.23). Application of Triple Bottom Line in event industry The event industry is one of the fasted growing industries in the world. With the changing economic condition, people’s living standard is rising and they are eager to invest for availing different kinds of services which where earlier out of their reach. This change is more noticeable in developing nations like China, India and Brazil. The event industry’s participation in global economy is gaining weightage; presently it contributes $100 billion that represents approximately 7 percent of the international global annual revenue. From 2003 onwards the industry maintained a growth rate of 6.2; however this growth was disturbed by the phase of economic recession (2008-2009). Now the economic condition is almost stable in the developed nations and the developing countries are performing well, it has been forecasted that in future the event industry will growth almost at 5.5 percent per annum (Silber, 2008). Event industry is one that actively utilises natural resources and is closely associated with the society. The industry is well aware that it should take up its moral responsibility for environment protection and social development. However, the small and medium event enterprises are less bothered about attaining sustainable growth in the industry; rather they heavily emphasises on the short term gains and financial bottom line of the company (Robinson, Wale & Dickson, 2010, p.203). If one looks back to the history, it can be easily noticed that unlike other industries, the concept of sustainable growth and CSR has been adopted quite late in event industry. In 1992, the Rio Declaration was signed by 180 governments. This was an agreement to work in collaboration to work on a common sustainability agenda. In the agreement the concept of sustainability was defined as “about meeting the needs of the present generation (businesses, consumer and communities) without compromising the ability of future generation to meet their needs” (Robinson, Wale & Dickson, 2010, p.189). The main aim is to minimise the negative effect of event industry on the stakeholders. Therefore, the industry should take into account environment and social development along with economic consequences. The FIFA World Cup 2010 provided a platform for promoting the concept of sustainability. Before the football tournament was started, world’s first international Tourism, Sports and Mega Event summit was held in South Africa. The Olympic Games are also actively adopting sustainability agenda. For the London Olympics of 2012, the committee has developed an action that is based on five key areas. These are “climate change, waste, biodiversity, inclusion and health living” (Robinson, Wale & Dickson, 2010, p.189). Case study of Edinburgh Festival Edinburgh is called as “Festival City” (Corte, Zamparelli & Brancaccio, 2009). Each year almost 15 festivals are celebrated where both the local people and the tourists actively participate. The history of festivals is years old in Edinburgh. Back in 1947, the festivals were popular as celebratory leisure product. At that time three new festivals were introduced; these are: Edinburgh International Festival, Edinburgh Festival Fringe and Edinburgh International Film Festival. With time the number of festivals celebrated in Edinburgh went on increasing. In 1993, Edinburgh's Hogmanay was started. This is a four day even where popular pop singers and rock starts perform for their fans on the streets. Thousands and thousands of people enjoy the street theatre and dance programme. The popularity of the festival is so high that it has been mentioned in David Freeman’s bestselling book “100 things to do before you die”. Another festival called Edinburgh Mela Festival was founded in 1995. It gained its popularity as one of the most popular festival among family and friends. More than 20,000 people participate in different workshops and enjoy performance that include dance, theatre, fashion, music food and lot more. In 2000 onwards some more festivals got added with the festival basket celebrated in Edinburgh. In 2001, the Edinburgh Festival Strategy was formulated. This was a documented plan for eight famous festival of Edinburgh that covers six week long festive season (BBC NEWS, 2001). The strategy was introduced to assist in planning and implementing the festivals in a more organised manner. This strategy was founded by the Scottish Arts Council and Scottish Enterprise Edinburgh and Lothian. The aim of this strategy was to provide Edinburgh an identity of “Festival City” and coordinate the importance of festival and events with cultural as well as economic viability of the city. The stakeholders associated with the festival and event industry had a talk among them to formulate the strategy. It pointed out that the City of Edinburgh Council (CEC) should have a shared vision with the parties involved in the festivals. They both should work hand in hand to develop the plan of action. The highlight of the strategy is as follows: Developing a year around programme for the festivals and events to be celebrated. Maintaining a satisfactory balance between the demand for creativity, social objective and economic viability. The summer programme should retain its identity as an international programme and there must be some other festivals which are equally high in terms of quality and creativity. Participation of large number of citizen in these festivals and these events should address the social goals. The festivals should provide a learning culture for everyone. At the times of festivals, the resources should be shares in a creative manner. There must be growth in the funds followed by integrated marketing were different legal bodies, cultural institutions and government promote nation’s culture in national as well as international participants (Yeoman, Robertson, Ali-Knight, 2004, p.8-9). Area need to be improved The Edinburgh Festival Strategy has paid more emphasis on developing coordination among different stakeholders such as investors, cultural communities, legal bodies and public. This strategy was to increase the charm for different festivals and events celebrated in Edinburgh. The festivals in Edinburgh reflect the social value and culture held by the society. The country is trying to attract visitors for gaining economic benefits and social development. However, very little is being talked about environment protection and sustainability in the strategy for festival and events. This may results in degradation of the natural resources such as pollution of water bodies and nearby environment. Changing environmental condition may affect the climatic condition such as high deviation in temperature range and change in rainfall that may adversely affect the tourism sector. Therefore, it is quite essential that the bodies that are directly related with the festival organisation should have some proactive action for minimising environment changes. The Edinburgh Festival Strategy was successful because it gave new direction to the event industry and the nation emerged out as a Festival City. The festival and event industry contributes a lot in the national revenue of Edinburgh. Now it is a high time for the industry to revive the strategy and introduce the concept of Triple Bottom Line approach so that the festival industry can plan its future action on basis of all the three vital factors (profit, people and planet). The industry should set technique to measure all the bottom lines. There must be benchmarks that can be used to measure how far the organisations succeeded in modifying their performance to attain the goal. These actions will increase the degree of transparency and the industry will have a more balanced growth. Conclusion The concept of Triple Bottom Line was introduced in the corporate sector in 1997 by Elkington. This concept is based on three main pillars: financial profit, social welfare and environment protection. As company is a part of the society and it derives all its required resources from it; hence the company should also think about welfare of the society. The same concept is true for the environment because a company cannot retain its existence without surrounding environment. By its action, companies do disturb the ecological balance; therefore these entities should participate in minimising the negatives effect and degradation of the environment. After discussing the cases study of Edinburgh’s Festival and Event industry, it has been found that it possesses a well documented strategy to improve the economic performance but it does not emphasis much on environmental and social development. By applying the concept of TBL in this industry, the nation can not only upgrade its society and the environment but can also acquire sustainable growth. Reference BBC NEWS. January 02, 2001. A year of drama and more to come. [Online]. Available at: http://cdnedge.bbc.co.uk/1/hi/scotland/1096165.stm [Accessed on January 20, 2011]. Benn, S. 2011. Key Concepts in Corporate Social Responsibility. SAGE Publications Ltd. Brown, D. 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