Most people are of course familiar with the concept of the bottom line.
It’s about financial viability. Decisions need to consider the impact on the bottom line; ie – is this action/product/service/investment etc going to add to the bottom line or subtract from it? This is naturally of massive importance to any organisation. It’s not viable to do things that are not going to pay back in some way. So far, we’re probably all in agreement.
There’s however growing argument for the consideration of three, rather than just the one bottom line. It’s the “3 P’s” bottom line.
And the 3 P’s are Profit, People and Planet.
What does it mean? Simply that an organisation that wants to be successful over time, not just immediately, needs to judge all decisions, all actions against these three measures;
- What’s the impact on Profit (the “regular” bottom line)?
- What’s the impact on People (employees, customers, suppliers, other stakeholders, communities where the organisation operates etc)?
- What’s the impact on the Planet (the earth’s natural resources)?
The argument is that you need to consider ALL of these three ALL of the time. Let’s give a simplified example to illustrate this.
Imagine an organisation that is considering outsourcing part of their service to another company, potentially also in another country.
When the company looks at the financial aspect of this decision, they may find that the servicing can be done more cost effectively elsewhere, as salaries are lower, so the impact on Profit would be positive.
When they look at the people impacted, they find that there would obviously be a negative effect on existing employees, a positive effect on the outsourcing company’s employees, but potentially also a negative effect on customers if the new service set-up lack in overall knowledge of the company, its products and services. If this is the case, this may over time affect customers’ experience, loyalty and ultimately their spend, which affects Profit negatively.
When turning their attention to the impact on natural resources, they find that the outsourcing company is much less energy efficient in their office set-up, which means more energy is used, depleting energy and costing money. There is also greater awareness of energy sustainability overall, which means this would have a negative impact on how the company is perceived by key stakeholders – which can impact attractiveness negatively in the eyes of potential employees, customers and investors.
In this particular example, the organisation may therefore decide to not outsource as the longer term effect would be negative to all 3 bottom lines.
As you can see from this simplified example, this is not always a very straightforward process and assessing the long-term impact is not that easy, but it needs to be done just the same. Big investments are made when organisations are set up, and to potentially waste that investment only to meet short-term financial goals is not a viable long-term financial solution.
The three bottom lines are interdependent, they need each other. Focusing too much on one of them, regardless of which one, can have a negative effect on the other(s).
Leaders need to continuously operate with this complexity in mind, to always consider the IMPACT of actions on all aspects of business. And as more and more companies act globally (buy products, services and infrastructure from all over the world, rather than just locally), the complexity grows, it becomes harder to assess the impact.
So complexity thinking is a major skill/ability that leaders will need in the future – in fact, even now.
What are your thoughts on this subject? How do you manage complexity?