Strategic Management of the Triple Bottom Line - Essay Example

TRIPLE BOTTOM LINE By Location Triple bottom line Introduction Most business organizations often have sustainability as one of their goals. However, it is always not an easy task to measure the extent to which a business organization is sustainable. One of the ways through which sustainability is measured is triple bottom line. Triple Bottom Line is an accounting framework that goes beyond just measuring returns on investments, profits, and shareholder value. This framework includes the social and environmental dimensions. This tool can be effective in supporting sustainability goals through focusing on the business performancedimensions of profits, the planet, and people. This tool has proved to be effective for both business and non-business organizations. This paper aims at evaluating the concept of the Triple Bottom Lineand discussing whether this tool is of importance to businesses. Background When taking a first look at triple bottom line as a tool for measuring sustainability someone might have the opinion that it is a very naïve notion. However, this is not always the case when people get a complete understanding of how triple bottom line works and how it is used in measuring sustainability in various contexts (Milne & Gray 2013, p. 25). Triple bottom line has proved to be an effective method for measuring business sustainability and have been used by organizations with varying structure, strategies, and cultures. Description A business organization that uses triple bottom line as a tool for measuring their sustainability will obviously take into consideration the effect that their activities might have on the people that they are either directly or indirectly involved with. In this way they always have to make sure that all their stakeholders have a good opinion about them. Getting to know this is very important because stakeholders are the people who keep companies in business. Having unhappy stakeholders will definitely affect a business organization’s financial performance (Cohen, Smith & Mitchell 2008, p. 115). Therefore, before a firm focuses much on their financial performance they should make are that their stakeholders are comfortable with the way things are being done in the organization. Despite the fact that the concept of people bottom-line might be attractive, it should be noted that there is always a challenge when it comes to making decisions on how far a business organization should go in terms of making their stakeholders comfortable. It is also not easy when deciding which of the stakeholders should be included in this list and how far a company should go with specific stakeholder. This dilemma is always brought about by the fact that business organizations have to remain competitive (Faux 2005, p. 99). Making the choices on when a company has reached the limit they can still be profitable is always a very big challenge. The 3Ps which are: profits, planet and people usually do not have a common unit of measurement. Profit is always measurable is dollars or any other currency depending on the country in which the business organization operates. However, the main challenge usually comes when a business organizations wants to measure their social capital. It is also likely to be a challenge when trying to measure a business organization’s ecological or environmental health (Maxwell & Van der Vorst 2003, p. 892). The biggest challenge, however, is finding a common unit of measurement for the 3Ps. Some economists have the opinions that the best way that a common unit can be found for the three dimensions of this tool is by monetizing environmental damage and social welfare. As much as monetizing the entire dimension might seem to be a good idea, there are philosophical objections on the possibility of monetizing aspects such as endangered species and wetlands. There are also questions that have been raised regarding the methods that will be used in finding the monetary value of environmental and social aspects of business existence (Mitchell, Curtis & Davidson 2012, p. 1052). Another possible solution is calculating the value of triple bottom line using an index. Using an index enables economists to ignore the incompatibility of the measurement units. This is possible only if there is universally recognized technique through which the entities can be compares. Despite the fact that using an index might be more appropriate as compared to monetizing social welfare and environmental effects, there are still some questions regarding the usability of this method (Rubinstein 2003, p.113). For example, some people have showed concerns on the manner in which the index components will be weighed. In this line it might also be questioned if each of the “Ps” will have equal weighing and if the sub-components of the “Ps” will be affected. There is also a question on whether any of the “Ps” will be viewed as more important and if so who will decide which of the “Ps” to be more important than the others. However, there is also another opinion that each of the “Ps” should be measured independently in accordance to their respective units of measurements. In this line triple bottom line would not have to depend on monetary values as a common unit of measurement (Nolan 2007, p. 164). They will also not have to depend of the index. From the above given explanation it is clear that the calculation of triple Bottom Line has no universal technique or method. Additionally, triple bottom line does not have any universally acceptable measurement unit for all the three categories of triple Bottom Line. This can be termed as triple Bottom Line’s strength because it enables the users of this tool to use the general framework to the requirement of entities of different nature. Therefore, this means that this tool is applicable for both business organizations and non-profits organizations (Kytle & Ruggie 2005, p. 123). It can also be used for different types of projects under organizations with different policies. The tool can also be applied by different organizations regardless of their geographical locations. Application and implication There are three factors that affect the decisions on what measures should be included. These factors are type of project, entity, and the geographical scope. Therefore, it can be