Last week’s post, On Goals and Objectives, [i] suggested that a manufacturer’s financial goal reflect financial sustainability by emphasizing an adequate return on capital employed, taken across the business cycle. A business that is not sustainable in a financial sense ceases to exist, so it can’t be sustainable in any other sense either.
However, to be sustainable in a financial sense requires more than a stated goal, regardless of how well formulated that goal may be. For a firm to be sustainable in a financial sense – or any other sense – requires a sustainable environment in which it can operate. “Environment”, as used here, doesn’t just refer to the natural world. Rather, “environment” also includes a multiplicity of human aspects, such as the increasingly globalized economy, political factors such as regulation and taxation, educational resources and much, much more.
Triple Bottom Line – Jera Style
Sustainability guru John Elkington’s concept of a Triple Bottom Line provides the most frequently used framework for discussing Sustainability. Elkington’s core idea is that firms should foster return on environmental assets employed and return on social / cultural assets employed on an equal basis with fostering return on financial assets.
The graphic to the right presents the Triple Bottom Line somewhat differently. In this view, industry (manufacturing, along with agriculture and mining – businesses that produce tangible goods) is in symbiotic relationship with the natural world and with humanity. Industry draws resources from nature and uses nature as a sink for wastes. Industry draws talent, creativity and physical efforts from humanity, while humanity relies on industry for the “stuff” of sustenance and affluence, and for the ability to pay for it. Industry is in the middle, charged with interfacing and reconciling the other two. [ii]
It is clear that the natural world is under great pressure due to an increasing human population and from an increasing per capita affluence, both facilitated through industry. Manufacturing CEO Ray Anderson provides a remarkable insight (or, more properly, an epiphany):
“ According to Hawken, not only was business and industry the principle instrument of global destruction, it was also the only institution large enough, wealthy enough and pervasive and powerful enough to lead humankind out of the mess we were making.” [iii]
Mess indeed. But symbiosis works both ways. As a report from consulting firm McKinsey & Company’s global Sustainability & Resource Productivity practice [iv] points out, leading humanity out of the mess offers an extraordinary business opportunity. According to McKinsey, that opportunity includes “by the mid – 2020s, there could be a dozen or more US$100+ billion global markets scaling up around the combination of resource productivity and clean tech.” Of course, each of those new global markets will have value chains stretching upstream and down, meaning opportunities for many, many businesses.
Back to Goals
On first thought, the Triple Bottom Line idea seems to suggest that at least three primary business goals are needed – one concerning the financial sustainability of the firm, a second regarding the firm’s relationship with the natural world, and a third pertaining to the firm’s interactions with humanity.
However, the symbiotic relationships among the components of the Triple Bottom Line suggest that it is practicable to formulate a single goal that embraces all three aspects of Sustainability. A single clear, coherent goal, deployed throughout the organization through well aligned objectives can provide the focus needed to keep a complex system, which a manufacturing business is, operating effectively.
In 1995, Ray Anderson established such a goal for his billion dollar global carpet manufacturing firm. That goal was to prosper as a company while eliminating all waste discharges to landfill, eliminating pollution to air or water and taking nothing from the earth that the earth cannot renew rapidly and naturally – and to do so by 2020.
What happened? — Anderson put it this way:
“Here’s the thing: Sustainability has given my company a competitive edge in more ways than one. It has proven to be the most powerful market differentiator I have known in my long career. Our costs are down, our profits are up, and our products are the best they’ve ever been. It has rewarded us with more positive visibility and goodwill among our customers than the slickest, most expensive advertising campaign could possibly have generated. And a strong environmental ethic has no equal for attracting good people, galvanizing them around a shared higher purpose, and giving them powerful reason to join and to stay.” [v]
For Manufacturers of all Sizes
We have all learned that Quality is not a cost – consistent product quality reduces costs while retaining or even increasing revenues. Quality is not optional in today’s world. We have all learned that Safety is not a cost – remaining accident free reduces costs and frees human beings from painful injuries. Safety is not optional in today’s world. We all need to learn that Sustainability is not a cost – Sustainability is a better way to do business. A business that isn’t Sustainable simply doesn’t have a future.
Thoughtful comments and experience reports are always appreciated.
… Chuck Harrington (Chuck@JeraSustainableDevelopment.com)
P.S: Contact me when your organization is serious about prospering in the 21st century … CH
This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.
[i] On Goals and Objectives, this blog, http://jerasustainabledevelopment.com/2015/03/28/on-goals-and-objectives-2/
[ii] For more on the Triple Bottom Line, see Double Take on the Triple Bottom Line, this blog, http://jerasustainabledevelopment.com/2012/10/04/double-take-on-the-triple-bottom-line/
[iii] Ray Anderson, Confessions of a Radical Industrialist, St. Martin’s Press (2009), page 14. Anderson refers to Paul Hawken, The Ecology of Commerce, originally published in 1993, revised edition in 2010. Note: These two books, both written by entrepreneurial business CEOs, should be required reading for anyone interested in sustainable business.
[iv] Jeremy Oppenheim, How to make Green Growth the new normal, McKinsey & Company, Sustainability & Resource Productivity Practice (May 2013). Available at: http://mckinseyonsociety.com/make-green-growth-new-normal/
[v] Ray Anderson, Confessions of a Radical Industrialist, op cit, page 5