Wednesday, February 24, 2010

Purpose of business

Why does business exist? For many the answer is obvious: to make money or, let us say, profit. But this is not a definition that is operationally useful, quite apart from the fact that it's not seen as palatable. If you say profit, is it in the short-run or the long-run? And how much profit? 'Maximisation' of profit is again not operationally useful because businesses are all the time doing that may not maximise profit in any meaningful time horizon.

If we accept that in a competitive market, business cannot make super-normal profit, then business can only make profit that is equal to its cost of capital. That is why Drucker did not accept the idea of business existing to make profit. He defined the purpose of business as: to create a customer. Only this, he argued, is operationally defensible.

FT columnist, Michael Skapinker, introduces a slight wrinkle to Drucker's definition. He says businesses, no less than people, crave for respect. He says that is what banks lost in the present crisis although here he confuses respect with trust. He says businesses exist in order to make profit and serve customers by doing things they can be proud of. Here again, I sense some confusion. Pride, respect, trust are the means to profit and customers. Are they ends in themselves? Perhaps they ought to be. You can bring out your best in people when there is pride in what they are doing.

So, here is a plausible, alternative definition of business purpose: creating customers and making profit so that people who do these things have a sense of pride and well-being. In this definition, you place the employee at the centre of things, not the customer or the shareholder. But this can only be a start. How do we tackle the measurement issues?

39 comments:

Raghu said...

Dear Professor,

Intriguing question; and I can only hazard some guesses. I would say, Businesses too tend to go up the famed Maslow's hierarchy. Initially existing to break-even, then to make a nice profit and then finally to find a meaning for its existence itself.

Man's search for a meaning could then be reflected in business too, perhaps?

Raghunath R
PGPX-IV@IIMA

K.R.Srivarahan said...

How about 'creation of value-added utility'? This definition would stress the importance of employees through 'creation', of customers through 'utility' and of shareholders who get compensated from 'value-addition'.

Pankaj said...

Dear Sir,

Business is all about 'Adding Value to the Stakeholders'.
These stakeholders encompass customers,shareholders and employees for a given company/organization.We can't neglect one of them.
In the long term,it needs to focus on society in general for the 'common good'.

Regards
Pankaj

Anonymous said...

Great website, looks very clean and organized. Keep up the good work! antibacterial Read a useful article about tramadol tramadol

Anonymous said...

I'm impressed, I have to admit. Seldom do I encounter a blog that's both educative and interesting, and let me tell you, you have hit the nail
on the head. The problem is something not enough men
and women are speaking intelligently about. Now i'm very happy I stumbled across this in my hunt for something concerning this.

Check out my blog Logo golf balls

Anonymous said...

Attractive section of content. I just stumbled upon your blog
and in accession capital to assert that I acquire actually enjoyed account your blog posts.
Anyway I'll be subscribing to your augment and even I achievement you access consistently fast.

Here is my site: Sushi Orlando

Anonymous said...

I'm amazed, I must say. Rarely do I come across a blog that's equally educative and interesting, and
without a doubt, you've hit the nail on the head. The issue is something too few people are speaking intelligently about. I'm very
happy that I found this in my hunt for something relating to this.



Feel free to surf to my blog post: Sushi Fresh

Anonymous said...

Hello, I enjoy reading all of your post. I like to write a little comment
to support you.

My web-site; saltwater coral

Anonymous said...

bookmarked!!, I like your web site!

Also visit my web-site - fish aquarium games online download

Anonymous said...

Hi there, i read your blog occasionally and i own a similar one and
i was just wondering if you get a lot of spam remarks? If so how do you protect against it, any plugin or anything you can suggest?
I get so much lately it's driving me insane so any support is very much appreciated.

Also visit my web page; http://sherwood.Iupdhc.org

Anonymous said...

What's Taking place i am new to this, I stumbled upon this I have found It positively helpful and it has aided me out loads. I hope to give a contribution & help different users like its aided me. Good job.

Look at my site ... youtube.com

Anonymous said...

Hi, its good paragraph concerning media print, we all understand media is a wonderful source
of facts.

