Why sufficiency economy is good for businesses
Dr.Pipat Yodprudtikan, director of the Thaipat Institute, a non-profit organisation currently working with a dozen Thai and multinational enterprises to promote the sufficiency-economy philosophy (SEP), told me the other day that SEP had three key components: moderation, reason and resilience.
These components are supposed to work under two conditions: knowledge and integrity. Overall, the SEP promises to empower people, preserve the planet and enable profit. From philosophy to business action, the SEP is, first of all, supposed to redefine business profit as an "economic" profit, which takes into account the opportunity cost of capital, rather than being an "accounting" profit, which doesn't consider such an opportunity as a cost.
So if you maximise the accounting profit you may lose the economic profit and vice versa.
According to the SEP, the cost of capital in business is not only the financial cost but also the human, social and environmental cost. Citing the economic-value-added (EVA) framework for managing profit as a sample business tool, Pipat said the EVA profit line, which covers only internal stakeholders such as company shareholders and employees, could be further extended when SEP was adopted.
This is because the SEP profit coverage includes both internal and external stakeholders (people) as well as the environment (the planet).
As for managing capital - financial, social, human and environmental - existing business practices include corporate governance (CG), knowledge management (KM) and corporate social responsibility (CSR). In terms of coverage, CG covers only internal stakeholders, while CSR covers external stakeholders and the environment, but SEP covers both CG and CSR.
In terms of goals and function, the SEP's advanced level aims at business growth and sustainability, while the functions include CG, CSR, clusters, supply chain, customer relationships and management. The SEP's advanced level also emphasises cooperation and collaboration, meaning that business operators are both independent and inter-dependent.
A UNDP model for SEP business tools is as follows:
Stage 1: Identify the relevant stakeholders. At the start-up stage this may include only internal stakeholders such as employees, executives and shareholders.
At a later stage of business growth this may include external stakeholders such as customers, partners, suppliers, communities and society as a whole. Then against each set of stakeholders define strategic objectives consistent with the principles of the SEP.
Stage 2: Devise means to measure progress against each of these objectives.
Stage 3: Weigh the importance of each of the stakeholders, both internal and external, based on the management's own judgement.
Stage 4: Calculate an SE alignment index.
Pipat believes that the SEP is neither anti-globalisation nor anti-profit-maximisation, as feared by some Western observers. Instead, the SEP is helpful for businesses adapting changes resulting from globalisation because it minimises the downside risk while increasing the upside potential.
The SEP also helps businesses optimise their profit-making capability so that growth is more sustainable and risk is further reduced.
After all, elements of the SEP, when translated into business action, are not new, since enterprises have been using modern management practices such as EVA, Balanced Scorecard, key performance indicator and scenario-planning for years.
It is just that the SEP views the application of these practices in a more integrated and holistic manner.
Pipat presented his views at a seminar here last Friday on "Sufficiency Economy: A Path to Sustainable Development" held by CNBC.