The Triple Bottom Line—A New Business Model for the Orchestra

For some time, my wife has been talking about a business concept she has used with great success at her job—the triple bottom line.  I have to say, the more I’ve learned about it, the more impressed I’ve become… and since leaders at the Minnesota Orchestra have clearly indicated the need for a new business model, I’d like to suggest they take a closer look at this one.  Done right, this new strategy could benefit everyone and greatly strengthen the organization.  Some readers may not be familiar with the concept, so let me explain.

The triple bottom line (TBL) was first introduced by John Elkington back in 1994 as a way to look more holistically the true cost of doing business.  Elkington’s idea was that businesses have tended to focus exclusively on the profit and loss sheet, which has unduly narrowed their thinking and kept them so focused on short-term gains that they were crippling long-term success.

Elkington proposed a new way of thinking that measured three indicators to advance the goal of sustainability in business practices. The three measures are: profit (the economic value created by the company, or the economic benefit to the surrounding community and society), people (the fair and favorable business practices regarding labor and the community in which the company conducts its business) and planet (the use of sustainable environmental practices and the reduction of environment impact).  The “3Ps” became the cornerstone of his argument. (The Economist has good intro to the concept here.)

Shortly thereafter, Andrew Savitz and Karl Weber came out with a book, The Triple Bottom Line, that expanded Elkington’s idea by representing the three “bottom lines” as intersecting circles. The areas of intersection are termed “sweet spots,” meaning synergetic opportunities. For example, when power efficiency is improved, profits are improved due to lower power cost, while the environment benefits through reduced carbon dioxide emissions. So, improvements in the planet and people “bottom lines” are not necessarily at the expense of the profit “bottom line”.

triple-bottom-line1

There are two primary features of the TBL.  First, the emphasis is on broad-based sustainability, which forces a business to look beyond a quarterly report and to think of the real-world costs of doing business over a much longer period of time.

Second, it is predicated on the idea that what you measure is what you get, because what you measure is what you are likely to pay attention to.

This new balanced scorecard approach has been adopted by many businesses, including FedEx-Kinkos, Nike and Tesco; it has also been adopted by non-profits and governments across the country.

Let’s look at the 3Ps more closely.  Most companies instinctively understand the idea of profits.  But the Profit bottom line is more than that.  Profit is seen in terms of total value, with all input costs deducted, including tied-up capital; it also factors in risk management, capital efficiency, margin improvement, growth enhancement and return on investment. Further, profit in this case is seen as what economically benefits not just the individual company, but the society at large.

The second pillar is the People bottom line, which examines labor, the community and the region in which a corporation does business. In this mode of thinking, all workers are seen as company’s asset, but so are the community members at large; therefore, in addition to keeping its own labor force engaged, healthy, happy and productive, the business ensures its policies do the same for the entire community.  This makes it easier to recruit workers, cultivate customers, encourage advocates, forge greater bonds with vendors/suppliers, build networks and improve the workers’ quality of life when they are outside the office.  Businesses that incorporate this bottom line into their business plans seek to increase benefits for all stakeholders in an equitable way, without prioritizing one group (i.e. upper management) or marginalizing another.

Planet is the bottom concerned with environmentally sustainable business practices, achieved by maximizing benefits while minimizing detriments. This can range from electronics recycling to business plans that discourage the use of dangerous chemicals or destructive practices. Triple bottom line companies look at the entire life cycle of their actions and try to determine the true cost of what they’re doing in regards to the environment. They take pains to reduce their energy usage, dispose of any toxic waste in a safe way, try to use renewable energy sources and avoid producing products that are unsafe or unhealthy for people and the planet (no… another production of The Nutcracker around the holidays does not qualify as unsafe or unhealthy, regardless of what you may think).