Feel free to visit my blog; bridgestone golf balls for slow swing speeds

Anonymous said...

You're so awesome! I don't suppose I have read through a single
thing like this before. So good to discover another person with some unique thoughts on this subject matter.
Really.. thank you for starting this up. This web site is one thing that is needed on the web, someone
with a bit of originality!

Also visit my site - Www.deloops.com

Anonymous said...

Wow that was odd. I just wrote an incredibly long comment
but after I clicked submit my comment didn't appear. Grrrr... well I'm not
writing all that over again. Anyhow, just wanted to say great blog!


my web site - Subluxation Of The Patella

Anonymous said...

Hey! Someone in my Facebook group shared this website with
us so I came to give it a look. I'm definitely enjoying the information. I'm book-marking and will be tweeting this to my followers!
Excellent blog and terrific design.

Here is my web blog: aliancarussa.com
my webpage :: http://www.orsinis.com/

Anonymous said...

Hi there! I understand this is sort of off-topic however I had to ask.
Does building a well-established website like yours require a
large amount of work? I am brand new to operating a blog but I do write in my journal every day.
I'd like to start a blog so I will be able to share my personal experience and feelings online. Please let me know if you have any ideas or tips for brand new aspiring bloggers. Appreciate it!

my weblog :: furnace troubleshooting chart

Anonymous said...

Hey there. I'm wondering if you'd be interested
in doing a website link swap? I see your blog: http:
//www.blogger.com/comment.g?blogID=33693245&postID=8249725093368659549 and my blog are based mostly around the same subject.

I'd love to swap links or possibly guest author a post for you. Here is my personal contact: enid.love@gmail.com. Please contact me if you're even remotely
interested. Thank you so much.

Look into my page :: short term apartment houston

Anonymous said...

Good day! I know this is kinda off topic but I'd figured I'd ask.
Would you be interested in trading links or
maybe guest authoring a blog post or vice-versa?
My site discusses a lot of the same topics as yours and I think we
could greatly benefit from each other. If you might be interested feel free to shoot me an email.
I look forward to hearing from you! Awesome blog by the way!


Feel free to surf to my site ... furnace repair heating

Anonymous said...

It's a pity you don't have a donate button! I'd most certainly donate to this superb blog! I guess for now i'll settle for book-marking and adding your RSS feed to my Google
account. I look forward to brand new updates and will talk about this blog with my Facebook group.
Talk soon!

Stop by my homepage - time life home repair
My site: home improvements contractors

Anonymous said...

Hola! I was interested to know if setting up a site such your own: http://www.
blogger.com/comment.g?blogID=33693245&postID=8249725093368659549 is challenging to do for inexperienced people?
I've been wanting to set up my own website for a while now but have been turned off mainly because I've
always believed it demanded tons of work. What do you think?
Many thanks

Here is my website :: physical therapy exercises for lower back pain

Anonymous said...

Hey I know this is off topic but I was wondering if you knew of any widgets I could add to my blog that automatically tweet
my newest twitter updates. I've been looking for a plug-in like this for quite some time and was hoping maybe you would have some experience with something like this. Please let me know if you run into anything. I truly enjoy reading your blog and I look forward to your new updates.

my webpage thoracic back pain relief

Anonymous said...

I've been exploring for a little for any high quality articles or blog posts in this sort of space . Exploring in Yahoo I finally stumbled upon this web site. Reading this info So i'm
satisfied to exhibit that I've an incredibly good uncanny feeling I discovered exactly what I needed. I so much certainly will make certain to do not forget this site and give it a glance on a relentless basis.

Also visit my web page ... http://Florida-spine-and-rehab-center.Placestars.com

Anonymous said...

If you are going for best contents like I do,
just go to see this web site every day for the reason that it provides quality contents, thanks

Feel free to surf to my webpage ... sciatica yoga journal

Anonymous said...

