The meaning of — our Business — Life-#2 What is the cause
What is really the final cause (purpose) of business?
As an example — for an acorn it is to grow up to eventually become an oak tree — but can we find the cause or the metaphor for the business?
The corporate objective are often described as turning a profit from providing some kind of product or service. However this would not explain “Why” we are in business — which we define as the cause.
Milton Friedman argued that a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself and for its shareholders.
As such, the goal of the firm is to maximize profits and return a portion of those profits to shareholders as a reward for the risk they took in investing in the firm
So according to Friedman — to make profit is the most socially responsible role of the business and no purpose whatsoever could overshadow this. This however will not help you in creating a culture within the company, building trust and making your co-workers motivated to follow you as a leader.
If we try to take a step back and establish a more philosophical standpoint when it comes to business we can elaborate on Friedmans ideas and the cause of the Business, by using the approach taken in the book “Philosophy of Business”, by Roberto Lazaro Ph. D.
In that book we can find the description of 3 dimensions of business
1 - As a fundamental social process
Business is a natural consequence of the need of completion among men — and women — in society
It’s natural objective is to fill in the gaps between the needs and what are needed
2 - As an Industry Function
It is an immediate objective of a business to provide a venue for Business Industries to operate
3 - As a Corporate Activity
In it’s role as a company — to provide the company’s core services as it’s immediate objective
In it’s role as a businessman — to provide an personal service as it’s immediate objective by utilizing the company’s core services to create or generate customer satisfaction which is his intermediate end, in order to earn profit which is his ultimate end.
So on the corporate level of business
- The company’s business activity produces or provides the Service (or the Product if you wish — but we will use the Service term)
- The businessman utilizes the business activity as the means (intermediate end) to earn his Profit
This means that among the objectives (or ends) for business there are two that really stands out
- Intermediate objective — Service
- Ultimate objective — Profit
The profit made can roughly be looked upon from two perspectives
- Profit out of greed AND
- Profit out of need
The greed perspective can work for a company in the short term, or if you sell a commodity and can treat your staff in the same way, or in that rare occasion that everyone in the company is agreeing on that profit is all that matters — period. But in all honesty for 99% of the companies it does not work that well in the long run.
When we then look on the relationship between Service and Profit, we find it is one of alternating cause and effect in a circular motion or in some kind of spiral progression.
- Business provides service to generate profit
- Business makes profit by providing service
This means that in terms of Operation — Service is the Objective (COMPANY)
But in terms of Motivation — Profit is the Objective (BUSINESSMAN)
So the ultimate objective of a company is enhancing quality of life and society by providing it’s services even though profit is the ultimate objective of the businessman.
This of cause often falls short as we look to shareholder value and short term profitability.
As we discussed in the previous post — “#1 — The Infinite Game” , this all becomes a problem as we provide arbitrary rules and KPI:s and look at the process (game) as a finite one instead of an infinite one. How much profit is enough? Why is a random figure of last years profit + X% needed / budgeted for? Are we in the greed or the need zone?
And given that we so often find ourselves in the hand of a Friedmanesque look upon this — the ultimate objective of the businessman (Profit) becomes the overarching one, and the Service and all that lies beneath acts as a subordinate one. This in conjunction with playing a finite game does not provide the best operating model to have a purpose OR to achieve an on-going innovation journey.
Given this as a background for how we operate today's business it is no wonder that -
there are very few leaders, products, or companies that create movements. Very few leaders that inspire loyalty, and not just a single transaction. Very few leaders that motivate their followers and employees to stick with them through thick or thin.
Simon Sinek talks about this when discussing the idea of “starting with WHY”. “Why” are we in Business? The “Why” as a reason for being.
Let us stop there for a second.
Can we achieve a sense of purpose and earn true employee and customer loyalty when the overarching objective of the businessman is an Ultimate objective? When Profit is the ultimate objective also in the long term?
Of course the answer to that question is a -Hell- No(!) — unless the company is delivering a commodity where the customer does not look for service or innovation and you can treat your personnel like a commodity as well.
Profit is an extremely important objective and a motivation for the businessman — BUT if this objective shadows the service and ultimately the purpose of the company, there is no way that the company will be able to change when being disrupted or challenged by a new service / operating model that addresses the need of the customer/society in a better way.
Leaders of great companies must find ways to bridge the shareholder expectancies for the short term, the customer needs for the long term and also truly address the personnel’s motivation and well being to be better equipped for the long-haul. Especially the millennial workforce will not find motivation in the profit objective solely.
To build a movement or at the very least create loyalty within, we have to express the cause / purpose of the company by looking at the operative objective and formulate something that can be felt in the culture, expressed by the leaders and carried out throughout the company as if life itself depended on it.
So what are the models to be able to make this happen? And how does the holy grail of innovation fit in?
Let us discuss this more in the next article “#3 — Profit and the Innovation Culture”
