Sustainable Business Models: Getting Over Growth

Existing business models have to grow. It is a compulsion and it has a well known technical driver.

The technical compulsion for growth is embedded in the way we measure business success in terms of the return created for the investment made. This is well known: if you are lucky enough to have surplus cash and you put some of this money into a savings account then you expect to get more money out after a period of time. You expect your investment to grow.

For accountants in business, this growth is measured as the return or profit gained for the capital employed or invested. It is represented by the equation

                                          Profit before Tax
                                         Capital Employed.

It is the fundamental driver of business and economic growth. It is known as the Return On Capital Employed (ROCE). To get no return is not an option in business.

This kind of growth is a problem for its disciples appear to recognises no limits to growth; this is true even when society, nature and the planet suffers because of too much business growth. Because growth causes so many problems, degrowth is now being seriously proposed.

The Club for Degrowth as featured on The Worldwatch Website

The Club for Degrowth argues that degrowth is essential for over-developed countries such as the USA and the UK. But does this mean that businesses in such over-developed countries will stagnate or wither? No - not at all…. but we do need to reconceive what is actually happening.

For example, if we first reconsider the above ROCE equation, the “Profit before Tax” and put it into the context of the world that science now reveals. The world that science now reveals is complex with many inter-dependencies,  interactions and uncertainties. To encourage businesses to focus upon “Profit before Tax” in this complex world is like asking a tourist to navigate a rain-forest using a map of London.

The “Capital Employed” for any business is not just money invested. All businesses use functioning societies and environmental inputs and necessarily create their space in the planet’s eco-systems. This has always been the case, but for too long the formal information systems of businesses focused far too much upon money transactions alone and simply did not see the social and ecological relations upon which they depend.

In the complex, interactive, interdependent and uncertain world that we now know and experience, our businesses need to generate benefits according to more than one metric: they need to deliver a Triple Top Line (TTL) (McDonough and Braungart 2002) of social, environmental/ecological and economic gains. To achieve this goal, the ROCE equation needs to be recognised for what it really is, just one of the many tools now available to assess business performance in a Sustainability Balanced Scorecard (SBC).

The Sustainability Balanced Scorecard prepared from the ISIS (Cloverleaf) Concept
(ISD Book 2011, p. 297).

References
ISD Book. (2011). "Intrinsic Sustainable Development: epistemes, science  business and sustainability. Singapore: World Scientific Press.

McDonough, W. and Braungart, M. (2002). "Design for the Triple Top Line". Charlottesville, Virgnia: McDonough Braungart Design Chemistry. Available at <http://www.mcdonough.com/writings/design_for_triple.htm>. [Accessed December 2012].