Profit and ROCE are lagging indicators — they tell you what happened, not why or what's coming
A firm can look profitable short-term while destroying long-term value: cutting R&D, burning out staff, damaging brand
Goodhart's Law: when a measure becomes a target, it ceases to be a good measure
Two frameworks address this: Balanced Scorecard (Kaplan & Norton) and Triple Bottom Line (Elkington)
Balanced Scorecard: 4 perspectives that give a complete view of business performance
Triple Bottom Line: People, Planet, Profit — measuring social and environmental impact
How to evaluate both in AQA 25-mark essay questions
How do we look to shareholders?
How do customers see us?
What must we excel at?
Can we sustain improvement?
Learning & Growth → builds capability for better Internal Processes
Better Internal Processes → delivers better Customer outcomes
Better Customer outcomes → drives Financial results
It's a causal chain — leading indicators (L&G, Processes) predict lagging indicators (Financial)
For each perspective: set a strategic objective, choose a KPI (measurable), set a target, define an initiative
Example (Customer perspective): Objective — improve loyalty; KPI — Net Promoter Score; Target — NPS 60+; Initiative — launch customer feedback programme
All four sets of KPIs must be aligned to the overall corporate strategy
Prevents short-termism — forces attention on future performance drivers, not just this quarter's profit
Communicates strategy in actionable metrics — everyone knows what success looks like
Widely adopted — over 50% of Fortune 500 companies have used it
Complex to implement — selecting the right KPIs for each perspective is difficult and contested
Data collection burden — gathering customer and process metrics requires significant investment
Risk of metric proliferation — too many KPIs creates confusion, not clarity
Rigid framework — doesn't handle disruption or rapid environmental change well
The model doesn't tell you how much weight to give each perspective
A firm under shareholder pressure may still prioritise Financial at the expense of Learning & Growth
The framework requires genuine senior commitment — otherwise it becomes a box-ticking exercise
"The BSC is valuable in redirecting management attention from short-term financial results to future performance drivers, but its effectiveness depends on careful KPI selection and organisational buy-in."
Economic value created — traditional financial performance
Social impact — employees, communities, supply chain workers
Environmental impact — carbon, waste, water, biodiversity
John Elkington argued that businesses must account for ALL three bottom lines — not just financial profit
Where all three overlap = sustainable business (the "sweet spot")
Employee wellbeing scores, living wage compliance, diversity metrics, supply chain labour audits
Community investment: job creation in deprived areas, local sourcing, charitable giving
Gender pay gap reporting (mandatory for UK firms with 250+ employees)
Scope 1 emissions (direct), Scope 2 (electricity), Scope 3 (supply chain) — carbon accounting
Waste sent to landfill, water consumption, packaging recyclability
Net zero commitments — FTSE 100 firms now required to report on climate risk (TCFD framework)
Unilever: Sustainable Living Plan — reduced environmental footprint while doubling revenue (2010-2020)
Patagonia: TBL as genuine strategy — environmental mission drives brand loyalty
Critics: many firms use TBL reporting for greenwashing, not genuine transformation
Focus: BSC focuses on internal business performance; TBL focuses on external societal impact
Audience: BSC primarily for management; TBL for investors, regulators, society
Purpose: BSC = strategic execution tool; TBL = accountability framework
Overlap: Both reject pure financial metrics as sufficient; both require qualitative judgement
Hard to quantify in £ terms — how do you value a reduction in CO₂ or an improvement in community wellbeing?
No standardised measurement method — makes comparisons across firms difficult
Open to manipulation — firms choose which metrics to report and how to present them
Elkington himself "recalled" TBL in 2018, arguing it was being used as a PR tool rather than genuine transformation
ESG investing: £30+ trillion now managed with ESG criteria globally — TBL performance affects access to capital
Regulatory pressure: UK mandatory climate risk disclosure (2022); EU Corporate Sustainability Reporting Directive (CSRD)
Consumer expectations: 66% of consumers will pay more for sustainable products (Nielsen)
Talent: top graduates increasingly choose employers based on values alignment
Short run: investment in People and Planet often costs more than it saves
Long run: lower regulatory risk, better talent attraction, premium pricing, brand loyalty
BUT: causality is unclear — do ethical firms outperform because they're ethical, or because they're just well-managed?
A firm's Balanced Scorecard shows improving financial results but declining scores on employee satisfaction (Learning & Growth perspective). According to Kaplan and Norton's logic, what is the MOST likely long-term consequence?
Elkington's Triple Bottom Line framework suggests businesses should be assessed on three dimensions. Which combination CORRECTLY identifies them?
Which of the following is the STRONGEST argument against the Triple Bottom Line as a performance measurement tool?
Don't just describe the BSC or TBL — apply them to the specific business in the question
"Applying the BSC, [firm's] strong financial performance masks worrying declines in its Learning & Growth perspective — staff turnover rose 40%, suggesting future process quality will suffer"
Evaluate: "While the TBL provides a more holistic view, its lack of standardised metrics means [firm's] sustainability claims cannot be independently verified — raising questions of greenwashing"
Kaplan & Norton (1992) — Balanced Scorecard
Elkington (1994) — Triple Bottom Line / "People Planet Profit"
Friedman (1970) — shareholder primacy counterargument
Freeman (1984) — stakeholder theory (supports TBL rationale)