concluded that the set of measures that are used for specific project or organization will be influenced by the subject matter experts, stakeholders, and the ability to acquire the needed data (Péreau, Doyen & Thébaud 2012, p. 422). Despite that fact that there are opinions on the best measures for sustainability in national or state levels, the data available still plays a very important role in the calculation of Triple Bottom Line. Despite the fact that the use of triple bottom line by nonprofit organizations, business organizations, and government agencies is necessitated by environmental, economic, and social sustainability, there is always a difference in the manner in which measurement of the three categories is done (Fauzi, Svensson & Rahman 2010, p. 1352). This is an implication that the organizations and government agencies that have opted for triple bottom line as a tool for measuring sustainability face a number of challenges. The most evident among the possible challenges being how to come up with an index that is both meaningful and comprehensive. It is also always a hard task when it comes to determining which data is suitable for the variables that the index comprises of. For business organizations triple bottom line has over the years proved to an effective method for measuring sustainability. The effectiveness can also be attributed to the fact that there has been accumulation of anecdotal of greater profitability in the future. For instance, this tool can lead to the realization that if a business organization reduces their packaging waste they can also be able to reduce the packaging cost. Some of the business organizations that have been successful in using triple bottom line in determining their sustainability include: Unilever, General Electric, and Cascade Engineering. These business organizations might not have an index-based triple bottom line but the manner in which they use TBL concepts can be easily be seen (Gimenez, Sierra & Rodon 2012, p.152). Looking at Cascade Engineering someone can be able to notice that their TBLscorecard has variable form all the three categories. Under the economic category the scorecard has the total amount of tax paid by the organization. Under the social category the scorecard has average training hours per employee, contribution to charities, and career retention. Under the environmental category the scorecard has rate of safety incident, rate of restricted workday, emission of greenhouse gasses, water consumed, and quantity of wastes disposed to landfills. A good number of non-profit organizations have also adapted the triple bottom line concept in determining their sustainability. Some of these organizations have even gone ahead and collaborated with private firms in addressing a wider range of sustainability issues that might be of effect to mutual stakeholders. Business organizations have realized that there is much business sense made in aligning their sustainability to those of non-profits organizations. This is specifically true if the non-profit organizations in question have financial, social welfare, and environmental conservation ambitions (Assaf, Josiassen & Cvelbar 2012, p. 597. Governments and government agencies are gradually adapting triple bottom line concept in determination of their sustainability. Policy makers also use triple bottom line sustainability assessing frameworks for making decisions regarding actions that they should take or should not take in order to make the societies that they are in in charge of more sustainable (Ayse & Triant 2010, p. 168). Using triple bottom line policy makers can always determine the relationship between actions and whether the actions enhance or discourage sustainability of their societies. This does not only apply to state or national governments but even regional leadership (Govindan, Khodaverdi & Jafarian 2013, p.346). A good example of the use of TBL in regional leadership can be illustrated through the European Union. The European Union has been observed to use integrated assessment in the identification of the proposed policies that are likely to be of positive influence to the region and those that are likely to affect the region negatively. This has over the years enabled the union in making informed decisions regarding the policies that are proposed to them. This reduces the possibility of such policies negatively affecting the region’s sustainability. The triple bottom line tool implies that a firm has to make a commitment to using products, designs and methods that are aimed at protecting and preserving the planet’s limited resources. A business organization is also expected to be a good neighbor. Companies should make inquiries on how their marketing activities enhance community involvement or increase the quality of lives of their employees and families.  Meanwhile, environmentally conscious activities can start with something as easy as implementing a proper and effective recycling program and giving training on conservation of resources. Consumers are becoming more conscious of the importance of a company’s history in terms of being eco-friendly. Most of the customers demonstrate the willingness stick to companies that have shown commitment in producing “green” products and services (Hacking & Guthrie 2008, p.79). This implies that the triple bottom line is very important at this time of age where everyone is so concerned about the environment and the sustainability of the business organization. Unlike other techniques where financial, social and environmental sustainability were to be evaluated separately TBL enables business organizations to have the ability to evaluate all the three dimensions of sustainability with a single method. Its flexibility further makes it easier for companies of different types to use TBL as a tool for determining their own sustainability. One thing that should be noted is that Triple Bottom Line might of no usefulness to a business organization or its stakeholders if the TBL is not in line with the business organization’s strategy. Therefore it should be noted that the decision on whether or not to go for a full TBL reporting should not be handled lightly. If TBL is undertaken properly then it might be of positive effect the business organizations involved. This is what most of the supporters of the use of TBL as a tool