Every organisation, no matter how they may describe themselves, are ‘for-profit’ organisations, including those that presently describe themselves as not-for-profit or for-purpose. This is because every organisation requires a surplus (profit) that will enable them to grow and sustain itself. Without this outcome, they will falter and be unable to meet the needs of the community that they serve. But some organisations push the boundaries of profit to one of greed, which profoundly impacts themselves and the community.
Active Knowledge Question:
Is the goal of your organisation to maximise the profit it earns year after year?
TODAY, TOMORROW AND THE DAYS AFTER
Making a surplus (profit), not spending more than you make over a period, whether in the short or medium term, is necessary for every organisation. Most carry some form of reserve or capital base, permitting a period in which deficits (losses) may be incurred but cannot be sustained indefinitely.
New ventures and start-ups often attract a capital base that they use to fund initial losses in their formative years. In some instances, these losses continue for many years as they draw down on that capital, continue to invest in growth, and seek to bring themselves to a surplus. But no matter who they may be, this grace period does not last forever.
The context that leadership places around profit is important to the enduring success of an organisation. Unfortunately, many organisations unintentionally tie themselves in a knot by either allowing greed to become the benchmark for their existence or, at the other extreme, describing themselves as a not-for-profit, allowing inefficiency to become the norm.
Sustainable and Competitive
Peter Drucker, considered by many to be the founder of modern business management, is clear in his beliefs about the role and function of profit. Profit is not the reason for a business’s existence nor the sole measure of its performance.
Classic economic theory, on the other hand, which underpins much of today’s business thinking, sets the foundations of profit being seen as the reward for the risk taker, supply-demand drives pricing, and profit maximisation is the goal of business leadership. Profit being what is left after deducting costs from revenue.
In today’s market, where rising inflation is leading central banks to lift interest rates to drive down consumer demand in the belief that it will eventually force price reductions and, therefore, inflation, the inappropriateness of classic economic theory is most evident. Today’s inflation (price increases) was not seeded nor driven by consumer demand but rather by profit maximisation by sectors of the economy (think energy and finance). Again, evidenced by the record profits being reported by companies in these sectors. Economic theory celebrates that these companies are taking the opportunity of global uncertainty to extract additional profits from the marketplace.
Back to Drucker, he would respond by saying that such an approach seeks to support the proposition that greed, the pursuit of profit maximisation, is an inherent human trait that cannot be contained or denied. Profit is a reality for every organisation, no matter how they may define themselves or their purpose. However, the role of that profit is not to fulfil insatiable greed but rather to invest in the organisation’s future sustainability by meeting future customer needs. But what about the shareholders? Well, their capital invested should and must attract an appropriate return, but not be used as the reason to profiteer.
A final point is that in a competitive marketplace, the setting of profit as the purpose for an organisation’s existence will only cap the performance of that business and result in less profit than otherwise might be earned. Motive is pervasive in its impact on performance. The right motive magnifies and compounds competitive strength, whereas the wrong motive disperses and neutralises it.
Symbiotic Relationship
There exists between businesses and the communities in which they work a natural symbiotic relationship. A relationship that, if understood and nurtured, will strengthen a community and significantly improve a business’s performance and capital value. Regretfully, most business leaders do not understand the true nature of this relationship.
A well-run and managed business provides fulfilling employment to the community in which it exists. That community – being well remunerated and provided with vocations that meet their needs as humans – can support those businesses to grow and become more successful. Not just by buying their goods and services but by applying their combined talents and efforts to maximum effect in making that business competitive.
Introduce profit-first as a motive, and then wages are seen as a cost to be reduced, self-interest, short-termism, and politics are suddenly prime, and the connection between the business and the community is broken. The business seeks to maximise its profit for its shareholders, and the community is only a potential source of workers and customers in the pursuit of profit. The community sees the business’s agenda and responds in kind.
Many business leaders would see that the health, welfare, happiness and wellbeing of a local community is principally the responsibility of others, including the government, to which they pay taxes. Still, there is a much more complex relationship between businesses and communities.
Of course, it is not simply the responsibility of businesses to support communities, but of communities to support their businesses.
Imagine the difference between a happy, healthy and contented community and one which is angry, divided and frustrated. Which would you prefer to be connected with?
Strategically, a symbiotic relationship does exist and should be a cornerstone of the long-term success of any business. However, a profit-first motive by businesses, and the acceptance of wealth as a key metric of personal success, undermines the integrity and importance of this relationship.
Not For Greed
The questions to ask yourself as an organisational leader are:
- Do we seek to profiteer from the community by making profit our most important metric?
- Do we reward our team in a manner that makes profit the motive in all we do?
- Are our stakeholders, suppliers and partners motivated principally by profit?
- Are we comfortable in allowing profit to be the defining attribute of our brand?
- Do we shout out that we are for community wellbeing, a sustainable planet and a just world, but is that merely a marketing strategy and a means to more profit?
- Can l align the purpose and motive in our business with my values and principles as a person?
Businesses live and thrive in communities that support them. Therefore, as a core purpose and activity, businesses must engage, nurture and invest in their communities. Not at a superficial level but recognising that they exist through this relationship. A relationship not to be taken for granted nor seen merely as a means to more profit. Grow and strengthen this symbiotic relationship, grow the well-being of the community, and the business will be rewarded more than they ever thought possible.
Is your business for greed or for investing in the future of our communities?
An entirely new level of performance.
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All the best in the success of your business,
Richard Shrapnel
