Competitive advantage and the triple bottom line

One of the most remarkable motion pictures ever made by Walt Disney was ‘The African Lion’. One sequence shows a cheetah accelerating from a walk to a sixty mile per hour sprint whilst chasing a nimble member of the deer family. The cat is so intent on the one animal he has selected as his prey that he actually passes other deer that are frenziedly running in all directions. One of them even runs alongside the cheetah for a while, not realising in his abject terror that the pursuer is his running companion. One swipe from the predator’s paw would bring down the nearby prey, but the hunter runs on, eyes fixed on the animal directly ahead. And he catches him, eventually.

The lesson to be learnt from this, author Edwin Feldman once encapsulated precisely: ”We must be so intent on attaining our goals as to be able to ignore distractions – but not to the extent of missing better opportunities”. (Feldman, 1982).

This analogy can quite easily be drawn to modern business trying to compete within today’s environment. World renowned investor Warren Buffet was once asked what is the most important thing he looks for when evaluating a company, without hesitation he replied, ‘Sustainable competitive advantage’.

So what is Triple Bottom Line reporting?. The term Triple Bottom Line (TBL) was coined by John Elkington, Chairman of Sustainability Corporation, and is described as the “Integrative measurement of a companies economic, environmental and social performance”.

Triple Bottom Line Reporting (TBLR) means taking responsibility for the social, environmental and economic impacts of the company endeavors and reporting them in an open and transparent way. TBLR can be seen as the synthesis of traditional financial reporting and two new concepts: Corporate environmental reporting and Social responsibility reporting. Corporate social responsibility refers to how companies act towards their workforce and their families, local communities as well as society at large, it entails the establishment of sound ethics and core values in its relationship with stakeholders.

TBLR is not an end in itself, it is a tool. TBLR is one of the tools that can be used to help develop competitive advantage become more sustainable through integration of economic, environmental and social aspects of decision making, ie External reporting that gives consideration to financial outcomes, environmental quality and social equity.

Two important conditions need to be satisfied for TBLR to become a worthwhile practice. First, it must be based on solid information. The required information can be generated through the use of environmental management systems (EMS) and updated accounting practices. Secondly, TBLR will only be a meaningful exercise as long as there is a genuine commitment by companies. TBLR needs to be perceived as good business practice today, as well as contributing to more distant goals.

TBLR serves two main objectives. Firstly, it is a means of promoting integrated decision making within the business. Secondly, it is a vehicle for companies to promote accountability of their activities towards a wide group of stakeholders and thereby respond to societies growing expectations of transparency.

What is competitive advantage?, well currently there are a number of theories relating to competitive advantage which dominate traditional strategic thinking. These include the resource based view, core competence, competitive positioning, competitive advantage of nations, competing for the future, and more recently strategic leadership and organisational learning and corporate knowledge management. These can be categorised into planned versus emergent and competitive positioning versus core competence strategies.

In the context of today’s world a more appropriate framework would be best seen as a synergy of these traditional frameworks integrated together. Sustainability of a companies competitive advantage lies in its ability to adapt quickly to meet the changing marketplace expectations and 'norms' in which it operates. This requires an emergent approach to strategy development, whilst utilising components of the planned approach, the key being flexibility.

Sources of competitive advantage have always shifted over time, but some are becoming more important, such as the importance of workforce, people, knowledge and transparency. Many of the traditional sustainable competitive advantages have over time proven not to be or have lost importance and benefit. Recognising that the basis for competitive advantage changes is essential in developing a revised different framework for reference into the future. Strategies have to be developed to cope with an age of change and must be increasingly flexible and outward looking to embrace the wider context and issues of our highly dynamic global environment.

The study of competitive advantage has evolved significantly since the concept was first proposed in the early eighties, when Day suggested types of strategies to help ‘sustain the competitive advantage’. ‘Sustainable’ is the kind of advantage which can not be easily copied. It is an advantage which is long term and which can not be easily eroded by the activities of competitors.

Porter brought about the Competitive Positioning or ‘outside in’ approach to strategy in the mid 1980’s. He believes that the nature and degree of competition in an industry hinges on five forces and argues that these forces of the underlying economic structure for an industry or economy will determine its profitability and as a consequence, the degree of competitiveness.
The Resource/Core Competency based strategy or ‘inside out’ approach to strategy became popular from Prahalad and Hamel in the 1990’s, emphasising the importance of business specific competencies in gaining competitive advantage. They believe that whilst the traditional planning focus is on the present, the here and now, fitting current competence and resources to market conditions. Unless traditional strategic planning approaches are continually reviewed and refined, a company is unlikely to gain long term benefits.

The resource-based framework asserts that competitive advantage is a function of strategic resources and is sustainable to the extent that the resources on which it is based are valuable, scarce and difficult to imitate. The resource based framework view of the firm also implies that the greater the intangibility of its resources, the greater the sustainability of its competitive advantages drawn from these resources. Whilst valuable, this framework leaves much to be desired, given that as argued by Smith, Vasuadevan and Tanniru (1993), the model is limited by its static view of the impact and interaction of resources, and its failure to consider learning, knowledge and people as a strategic resource.

Traditional sources of success, product and process technology, protected or regulated market’s, access to financial resources and economies of scale used by these frameworks can still provide competitive advantage and leverage, but in some cases to a lesser degree than in the past in the context of our global environment.

It can be concluded from my reading that competitive advantage in the global marketplace is difficult to sustain for good corporate citizens regardless of the framework employed, however it is very worthwhile remembering that true competitive advantage and hence a sustainable position, only exists in the mind of consumers, who believe the value they will receive is greater than the price they will pay for a product or service. Ultimately consumers determine whom and which company holds the greatest amount of competitive advantage. Without this mindset, and hence the consumers willingness to purchase your product or service, the best strategies in the world mean nothing.

The changing demands of society on the business world require a dialogue between society and business about what is desirable and what is possible in the short and long term, which is where TBLR comes into play.

Potential benefits that companies can derive from the TBLR can be classified as follows:
1. Disclosure drives performance.
2. Improved market positioning (Vis-à-vis).
3. Better stakeholder relationship.
4. Has the potential to yield significant benefits to reporting companies.
5. Other benefits can accrue beyond the organisations practicing TBLR.
6. TBLR implementation costs are small compared to the cost of the management systems needs to collect the information.
7. TBLR only makes sense if underpinned by solid information.

TBLR is a very young field of activity that is likely to continue to develop and change. Australia launched a voluntary system for “public environmental reporting” in April 2000 and Environmental Australia developed and published a framework which is in the process of being adopted as standard.

In conclusion, it is and will continue to be competitive advantage, not regulatory pressure, which is now forcing a move towards sustainability in business practices and corporate stewardship, TBLR. The old style of management - reaction to immediate crises without concern for long term costs and consequences - is giving way to managing the economy and the environment "not as concurrent or complimentary priorities, but as integral parts of a whole" (David Anderson, Canadian Minister of the Environment). The measure of the depth of this change in consciousness is TBLR, accounting for economic, environmental and social considerations in corporate performance.