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Here’s a favorite post of mine from our old Yahoo group …

Philosophies collide!

I was presenting a workshop in Darwin (Australia) recently when the manager of a (government-funded) organization objected that our methods focus only on the financial bottom line — and that they are not conducive with the concept of triple-bottom-line management.

Now, I must have had my head in the sand for some time because, up until then, I had never heard of this peculiar concept.

The idea is that an organization shouldn’t strive to improve just one bottom line (the financial one), rather it should also pursue the improvement of two (equally important) additional bottom lines: an environmental one and a social one.

Now, thinking readers will have already recognized two obvious objections to the triple bottom line:

  1. Division of labor (As Adam Smith pointed out, the economy as a whole benefits most when organizations specialize).
  2. Practicality (there can be no single standard of ‘environmental good’ or ‘social good’; only multiple measures that will ultimately conflict with one another)

But the argument that I presented in Darwin was simpler — and I suspect stronger — than either of these.  And it it was pure TOC!

In TOC terms, the concept of the triple bottom line amounts to an argument that the organization should pursue multiple goals.

Is this possible?

Well, we know that a business is a system (a goal-seeking system).  This means that a business is not a collection of independent parts — all the parts are connected (directly or indirectly) to one another (a part that wasn’t connected one way or another would not be part of the system).

We know that each of the parts of the (business) system has finite capacity: accordingly, the system has a whole has finite capacity.  (If this wasn’t the case, it would have achieved it’s goal in the instance in which it came into existence!)

So, with these facts in mind, let’s think what happens when a business attempts to pursue multiple goals simultaneously.  Inevitably, the pursuit of each goal requires a different allocation of resources from that finite resource pool.  (This is called ‘resource contention’.)

The only way to resolve resource contention is to rank the three goals in order of priority.

The only way to perform this ranking is to nominate one of these goals as The Goal, and the others as Necessary Conditions.  There is simply no other alternative in a finite-capacity system.

For this reason, I propose that a business cannot pursue multiple goals and that the notion of a multiple-bottom-line is discredited!

Post scripts

In the TOC world, the following definitions apply (my wording):

The Goal: the output the system is designed to produce (measured in units called Throughput).

Necessary Conditions: conditions that must be complied with in order for the achievement of the goal to be valid. 

Necessary conditions are bi-modal (you either comply or you don’t). If we’re dealing with a typical business, the goal is to maximize the return on shareholder funds.  An example of a necessary condition is ‘cashflow’.  Maintaining adequate cash-on-hand is critical.  More cash than that which is adequate provides no additional benefit.

Sadly, the workshop delegate was not happy with my answer.  He left (in a huff) in the lunch break.  By the way, he was correct to object that our method is not conducive with triple-bottom-line management.  It isn’t.  But neither is reality!

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Home Forums The triple bottom line: two parts nonsense

This topic contains 2 replies, has 2 voices, and was last updated by  Justin Roff-Marsh 3 years, 7 months ago.

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  • #25605 Reply

    Jak Plihal

    Justin,
    It is late, but I will attempt to craft a cogent argument anyway 🙂

    Although I get where you are coming from with your attempt to argue that financial intent (or any singular intent) is what governs reality. There is a gap called: human beings serving many masters (intents). Organizations never operate from a single directive – financial or otherwise. That is why leadership and culture are damn complicated.

    Granted, the metric that balances out the aggregate decisionmaking may be financial — yet you must admit that there are many interests to be balanced to maximize the output of a culture. A sure way to kill a culture is to have people know your will unwaveringly make all decisions on the dollar. This goes for internal culture and external markets.

    The only proof of this you need is to see that products are adapted for safety that goes beyond compliance, and messaging and action regarding the environment and social good are everywhere… and not all of this is the result of bottom-line computations. Some companies are expressing genuine leadership beyond the PR calculus — and the vanguard in this movement are rewarded with customer loyalty and larger margins. You may say this proves your point — I say you must check the gap between the leadership decision and the payback… and know that it isn’t always straight math.

    Visionary strategy requires investment that can go beyond what makes sense to ‘companies in the pack’ — and I believe moves like DBL/TBL will continue to be a main way to leading firms extend their brands…

    Best,

    Jak

    #25606 Reply

    Jak

    Your points are sound. However, they hardly amount to a defence of triple-bottom-line accounting!

    I accept that there are intangibles that can’t be measured.

    But I’m not arguing with that. I’m claiming that pretending to quantify that which you clearly can’t is a fool’s errand.

    Justin

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