I rarely comment, but i did some searching and wound up here "Purpose of business".
And I do have some questions for you if it's allright. Could it be simply me or does it appear like a few of these remarks appear like coming from brain dead people? :-P And, if you are posting on other online sites, I'd like
to follow everything fresh you have to post. Could you list of every one of all your communal pages like your
Facebook page, twitter feed, or linkedin profile?

Feel free to surf to my blog neck and upper back pain

Anonymous said...

This design is steller! You definitely know how
to keep a reader amused. Between your wit and your videos, I was almost moved to start my own blog (well, almost.

..HaHa!) Excellent job. I really enjoyed what you had to
say, and more than that, how you presented it. Too cool!


Also visit my website: very cheap yoga clothes

Anonymous said...

Hey there, I think your site might be having browser compatibility issues.
When I look at your website in Chrome, it looks fine but
when opening in Internet Explorer, it has some overlapping.
I just wanted to give you a quick heads up! Other then that, fantastic
blog!

My blog - power mosfet driver ic-tc4424

Anonymous said...

Hey there! I was curious to know if setting up a blog
website such your own: http://www.blogger.com/comment.g?blogID=33693245&postID=8249725093368659549 is difficult to do for unskilled people?
I have been wanting to develop my own website for a while now but
have been turned off because I've always believed it required tons of work. What do you think? Thank you

Also visit my web-site rs485 cable pinout information

Anonymous said...

Howdy would you mind letting me know which hosting company you're working with? I've loaded
your blog in 3 different browsers and I must say this blog loads a lot quicker
then most. Can you suggest a good hosting provider at a honest price?
Kudos, I appreciate it!

My web-site - www.bioscience.ws

Anonymous said...

Incredible! This blog looks exactly like my old one!
It's on a entirely different topic but it has pretty much the same page layout and design. Great choice of colors!

My blog post :: online semiconductor equivalents

Anonymous said...

Hello! Do you know if they make any plugins to help with
Search Engine Optimization? I'm trying to get my blog to rank for some targeted keywords but I'm not seeing very good gains.
If you know of any please share. Appreciate it!

My weblog http://www.dexhamilton.com/

Anonymous said...

Does your website have a contact page? I'm having a tough time locating it but, I'd
like to shoot you an email. I've got some suggestions for your blog you might be interested in hearing. Either way, great website and I look forward to seeing it develop over time.

My web blog - memory cards canon slr

Anonymous said...

Hi are using Wordpress for your blog platform? I'm new to the blog world but I'm trying to get started and set up
my own. Do you require any html coding expertise to make your own blog?
Any help would be greatly appreciated!

Also visit my site http://www.purevolume.com

Anonymous said...

I always emailed this blog post page to all my contacts, since
if like to read it then my friends will too.

My homepage; ez go golf carts manuals

Anonymous said...

Good day! This post could not be written any better!
Reading this post reminds me of my good old room mate!
He always kept talking about this. I will forward this article to him.
Fairly certain he will have a good read. Thank you for sharing!



Also visit my blog: Golf Carts Parts Direct

Anonymous said...

We stumbled over here from a different website and thought
I might as well check things out. I like what I see so now i am following you.
Look forward to checking out your web page for a second time.


my web blog - callaway golf balls tour ix

Anonymous said...

Does your blog have a contact page? I'm having a tough time locating it but, I'd like
to send you an email. I've got some suggestions for your blog you might be interested in hearing. Either way, great site and I look forward to seeing it develop over time.

Visit my blog :: hottravelworld.com

Anonymous said...

My brother recommended I would possibly like this blog. He was totally
right. This publish actually made my day. You cann't imagine simply how a lot time I had spent for this information! Thank you!

Here is my web-site; Kissimmee Restaurants

Anonymous said...

Amazing! Its in fact awesome post, I have got much clear idea on the topic
of from this post.

Feel free to visit my weblog: Mens Golf Gloves

Anonymous said...

The other day, while I was at work, my sister stole my iPad and tested to see
if it can survive a 25 foot drop, just so she can be a youtube sensation.
My iPad is now destroyed and she has 83 views.
I know this is entirely off topic but I had
to share it with someone!

Feel free to surf to my weblog; nerve pain after back surgery