Burgess COMMENTARY

Peter Burgess

Systems thinking and the triple context

It is important to understand the difference between the concept of the 'triple context', and the ‘triple bottom line’. The latter implies that there are some actions companies can take that have an impact upon economic sustainability, others that have an impact upon social sustainability and yet others that affect environmental sustainability. In practice, however, these categories overlap, interact and become inseparable.

As AT&T points out on its website the need for simplicity can lead people to confuse ideas with solutions. ‘The triple bottom line is an idea, a guide… not a plug and play sustainability solution in a box. Ideas can help you think about a complex world, but they can't do the thinking for you.

Aligning economic, environmental, and social interests sometimes presents few difficulties. For example, teleworking reduces pollution and greenhouse gas emissions, improves quality of life for erstwhile commuters and helps build a sense of community. Businesses get happier, more productive, more loyal employees, and need less office space. All the triple bottom line indicators are positive. But easy examples are the exception. It's hard to know what is best for ‘the environment’, because the environment is extraordinarily complex and diverse and seen from different perspectives by people from different cultures. This leads to social issues, where determining what is equitable and fair is often impossible to do to the satisfaction of all parties.

In many instances there are complex trade-offs between the three aspects of the triple bottom line. Consider the protection of old-growth rain forests. Companies could switch to paper made from nonwood fibre, and boycott wood and paper products from the region in question and thus gain a reputation for being ‘green’. Economically, the companies may be relatively unaffected, at least in the long term, and the easiest path is to avoid controversy by agreeing to the demands of pressure groups concerned with protecting the rain forests. Environmentally, the decisions are much more difficult, as there is significant evidence that manufacturing paper from nonwood fibre may well be worse - not better - for the environment. Socially, the decisions are even harder: boycotting an entire region may cause significant hardship…destroying jobs, disrupting communities, damaging families, and hurting individuals.

Zadek (The Civil Corporation, 2001) makes a similar point. ‘Social, environmental and economic gains and losses arising from particular business processes cannot simply be added up. We do not know, for example, whether an additional four weeks of employee training, minus a dozen or so trees, plus a ton of profit, add up to more or less sustainable development…In fact we do not and probably cannot know enough about the system to understand in this sense the relationship between the activities of one organization and the whole system.’

However, the important thing about any reporting process, financial or otherwise, is not what it tells you about past achievements, but what it conveys about future potential. Sustainability is clearly about the future and, looking ahead, the categories economic, social and environmental merge into each other.

What is needed, therefore, is not so much a triple bottom line that says, ‘Look at what we have done to contribute to society and to conserve the environment as well as create long term shareholder value.’ It is rather a report which says ‘These are the things we are doing now that will help ensure the sustainability of our company and that will, at the same time, contribute to the sustainability of the triple context in which we operate.

Also the use of the term bottom-line conjures up the image of tasks completed, lines being drawn, scores totalled up. Whereas the reporting process should ideally be a continuous one, looking forward as much as drawing up some kind of balance sheet representing past performance. As John Elkington (Cannibals with Forks, 1997) has pointed out ‘Systems thinking tells us that sustainability cannot be defined for a single corporation. Instead, it must be defined for a complete economic-social-ecological system, and not for its component parts.’ In the same way, the corporation itself is a complete economic-social-environmental system.

Another way of expressing the systems concept of the triple context is ‘the whole network of diverse causal relationships within which companies are embedded. ‘ The ability of companies to act and to be a force for good is constrained by that system. Customer habits and preferences, investor expectations, speculative behaviour, movements in commodity prices, and the actions of competitors are all components of a system which, as stated by the authors of Tomorrow’s Global Company, is unsustainable. This system creates huge pressures on the decision-making process.

Given this it is appropriate to quote the words of Emile Durkheim, the great French philosopher, writing in 1893:

“What history teaches us is that man does not change arbitrarily; he does not transform himself at will on hearing the voices of inspired prophets. The reason is that all change, in colliding with the inherited institutions of the past, is inevitably hard and laborious; consequently it only takes place in response to the demands of necessity. For change to be brought about it is not enough that it should be seen as desirable; it must be the product of changes within the whole network of diverse casual relationships which then determine the situation of man.’

Today, beyond any doubt, the necessity to change is widely accepted. Change, however, cannot be brought about simply by the isolated actions of companies trying to be a force for good. Nor does it result from advocacy, however persuasive. It calls for change in that ‘network of diverse causal relationships within which companies are enmeshed’. If companies’ efforts are to be fully effective they need to reach out and work to change the system, doing so in collaboration with governments, NGOs, and others.

Philip Sadler ... Senior Fellow

Triple Context

This area houses the Triple Context model - the view of business success that organises our thought leadership.

The world is undergoing a period of unprecedented change, characterised by a rising population, rapid economic growth, the spread of globalisation, pressure on the environment and continuing social, political and cultural divisions.

These changes represent challenges to the complex global system on which companies depend for their survival and success. This system involves three interdependent sub-systems - the natural environment, the social and political system and the global economy. The collapse of any one of these would result in the collapse of the others.

The Triple Context has three components, and a total of 11 sub-components

(1) The Global Economy

• The 'real' economy

• The 'financial' economy

• The 'casino' economy

(2) The Natural Environment

• Natural resources

• Sustainable development

• Health and wellbeing

• Environmental pressure

(3) The Social and Political System

• Human population

• Sustainable society

• Human resources

• Social enrichment and development

TrueValueMetrics (TVM) and the frame of 7D-Capitalism is somewhat similar to The Triple Context of Tomorrow's Company.

There are Three Main Components in the System with Seven Capitals which make up the global enviro-socio-economic system. These are:

(1) Nature and natural bounty;

(2) Man built structures and systems; and

(3) People

Within these three components of the system there are seven (7) capitals:

(1) Nature and natural bounty:

• ◦ Natural Capital (NC)

(2) Man built structures and systems:

• ◦ Physical Capital (PC)

• ◦ Institutional Capital (IC)

• ◦ Knowledge Capital (KC)

• ◦ Financial Capital (FC)

• ◦ Social Capital (SC)

(3) People

• ◦ Human Capital (HC)

In the TVM framework, within each of the 7 capitals, there are many elements.

The aim of the TVM initiative is to be able to quantify both state and flow for all of the elements in a way that makes it easy to summarize the state, progress and performance of anything and everything.

Another goal of the TVM initiative is that the metrics enable a single set of data to reflect the performance of an individual economic activity, and also multiple economic activities that make up the life of a place, a person, an organization or a product.

A characteristic of the TVM system is that cost, price and value is never correctly represented by one number, that nothing is linear but always some complex function.

All of this is a work in progress.