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A Profitable Revelation

October 20, 2010

You’ve heard of the triple bottom line — that elusive magic bullet of people, planet and profit that sustainability practitioners and CSR executives refer to.  It occurred to me a long time ago that many organizations are OK with the “people” and “planet” part of the equation; it’s quantifying the “profit” part that they struggle with.

And today I had a revelation.

In operations management, they talk about the evolution of operations strategies and how they have shifted over time. For example, in the 1950’s, the focus was on cost minimization, and that was the root of competitive advantage.  In the 1970’s and 1980’s, the focus shifted to quality.  Anyone remember Ford’s old tagline…

Quality is Job 1?

Between 1980 and 1990, the focus was on speed of delivery (just-in-time management, anyone?).  As we moved into information-based technology and the rise of the internet, the focus was on service.  All of these — cost minimization, quality, speed, service — are important. But notice that we have gone from cost minimization to the creation of value.

Not cost.  Value.

This, I think, is an important part of profit.  Yes, operational efficiencies that occur in a sustainable business (or meeting, etc.) send money straight to the bottom line.  A dollar saved is a dollar gained when it comes to operations efficiency (no other department, including finance, can say this). But value is another level altogether.  Value is the ability of a product or service to meet a customer’s expectations (adjusted for cost, of course). Sustainability is, as market research bears out, something that more and more customers are demanding.  Therefore, sustainable business/services/products add value, and this adds profit.  It might be intangible or hard to quantify, but it’s there.

Organizations that focus solely on the cost savings or direct revenue generation (for example, selling sustainable education, certification or biodegradable products) of sustainability products and services ignore quantifying the creation of value in their operations.

Even finance professionals recognize that their “prime directive” (to quote Star Trek) is to maximize value for their shareholders.  Not short-term profit, by the way.  Long-term value. 

The next competitive priority for business may well be environment or social responsibility.

Maybe it already is.

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