for measuring sustainability believe. Those advocating for the use of TBL are of the opinion that TBL can be useful in improving the relationship between a business organization and its stakeholders such as customers, employees, shareholders, and investors (Henriques & Richardson 2013, p. 111). Triple Bottom Line can also have some commercial advantage to the business organizations. For instance, a business with a good TBL can have a good reputation which will eventually lead to an increase in sales. A company with a good TBL report can also be able to attract employees with high levels of skills and experience. Investors will tend to get attracted to business organizations with good TBL reports. At higher levels, triple bottom line as a tool for measuring sustainability is a values-laden aspiration. This implies that the concept of the tool that acknowledges as important the relation between a business organization’s economic successes and the performance in terms of social welfare and environmental conservation. That in itself might not be a trivial notion. For a very long time entrepreneurs, managers, critics, academics and activists have struggled to find the answer to the question of the role that business organizations should play in society. In most cases environmentalists or those advocating for more attention to social justice would find themselves against those who advocate for managerial capitalism. Despite the fact that these debates still exist today, the TBL can be referred to as a concept that avails an umbrella under which business managers can afford legitimate freedom to reconcile the evident paradoxes and tensions that are involved in the management of complex organizations (Jamali, 2006, p. 811). In that it can be said that TBL is a tool that can enable a business organization to make sure that their existence is purposed for more than just making profits. Triple bottom line can also have some level of relation to financial reporting. Information that is contained in a company’s TBL report is usually very different from what is contained in the company’s financial reports. However, through TBL reporting there can be identification of social and environmental risks that have the ability to have some influence to the financial performance of the business organization (Sherwood 2007, p. 127). Through such identification a business organization can be able to minimize the effects of the social and environmental risks. Despite the fact that triple bottom line might seem so easy and effective theoretically there are always questions rising from its applicability practically. One of the main reasons given by most of the critiques of the use of TBL as a tool of measuring sustainability is that the tool can be highly misleading. For instance, some would point out that the notion of the tool promises something that is not easily deliverable. A common claim is that almost every business organization can adopt TBL as a tool for measuring their sustainability can be full of flaws especially because the firms are in a position of giving misleading information in their sustainability reports. However, it can be noted that this argument cannot be substantial in proving that TBL is ineffective in determining the sustainability of a business organization. In most cases business organizations usually find it more profitable to focus on the financial sustainability while ignoring environmental and social sustainability. However, in the recent past it has been discovered that both environmental and social sustainability can be of effect to a business organization’s financial sustainability. Further, most of the data used in TBL are usually certified by bodies that have the mandate of making sure that business organization enhance their sustainability levels. Benefits Government agencies and business organizations can use the same terms in evaluating their environmental suitability. For instance, in both cases the amount of solid waste that is disposed in landfills can be one of the aspects that are looked into. Governmentagencies that are responsible for mass transport can measure their success using passenger miles. Business organizations involved in the same will evaluate their profits using their earnings per share (Coffman & Umemoto 2010, p. 599). The good thing about triple bottom line is that it can accommodate these differences. Another advantage of triple bottom line is that it can be case specific in that it can be used in a wider scope. This enables its use in the measurement of suitability in both large and narrow geographic scopes. Triple bottom line can be used in distinctive cases in the measurement of a specific project’s effect to a specific geographical location. This implies that a person planning to use triple bottom line as a tool for measuring environmental and social suitability would not have to worry about neither the geographical location of the project nor the geographical coverage of the project (Perrini & Tencati 2006, p. 302). Triple bottom line as a suitability tool is also applicable in both national and state levels. Conclusion As discussed herein it is clearly evident that triple bottom line is an effective way of measuring the sustainability of a business. Just like any other tools that are used in a business setting TBL has its own shortcomings. However, the good thing is that times are changing at a very fast rate and these shortcomings will soon be overcome. Business stakeholders have increasingly been interested in the manner in which business organizations benefit the society and the environment. This is the reason as to why it is important for business organizations to avail their sustainability reports. These reports have a huge influence on how stakeholders perceive a company. However, the traditional methods only allowed business organizations to assess the three major aspects of sustainability separately. In such situations it was difficult to determine the relationship between the three aspects of sustainability and the manner in which they would have had effect to each other. This means that a company would find itself overemphasizing on a single aspect. This is not the case with triple bottom line because it involves evaluation of the three aspects in an interrelated manner. 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