An ethic of corporate social responsibility is a powerful reason to develop a new business plan focused on the triple bottom line.  It’s not, however, the only one. Many studies, including this one by MIT  show how corporate sustainability leads to greater profits.  But there is more.  The TBL has been shown to improve employee retention and employee engagement.  Interestingly, it’s also clear that more engaged employees create a more effective culture of social responsibility; thus, there is a feedback loop between the right employees and the right corporate culture that benefits everyone.

The Orchestra would benefit greatly from the adoption of the triple bottom line as a guiding force.  I leave it to more informed minds to discuss how the Planet bottom line would work in practice (I assume the Orchestra hasn’t made it a habit of dumping mercury into the pond on Peavey Plaza), but let me speak to the other two areas.

In terms of profit, I recognize that the Great Recession has been hard on the Orchestra, with all its revenue streams getting clobbered at once.  But rather than to simply cut $5 million from the musicians’ salaries, look at the whole picture over time.  Consider that the musicians are not just personnel; they are also your product.  What would happen if another company made a similar divestment, like a taxi company instantaneously eliminating 20% of its fleet of cabs?  When you consider the long-range, you have to take into account that such cuts could seriously hamper the quality of your product, which over time could lead to serious declines in ticket sales.  Will you, then, have to spend greater and greater sums of money on marketing to attract audiences while simultaneously dropping ticket prices? Will a loss of quality make it similarly difficult to fundraise, as donor apathy sets in?  Will such steep cuts also make recruitment and retention proportionately more difficult, and therefore more costly?  For example, you’ve also stated that each year you tend to lose three musicians to attrition.  What happens if that rate doubles, and stays at a higher rate for several years as disgruntled musicians leave?  Also consider that the people leaving will most likely be your brightest stars, because they’ll have the most options.  Will this compound the problem?  Auditions are a lengthy, costly process—what kind of a drag will this be on productivity?

Factoring the people side of the equation, the current trajectory is grim as well.  Without assigning blame, it must be clear that this dispute has created an angry, divided workplace for everyone.  This can have all kinds of ramifications.  At this point, I suspect even innocuous requests made to the musicians will fall on deaf ears—they probably have no interest in doing any sort of helpful outreach, offering advice, or entering into discussions unless they are contractually obligated to do so.  This is a huge loss of wisdom, institutional knowledge, fresh perspectives and talent.  And it is particularly alarming for an organization that requires communal precision—on and off the stage—to survive.  Again, how will this impact productivity and product quality?

But this will have other implications, too.  I’ve argued here  that personal connections are critical to an organization’s success, and the musicians are your best ambassadors to the broader community.  These connections are critical because the outside community is the key to most of your sources of revenue.  Besides the endowment, which is clearly outside your hands, your business depends on community members buying tickets and contributing money.  Community support leads to government and corporate contributions as well.

I’ll say this too—when you look at the broad picture, you have a duty to build an appetite for classical music as an art form, too.  And I don’t mean this in a floofy, artsy-fartsy kind of way, but as a real business obligation.  I cringe at those who call classical music a dying art form, but I also recognize that classical music’s market and audience share is limited.  It has to be grown for your long-term survival as an organization; no business can survive without R&D, and this is your version of it.  With long-term sustainability as your mantra, you have to engage in school concerts, educational programs and community outreach as a long-term business investment.  This will obviously build your audience base, but it will also help create a pool of potential musicians, staff members and donors as well.  How many members of your board of directors are there because they had experience with hearing a great concert live? Or playing an instrument, no matter how briefly?

The Minnesota Orchestra has stated repeatedly that it needs a new business model to survive.  In that spirit, I urge you to take a long look at the triple bottom line as a way to more holistically measure success.  It’s a change in mentality, but it is critical to look beyond short-term profits—you must include people, the planet, and profits as part of your model.  It is not enough to recognize these things as being important; you must assign them real-world values, and monitor how you deliver them with an eye to long-term sustainability.

Because—in case I haven’t made myself clear—I really do want you to be here for the long-term.

Xochipilli

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One thought on “The Triple Bottom Line—A New Business Model for the Orchestra

  1. Pingback: Creative Solutions | Mask of the Flower Prince

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