- BUILDING WEALTH WITH
QUALITY-driven TBL PROFIT
Adding Quality to the Triple Bottom Line Profit Mix
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- To traditional Financial Profits-Only people, “Sustainable,” “Green,” and “Eco” accounting may be the start of a slippery slope into soft/fuzzy thinking. But we can easily translate Profit Accounting into a hard-nosed cost-driven Wealth Accounting approach using Quality Drivers:
Triple Bottom Line Accounting (TBL) looks at the effect of a company’s efforts on society and the environment, not just the financial “bottom line”. But, (outside “B” Corporations) it can be hard to comprehend by traditional accountants who are legally required to focus on profitability alone.
Now you can use Quality-driven Triple Bottom Line Accounting. QTBLA is a filter that traditional and new organizations can both use to employ TBL accounting in business reporting, without fear that the “bottom line” will suffer.
What QTBLA does is give accountants the means to report the hard number effects of QTBL actions on the Financial Bottom Line.
In effect, we are giving you a rational, hard-edged, regulatory-intervention-free tool to redesign your business to be more effective and make more profit—without damaging society, the environment, and the planetary systems we all depend on to exist.
- TBL SUSTAINABILITY FRAMEWORK
The now-traditional People, Profit, Planet communicated the shift in thinking to the public, government, and business.
1. People / Social
2. Planet / Environmental
3. Profit / Financial
TBL does not accurately reflect the impact of a company’s TBL and “bottom line” activities on its financial ability to create the profits that build Wealth.
QTBLA WEALTH-BUILDING FRAMEWORK
Imagine the Leap to Wealth Reporting: QTBLA's Operational-Quality-Driven cost-accounting framework better answers the demand.
A “Long AND Short Term framework," QTBLA looks at the value that organizations bring to society: “not just on the economic value that they add, but also on the environmental and social value that they add – or destroy.”
1. People (Society Effects - Peaceability, Stabiility, Effect on Families, etc)
2. Planet (Environmental Effects - Water, Atmosphere, Contamination, etc)
3. Profit (Economic Effects - Costs, Revenue, Financing, ROI)
4. All fed through a TQM filter
This creates key differences when Profit and Total Quality Management drivers are redefined to be "Creating Wealth" And “Maximizing Cradle-To-Cradle Efficiency.”
- THE ISSUE: Profit is a simple idea, really. Only the financial bottom line matters. But we can do so much better when we realize Profit produces better results when it is a part of Wealth-Creating, Wealth-Building, and Wealth-Sustaining.
Focus on Wealth by simultaneously sustaining the structures that society needs to keep producing new business—without government intervention.
Think more deeply. All Profit really demands is the shortsighted and simplistic practice of slashing and fear-making whenever the Quarter is going to be out of balance. A simple focus on Profit could kill the very existence of the business, not to mention the society it belongs to. A conventional industry’s extreme Profit focus might allow it to purposefully cut corners during a project, knowing it gets the perks of a better Quarter now; knowing a future management team will have to deal with the damage of spill-induced lawsuit, fines, and a haul-up to the International Criminal Court.
By contrast, Wealth-building demands quality-driven creativity that focuses on short-term advantage AND long-term gain.
Wealth-building is profit-building with a longer and wider focus.
It thinks long-term. Across years, decades, and generations.
FINDING LEADERS WHO THINK & ACT FOR THE LONG AND SHORT-TERM.
Many organizations want, hope, and desire to adopt sustainability as a guiding business framework, driven by customer and regulatory demands. But there is fear about the career-killing riskiness of disclosing what they are doing. There is a ‘disconnect’ between a desire to report to publics, and management’s need to
sustain competitive advantage in a simplistic Profit-driven business culture.
Simultaneously, many companies are hungry for models or benchmarks against which to frame their efforts, but, in the absence of a consistent framework that enables firms to meet their legitimate need to disclose without losing competitive advantage, companies might:
- Experience “Disclosure Paralysis” – not knowing what to do or how to do it, so instead wait until they face intense pressure before responding.
