Triple bottom line and its significance
The triple bottom line refers to an extension of the criteria used to measure organizational success. Traditionally, business success (or failure) is measured in terms of its economic performance. A business is considered to be successful if it has generated a sufficient financial return from its investments, financing activities and operating activities. The triple bottom line takes into account three criteria for assessing organizational performance; economic, social and environmental.
The economic criteria can then be used to determine how much an organisation generates in monetary value. It can also be used to determine the net worth of the business at a given point in time.
The social performance of an organisation is somewhat more difficult to define and measure. The social criterion of the triple bottom line takes into account the impact that a business has on people within the business (employees) and people outside of the business (the community).
Triple bottom line organizations aim to improve the environment where feasible, or at the very least, reduce and limit their negative impact on the environment. Organizations need to look at more than just obvious environmental issues (like pollution) and should consider the total life cycle impact of their products and services.
Triple bottom line reporting is becoming more widespread amongst both large and small organizations. Triple bottom line reporting makes business decisions and actions more transparent and allows people to gain a thorough understanding of a business' level of corporate social responsibility. The triple bottom line report also helps manager to assess and compare their performance across all three criteria against the business objectives and long term goals.
The
conventional way to measure the success of a business is the bottom line. But
the concept of a triple bottom line, where social and environmental factors are
considered along with economic ones, is also getting a lot of attention.
Is this another business fad? Is it a new management technique
like total quality management?
I see the
triple bottom line as a way to think about yourself, your career, and your
company. The essential challenge it poses to business leaders is to find a way
to simultaneously please your investors and impress your grandchildren.
Triple
bottom line thinking holds that a company should combine standard metrics of
financial success with those that measure environmental stewardship and social
justice. It is sometimes called the 3P approach -- People, Planet and Profits.
In each case it requires thinking in three dimensions, not one.
Why think this way? Why adopt
such an approach?
It is argued
by many that companies that factoring these impacts into their overall
corporate balance sheets will be more successful because it delivers greater
efficiency, makes them more competitive and sparks innovation -- all drivers of
profitability over time.
We certainly
don't measure the success of our families by how much money we have saved. Our
family's health, our kid's education, and the amount of love and caring in our
family, count as much, if not more, than our financial security. So why do we
have to measure the success of our companies with only one metric?
Another
concept often linked to triple bottom line is that of sustainability. We
sometimes speak of adopting sustainable business practices or building
sustainable businesses. But what does that really mean?
There is a
strong argument that triple bottom line or building sustainable businesses
creates more profitable and successful business. Pursuing environmental and
social objectives doesn't have to be at the expense of financial objectives and
often is reinforcing.
Take the
desire to reduce the environmental impact of a building for example. You could
just lower the thermostat and make everyone a little more uncomfortable. Or you
could do something better and install more efficient lighting. Or you could do
something even better and rethink the entire building and design an integrated
building that has better ventilation, better lighting, uses much less energy,
and is more comfortable.
This is just
the beginning. Businesses pursuing sustainability are becoming more efficient,
more innovative, more connected, more profitable, and more competitive.
But as in
most things, companies go through phases.
At first
they tend to be defensive and focus on complying with regulations. When they
move beyond that, they become tactical -- looking for ways to reduce waste and
become more efficient in the way they do things.
In the next
stage they start to think systematically. Here, a company begins to identify
its position in the value chain and explore how their customers use their
products and how they dispose of them. They will also explore their supply
chain and find out where their raw materials come from and how much energy is
used to make them. They will start thinking about their own factories and find
ways of using new manufacturing process that use less energy.
We can start
to make our companies more efficient or wait until costs rise. We can redesign
our products for a more sustainable world or we can try to catch up later. We
can wait until our customers or the government ask us to report our carbon
footprint or we can volunteer it now.
Calculating the TBL
The 3Ps do not have a common unit of measure. Profits are measured in dollars. What is social capital measured in? What about environmental or ecological health? Finding a common unit of measurement is one challenge.
Some advocate monetizing all the dimensions of the TBL, including social welfare or environmental damage. While that would have the benefit of having a common unit—dollars—many object to putting a dollar value on wetlands or endangered species on strictly philosophical grounds. Others question the method of finding the right price for lost wetlands or endangered species.
Another solution would be to calculate the TBL in terms of an index. In this way, one eliminates the incompatible units issue and, as long as there is a universally accepted accounting method, allows for comparisons between entities, e.g., comparing performance between companies, cities, development projects or some other benchmark.
Who Uses the Triple Bottom Line?
Businesses, nonprofits and government entities alike can all use the TBL.
Summary
The Triple Bottom Line concept developed by John Elkington has changed the way businesses, nonprofits and governments measure sustainability and the performance of projects or policies. Beyond the foundation of measuring sustainability on three fronts—people, planet and profits—the flexibility of the TBL allows organizations to apply the concept in a manner suitable to their specific needs.
There are challenges to putting the TBL into practice. These challenges include measuring each of the three categories, finding applicable data and calculating a project or policy's contribution to sustainability. These challenges aside, the TBL framework allows organizations to evaluate the ramifications of their decisions from a truly long-run perspective.
It’s no secret our world and business environments are always changing. More than ever, sustainability is key to giving you a competitive edge in today’s economy—financially, environmentally, and socially.
References
https://www.greatlakesbrewing.com/sustainability/triple-bottom-line
www.greenbiz.com/blog/.../why-triple-bottom-line-matters-more-ever
www.triplepundit.com/topic/triple-bottom-line/
http://www.mindtools.com/pages/article/newSTR_79.html
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