Note: This article also appears on GreenBiz.com at http://bit.ly/9kjYTV
In a comprehensive study released last week by the United Nations Global Compact and Accenture, a survey of 766 CEOs from around the globe indicate that despite the economic downturn, sustainability will be critical to the future success of their companies. An amazing 93% of CEOs indicated that “a tipping point” could be reached that integrates sustainability with core business processes and systems, and its supply chains. http://bit.ly/cS93dR
So this suggests that ‘triple bottom line’ (TBL) practices and measurements will become commonplace in business…or will it. Perhaps there is another way of looking at this trend given the top-down commitments that CEO’s believe are necessary to create this massive shift in corporate behavior. This point of view is called “triple top line”, but has generally been trumped by its “bottom line” twin.
Setting the Context
Top-Line Definition (Sustainability Dictionary http://bit.ly/aRPZh8)
The total revenues an organization reports on their income statement. While many activities within an organization are focused on reducing costs, initiatives such as innovative product and service development focus on creating more valuable and desirable offerings that increase revenues. Attention to human and natural capital (as well as financial capital) can often increase revenue by differentiating a company and its offerings in a beneficial way to the market. When this is done poorly however, it can be seen as green-washing and results in the opposite effect.
In contrast, bottom-line refers to Net Income (top line revenues – expense). Bottom-line activities typically focus on cutting expenses in order to improve income. William McDonough also coined this term from a design perspective in his landmark book Cradle to Cradle: Remaking the Way We Make Things (2002, North Point Press)
Triple Top Line Definition (Sustainability Dictionary http://bit.ly/9emKPX)
The effect that attention to sustainable management of natural, financial, and human capital has to an organization by increasing revenues (by offering more desirable products and services) and reducing costs and expenses throughout operations (through more streamlined operations. While many of these benefits are measured in terms of triple bottom line accounting, even more valuable are their effects to a company’s top-line financial performance because they require less capital investment and reduce the cost of capital.
In the UN/Accenture report, CEOs cited several barriers to achieving their sustainability goals, including ‘organizational silos’, competing priorities and lack of ‘value recognition’ by investors. To counteract these barriers, several steps were needed, including CEO leadership to create real, value-added and long term change. Specifically, five key areas were mentioned:
- Shaping consumer preferences for sustainable products.
- Training, training, training on sustainability issues- not only for the rank and file but managers too.
- Improved investor communications with investors to create a better value proposition about sustainability.
- Improved TBL metrics and communication of the value of business in society.
- Partnering with governments to shape policy and regulation and create a level playing field.
In sustainable terms, both a top-line and bottom-line focus is important. However, many recent efforts to slash expenses in the short-term can actually hurt long-term sustainable value. Like the UN/Accenture study suggests, a focus on increasing top-line value through innovation, lean thinking, and smarter brand enhancement can lead to more sustainable and profitable growth. I offer a simple framework to start down the path of sustainability from a top line perspective that recognizes human and natural capital as well as financial aspects of business.
1. Understand the current situation.
Gain awareness of the context in which environmental top line value can be realized.
- Take stock of the organization’s core business strengths / strategies.
- Identify the environmental aspects of the organization’s processes and services in each link of the organization’s value chain.
- Identify customer environmental challenges and how the processes and services relate to customer needs.
- Develop a business case for moving forward.
2. Develop a strategy.
Decide upon a strategy for creating environmental top line value that supports the organizations business strategy and takes advantage of the organization’s strengths.
- Develop a top line strategy that will be a best fit for the organization.
- Consider how the strategy will address sustainable business practices.
- Determine whether any changes are needed to the existing business model or strategic plan to realize the strategy.
- Develop an action plan to implement the strategy.
3. Choose initiatives and measure progress.
Develop and implement initiatives that will bring the strategy to life.
- Consider how the organization’s existing processes and services can be positioned to address the chosen strategy, using the case studies for inspiration.
- Examine each link of the product value chain to identify potential initiatives, such as reuse of recycled materials, resource optimization, reduced energy or water consumption, all of which can create top line value.
- Measure your efforts by establishing meaningful and measurable key environmental, social and financial performance indicators
- Be realistic about how process changes that can have direct environmental benefits fit into the overall set of differentiating features and benefits of the process. Do not assume that consumers will be willing to pay a price premium or accept performance or quality trade-offs.
- Examine customers’ value chains to identify top line opportunities to meet customer expectations and support their sustainability initiatives.
- Identify potential partnerships with stakeholders that will lead to top line value by promoting collaborative supply chain management.
4. Gain internal alignment.
The process of aligning an organization around the importance of taking action begins at the time an organization first develops an awareness of the context in which environmental top line value can be realized, and carries all the way through implementation of the top line strategy.
- Gain buy-in from top management.
- Communicate the business case for moving forward.
- Identify internal champions within the organization who will move the top line initiative forward.
- Start with pilot efforts to test the waters and generate early successes.
- Communicate early successes.
5. Maintain the momentum.
Develop processes for maintaining the momentum of the top line initiatives.
- Create a “change management” process to build environmental factors into new or modified processes or activities.
- Develop business-based metrics of environmental and management and top line success.
- Develop an award and recognition program for ideas or projects that result in environmental and/or management top line value.
- Integrate environmental stewardship and associated activities with all operations.
- Raise the capabilities of the customer service function to probe for and address customer-specific environmental or social responsibility issues/ concerns.
By following this simple ‘plan-do-check-act’ process, companies (large and small) can create upstream supplier alignment, downstream value for their customers and maintain a more secure competitive financial position in the global marketplace.
I believe the distinction between a good company and a great one is this: A good company delivers excellent products and services; a great one delivers excellent products and services and strives to make the world a better place. —William Clay Ford Jr.