Business 101b

Turning one's thinking around isn't really as difficult as most would make it out to be. You simply need to take a step back, move slightly to the side, and then take a new look at the old idea. Failing that, sometimes a gentle nudge from without can help. Let's see:

Peter Drucker, the grandfather of American business theory, maintained that the purpose of a business (organization) is to satisfy needs in markets. I know that last word is a red flag for some, but let's keep it simple: by market I mean any "place" (real or virtual) where value is exchanged. This can be a swap meet, a flea market, an online bartering site or a commercial or industrial trade sector, or more.

In a world as complex as ours is today, this definition of purpose easily accommodates both for-profit and not-for-profit organizations. If there is a need for, say, computers and you have a business than makes them, then you are satisfying that need. If there is a need for charitable assistance for homeless people, then if you organize to do that, you are satisfying that need. If there is a need for government oversight in some area of the economy, then that agency, by performing its function, satisfies a need. Now that everyone is accounted for, we can move on to more meaningful topics like strategy, operational efficiency, environmental effectiveness or anything else that might help us get more out of what we do ... and by "more", I certainly don't mean just money.

Profit is money, so if the primary purpose of business is profit maximization, then you are trying to maximize your money. It follows, however, that if this is your first purpose, any other purpose you have can be, at best, second or lower. And it is here that too many businesses become disingenuous and start losing credibility in many people's eyes ... and rightfully so. You can claim that "product quality" or "customer satisfaction" or "the health of the patient" is paramount, but if you believe the mantra, you are not telling the truth. Profit maximization means nothing less than money first, and everything else comes after that. The order in which they come is really not all that important, for what's important is money. Naturally this does not and cannot work for not-for-profit organizations, but over the long-term it's not good for for-profit businesses either. At some point the customer starts asking him or herself what their getting for their money. Theirs is less; the businesses is more.

I would be the last person to maintain that money isn't important. Just because it isn't the absolute top priority doesn't mean it has no priority at all or that we shouldn't care about it. Quite the contrary. It is essential for businesses to strive for sustainability, to ensure their long-term existence, not just for their owners, but for the employees, their families, the community and any other stakeholder in the business. In order to do this, it is absolutely necessary to take in more than you spend. This is just commonsense housekeeping. Making profit the measure of success, though, defeats this purpose because the needs that should be satsified by organizations become relegated to second-class status, then ignored, then forgotten.

We need a new measure of success, but we won't be able to find one till we are ready to give up on ideas that have proved themselves wrong. Profit-maximization is one of them. It's time to give another idea a chance.