- Fumble about as they try to balance off the risk of not disclosing with the demand that they do, with the result that they either disclose too much or not enough.
- Simply Adopt some of the terminology of Triple Bottom Line accounting without actually implementing it. Change IS a tough challenge, after all.
- ‘”Greenwash” – intentionally claim to adopt sustainability as a guiding business perspective without actually doing anything.
CONSIDER OTHER METHODS FOR A "FINANCIAL-PROFITS ONLY" AUDIENCE:
A. Throw out the words “Sustainability” and “Green” and “Eco” when talking to traditional business circles. They are tainted words. And we need change. We need their participation.
B. Make "Quality" and "Wealth-Building" the driving words, because that is the purpose of sustainability, profits, and effective business operations.
This, in part, is what B Corporations are all about, but QTBLA is about letting traditional corporations change their perspective on what they do to grow that traditional bottom line.
C. Teach organizations to imagine the leap to a "wealth-building reporting system"...ie. Create a bridging practice to a practice that lays out metrics unique to each organization, tied into:
- Traditional ERP/financial statement reporting, and
- the TBLA-style reporting that I’ve called QTBLA.
D. Implement QTBLA reporting in Corporate Reporting, right alongside other Financial Statements.
Building Wealth is what it is all about, right?
- USING QTBLA: Total Quality Management (TQM) is an existing management tool framework developed by various sources including Peter Drucker and Toyota Corp. Using TQM enables the QTBLA model to go beyond TBLA. By filling the internal gap, QTBLA provides management with the means to measure performance against an historic standard, and to aim for a measure of quality against which to measure progress.
For example, before I approached visiblestrategies.com in 2007-08, Novex Courier disclosed whether it achieved its monthly sales targets, but did not disclose how this achievement affected the TBL results of its actions.
Using TQM as a filter enables the company to create metrics that specifically tie TBL actions to the financial bottom line; this ties internal operations to Wealth-building efforts. This stops "fuzziness". It becomes explicit--a hard-nosed accounting tool for building your private business without killing the benefits that come from being a member of the society that sustains your business.
- External stakeholders (investors, shareholders, analysts, activists, government) already use financial reports to analyze performance against historic trends (a backward-looking set of metrics).
TQM frameworks generate a standard QTBLA Financial Statement data and metrics reporting alongside traditional financials (Income Statement, Statement of Cash Flow, Balance Sheet, Statement of Owner Equity).
QTBLA provides useful data, when Profit is explicitly defined as being about wealth creation (creating long-term value by helping the business thrive within the natural ecosystem, rather than the simplistic “making profits”) and when the analytical framework includes Key Questions, such as:
- What actions are we taking to support our objective to build Quality into our business?
- What actions are we taking to create a cradle-to-cradle “Supply Loop Management” system?
- How do these actions benefit our business?
- How do these actions create wealth, not just profits, for our stakeholders?
- How do we define “create wealth”?
- What metrics do we use to determine if we have “created wealth” in areas other than financial?
- How do these actions help us remain financially sustainable and keep our social license to operate?
- How do these actions help us remain financially sustainable and environmentally responsible?
- What actions have we discarded because they do not accomplish these objectives? What was our reasoning when discarding these actions?
- Of course, the key is to be transparent--To decide whether to disclose the results. Financial data affects external stakeholders and private competitive advantage, hence we propose different data release dates for different types oforganizations:
1. Government, NGOs and other civil society entities:
- Annual or quarterly release dates
- Determined by existing statutes, regulations or internal practice
2. Business Firms (publicly traded or privately owned):
- A release date of no sooner than x-years (ex. 2 years) after being first generated
- Determined by internal decision
- Because only historic data is released, fits with traditional financial reporting. In this early stage of market acceptance of QTBLA reporting, holding off on release dates enables leading edge firms to protect the competitive advantage of their efforts to address these risk factors.