Saturday, August 23, 2014

How Stuff Works: The Triple Bottom Line

The Triple Bottom Line is another one of those concepts that everybody has encountered at least once, in some management text or business news article, all about better ways to run your business and save the world in the process. Many, if not most, of these screeds tend to get ignored because, let’s face it, most businesspeople are more concerned about selling product, paying expenses and turning a profit than they are about warm and fuzzy concepts that people make up to fill management textbooks. What they’re ignoring the Triple Bottom Line is more than just an academic buzzword; it’s a way to accomplish multiple worthwhile things while potentially making more money than you would with a conventional approach…

Most people are already familiar with the First bottom line; it’s the one that appears at the bottom of your financial statements for the month; the amount you made or lost as the result of business operations. This is occasionally derided by the sort of idiots who believe that a world with a barter economy or a socialist utopia are actually achievable in our time, or for some reason believe that success in a commercial enterprise is somehow wrong. I have often pointed out in this space that there really isn’t anything wrong with turning a profit, providing jobs for your employees, business for your suppliers, a good return on investment for your stockholders, and offering a useful product or service for sale – all of these things help worthwhile people to have better lives and potentially better futures…

I’ve also spoken in this space about the Second bottom line, although I haven’t usually called it that. Consider for example that if our company makes money it will contribute to the local economy, both from taxes paid on income and sales, but also through the amounts it spends on goods and services and the amounts all of its employees and suppliers (and their employees) spend on goods and services. This increases the funds available to the local government, and allows for better police protection, fire service, public healthcare and education, libraries, parks, and social services, just to name a few. Some people may dismiss this as nothing more than a side effect, or complain that the business doesn’t really care about these effects, but I have to ask: if your community is gaining all of these benefits, do you really care why the people who own the company are providing them?

The Third bottom line is all about the environment, and doing business in a way that is environmentally sensitive – or, even better, has a positive effect on the environment. The best example I’ve ever seen – the one I teach in my management classes – is a garbage-collection company that started composting the organic waste it was being paid to collect. Not only did this keep millions of tons of trash out of the landfills, it also created the world’s best organic fertilizer (that’s what compost is), which enabled local farmers to achieve better crop yields while at the same time avoiding harmful runoff from chemical fertilizer. The farmers made more money, the local water and air were cleaner, the landfills didn’t fill up as fast, and the company eventually realized they were making more money selling compost than they were being paid to collect the garbage in the first place…

Now, I realize that I’m not going to change anyone’s business philosophy, let alone strategy, with a 600-word blog post. But I have to ask you to consider a situation where people are paying you to come and haul away the raw ingredients for your most lucrative product: is that not beautiful? If you could benefit your employees, your stockholders, your community, and the whole world while making more money doing so, why would you not want to do that? The key point of the Triple Bottom Line isn’t that there is more to life than making money (although there certainly is). The point is that sometimes doing the right thing and doing the smart thing involve doing the same things, and it would be a shame to pass up a chance like that – especially since it’s probably already there, waiting for you to find it…

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