Triple Bottom Line Goes Beyond Measuring Profits, Essay

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triple bottom line goes beyond measuring profits, and seeks to be a new measure of performance in corporate America. There are three dimensions of performance: social, environmental and financial (Slaper & Hall, 2011). The financial element of the triple bottom line encompasses the traditional financial measures, for example profits, margins and market shares. These remain as vital measures within the TBL concept.

What the TBL does is expand on the idea of how to measure business success, and in doing so it seeks to add new measures for social and environmental outcomes. These are perhaps not as easy to measure. Social performance looks at the outcomes of the company's operations on its employees, the community. This encompasses a wide range of concepts, and each firm has the ability to determine their own objectives and success measures. Environmental performance is measured on the basis of the firm's impact on the natural environment. The environment should be improve through the firm's actions, though many firms simply settle for minimizing their negative impact (UWS, 2013).

The concepts of the triple bottom line and corporate social responsibility are similar. Corporate social responsibility reflects the desire of the organization to contribute to the world around it. The key difference between CSR and TBL is that CSR is ill-defined, while the triple bottom line is a fairly clear system. Corporate social responsibility is whatever the company wants it to be. Every company can and does define CSR differently. The result is that the term has only limited meaning. Dahlsrud (2008) notes that many definitions are biased and with these diverging biases there is no uniform frame of reference that allows the concept to be discussed among different parties. He argues that corporate social responsibility is a social construction and has five different dimensions: environmental, social, economic, stakeholder, voluntariness. The first three match up with the triple bottom line, and the latter two do not contradict the TBL. Taking a stakeholder approach allows for an expanded view of the business's stakeholders beyond those in the social, financial and environmental dimensions. Voluntariness refers to the degree to which the organization's actions go beyond those prescribed by law, which reflects on the method of implementing the CSR rather than the content of the CSR program. So most of CSR overlaps with TBL, though TBL is more rigidly formalized and CSR is more flexible in what it contains. Both systems, however, rely on the organization to define and measure outputs, so both are weakened by internal bias.

Other related concepts include strategic CSR, which is another framing of CSR, sustainability and socially responsible investing. Socially responsible investing is an investment strategy based on investing in companies with strong records of social responsibility (Chamberlain, 2013). The investor can, as the companies do, define the idea of socially responsible. Firms usually do not explicitly adopt CSR or TBL in order to attract this class of investors, as they tend not to be market movers, at least in comparison with the firm's financial outcomes like market share, revenue and profit. Sustainability is another, similar, concept, referring to the ability of the business to be sustained over the long run. This is a very difficult concept to measure, given the number of variables, but concepts like efficiency and waste reduction are usually involved. There is significant overlap between TBL and sustainability, because reducing consumption has a tendency to improve financial and environmental outcomes, if not social ones as well.

Part II. The dictionary definition of paradox is that it is a statement that apparently contradicts itself but may be true. Smith and Lewis (2011) apply this concept to management thinking, in particular about how to deal with competing interests. They note that there are many tensions that exist within business that must be resolved in order for business to thrive. The paradox lens is simply a way of accepting that these supposed tensions do not exist on a linear scale - they are not opposites. Instead, by seeking to enhance one objective, other objectives can also be enhanced. Taking one of the common tensions identified by Smith and Lewis, profit does not need to come at the expense of social responsibility. The organization simply needs to understand more about its situation and think more critically and creatively in order to derive the optimal solutions that will improve outcomes for both.

Paradox thinking is certainly related to the concept of the triple bottom line. Many businesses that traditionally focus on one bottom line (financial) will have a hard time seeing how any activity that does not directly contribute to profit will be beneficial for the firm. Such businesses accept the tension, but do not accept that there is a way to resolve multiple competing tensions simultaneously.

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Paradox thinking helps to break management out of that mindset, and to seek solutions that improve the company along multiple output dimensions. This requires understanding the relationship between the dimensions in order to make the right changes to improve all, but this can be done. The first step is to recognize that the tensions in TBL are not mutually exclusive and that is something that the paradox lens helps with.

Part III. The discount retailing industry has a number of players, and the three I am taking a look at are Wal-Mart, Target and Costco. All of these companies have a high-volume, low-margin business model that would normally signal a commitment to financial outcomes at the expense of social responsibility initiatives. This is because when margins are tight, cost-cutting initiatives need to be company-wide and indeed Wal-Mart in particular has sought to stake its competitive position as the cost leader in this industry.

The Target report is divided into four categories: environment, team member well-being, education and volunteerism. There are a number of different individual dimensions within these categories, ranging from sustainable fishing practices to increasing organic food offerings, reducing packaging design, increasing health screenings for employees, and volunteer efforts and donations.

The Wal-Mart report highlights renewable energy initiatives, increased training opportunities, charitable donations, hiring veterans and saving people money. There are some overlaps with Target, certainly in the focus on cutting costs. The benefits of cost-cutting by reducing waste and increasing energy sustainability are self-evident for a business that exists on fractions of percentage points of margin. Anything that cuts costs not only has an environmental benefit but also a financial one, highlighting the inherent compatibility of waste reduction and profit improvement.

The Costco report begins with an extensive explanation of store design, in particular with respect to carbon footprint, lights, and refrigeration. The report also discusses plastics recycling and other recycling efforts, again highlighting the link between waste reduction and profit. The Costco report is strictly about sustainability, but the company is actually interesting for its treatment of employees, which famously runs counter to the approach that Wal-Mart takes. Where Wal-Mart pays so little and offers so few benefits that many of its employees are on food stamps, Costco pays what are probably the highest wages in the industry. The strategies are very different. Costco's approach is counterintuitive, because it increases fixed costs. This is the paradox. For Costco, the result of its human resources policies is that the company's turnover is very low. Employees are therefore able to offer better service, and their keen understanding of their jobs and their business allows them to not only be more efficient on the job but to make better and more useful suggestions for cost-cutting in the future. The cost increase on workers is met with cost reductions in other areas, specifically facilitated by having better workers (Grant, 2013).

The similarities and differences in the approaches that these companies take highlight that there are many different solutions to the apparent paradox exists for firms that are acutely aware of their bottom lines. The companies that pay lower wages trumpet their job creation credentials because they do hire a lot of people. Yet many of these workers remain eligible for some form social assistance, so Wal-Mart is essentially offloading its costs onto the taxpayers, something that has dubious social value. Costco pays its workers a living wage, preferring the benefits that come with a skilled workforce. These approaches highlight that different measures can be used, and the measures tend to be biased towards what a company already does well.

That said, the triple bottom line theory holds up well, because while they different on social outcomes, all of these companies recognize the benefits of eliminating waste and reducing consumption of both materials and energy. Consumption costs money, and when your business depends on not passing those costs on to consumers, it is important to remember that the company will receive financial benefit if it cuts consumption in the form of waste or energy usage......

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