Evolving Workplaces: Profits Pains and GainsOct 07, 2022
A recent Harvard Business Review (HBR) article posted on June 17, 2022, stated, “over the past decade, 'purpose' has become a management watchword. Since 2010, it has appeared in the titles of more than 400 new businesses and leadership books and thousands of articles…. Yet many organizations struggle to define much less live their purpose."
Businesses must exist to serve the needs of people, of human beings and all humankind.
If they are not, then what is the reason for their existence? Why create something that does not benefit those that are working in it or getting something from it?
My husband shared a story with me of a court case. An individual was driving in the car-pool lane in California with only his corporation papers with him in the car. He claimed the corporation was a legal entity and thereby he met the rules of having another “person” in the car. Ultimately, the case was never really decided, and the gentleman still drives around with his legal entity “person” in his car.
I share this story to highlight how we look at a business, and its reason for existing can impact its power, purpose, and impact. Is the business its own legal entity, being, or person which must act based upon its own needs separate from the people who create it or get served by it? Or should the needs of those who are working within it or impacted by it supersede the needs of the entity itself? The challenge we're facing today is that people are serving businesses rather than businesses serving people.
Why do businesses exist?
Before we can talk about what they focus on, we must first consider why they exist in the first place. Answering this question is a bit of a philosophical discussion that could be related back to “why do we exist as humans in the first place?” Without going quite that deep, let’s consider what most businesses do when they first start out or get created:
- Many businesses start their discussions around purpose, growth, or targets looking at financial numbers and goals.
- How big do they want to be? How much revenue do they want to make?
- What exactly is the reason they are being created in the first place?
They may choose to focus on profit, they may have a mission or purpose, they may want to provide services or sell a product. But they exist for a reason and must choose what to focus on in order to achieve that reason.
Why do businesses need to have a focus or create focus?
The reason for creating focus is to ensure directional alignment towards a goal or purpose and determine whether the efforts are being successful towards achieving that goal. Simply, to direct and motivate people towards accomplishing what is needed and ensuring success in that outcome. With focus, people know what they need to work on and why they need to work on it. They know when they are being successful and when they are not, and they can identify when what they are doing is not aligned with the direction of the business.
Why do so many businesses focus on profit?
If we go back in history, individuals exchanged their items of product for other items - one product in exchange for another product or service. Over time, money was created as a means to transfer value without having to have specific exchanges of product or services. As businesses became increasingly complex, so did the models for where to focus to generate results.
Historically, since about the 1970s and 1980s, the focus has been on “shareholder value” which implies that the ultimate measure of a company’s success is the extent to which it enriches shareholders. As first promoted by the Friedman doctrine and later by Jack Welsch, the sole purpose of the corporation is to maximize value to the stockholders or shareholders.
Without going through the complex history of “share-holder value” suffice it to say the corporate world, by and large, has adopted the model that the corporation owes a legal duty to the shareholders to first and foremost maximize their value. Much of this is rooted in a complex legal analysis of laws that vary by state regarding the fiduciary duties or responsibilities of the Directors to make decisions on the bases of the best interests of shareholders. However, the basis of this rationale is fraught with different opinions. The Supreme Court in a Hobby Lobby case stated, “modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not.”
Where does that leave the discussion on profit being the primary purpose of business? Most businesses whether they state a purpose or not, still focus primarily on profit as the measure of success. Many businesses believe this is the best model and have followed it for decades. However, there are those who disagree with this approach such as Marc Benioff, CEO of Salesforce, who has said maximizing profits for shareholders has brought them terrible economic, racial, and health inequalities.
In conclusion, businesses focus primarily on profit because "that’s the way it works" - seems to be the most common answer.
What are the problems with focusing on profit for the corporation?
Problem: Profit is about what you get not what you do! Ignores key performance elements.
Profit or money isn’t about what you are doing but what you are getting. For employees, that means focusing on what I am going to get rather than what I need to be doing to make an impact. Can you see how this mode of thinking might ultimately have a negative impact? By focusing on profit, we're ignoring the effort and work required to get it. People then become focused on the money (that they don’t yet have) instead of creating the impact (doing the work they need to do to achieve it), which means things like the products/services themselves and the customer service can be negatively impacted.
Leaders can spend hours look at projections and numbers that are not actually generating results rather than on the activities needed to generate the projections and results. And when it goes wrong, this can lead to the blame game; to point fingers to avoid responsibility for not hitting targets that were focused on instead of the activities needed to achieve them.
Problem: Profit does not motivate people to act! Actually, it has a negative impact.
Motivation is a force that makes people act, set goals, and achieve them. In order to take action, people need to know what do to do (head), why to do it (gut), and want to do it (heart). Motivation to take action comes from within our gut brain as humans. It is part of our oldest brain which means it was impacted by the values and experiences we had growing up. Can you see how the way you were raised may have impacted what motivates you?
What moves people to action?
Well, it depends on both their internal and external motivations. Our gut is the why is this important to me, why should I take action? Examples:
- Internal: Competencies & Learning – desire to grow; Attitude – desire to change the way you or other people think and feel; Achievement – wanting to accomplish more; Creation – desire to create; Safety or Physiological – I need to have my needs met
- External: Incentive – to make money, to have health insurance; Fear – I could lose my job; Power – control over my life, others, environment etc.; Affiliation/Social – belonging & acceptance
How do these motivations play out in the workplace?
If you want to get the most out of people, you have to tap into their motivations. We know from various studies internal motivations have a much bigger impact that external ones, but businesses have more control over the external factors.
How does the focus of a business affect people and profits?
According to a study done by HBR, motivation can actually increase gross profits by 47%. On the other hand, a “bottom-line mentality” is shown to negatively impact performance results. Employees in businesses that the CEO focuses on profit – feel more negatively toward the business.
Additionally, a brand-new survey according to HBR cited that purpose is more than twice as important as traditional motivators like compensation and career advancement. Of those organizations, 90% of them deliver growth and profits at or above the industry average.
Problem: Profit doesn’t equate to business growth and expanded success.
Companies can make more money but that doesn’t necessarily help the business grow. To make more money businesses must invest in more resources and tools to help them sustain their growth. When they are focused on short-term return, they may forgo long-term investment. A focus on profit can cause leaders not to invest when they need to get a return. For example, a business might make the decision to not invest in trainings due to financial reasons or not sending an employee to a training because “it’s time wasted”.
Problem: Money and profit means different things to different people.
One problem is money is really only a symbol not a tangible value it and of itself. Money is as valuable as it can be used to purchase something or some service. In many cases the value of money in exchange for things or services varies greatly by person or place. Which means money on its own is almost an entirely subjective value determined by those exchanging it at a single point in time. Likewise, profit is short-sighted. It’s limited to the current state in time rather than long-term benefits (like growth or impact on world) or consequences (harm caused or future conflicts).
The Pull of Profit
As I’ve been building my business, I’ve experienced the recurring pull of profit. I’d equate the feeling to a headache; it isn’t there all the time, but when it is, you feel a deep desire to take action on it and alleviate the pain – even if you know it will be remedied soon on its own. We pivot back to profit when the fear of not making enough money kicks in – when we begin to question our time prioritization and the results we are accomplishing. But if we peel back the layers a bit, the truth is what I said just a bit ago…
Businesses must exist to serve the needs of people, of human beings and all humankind. Not the other way around. We don’t want to exist as humans just to serve the needs of these corporations – these legal entities created on paper and computers, do we? Can you begin to see the world looking as if it was The Matrix!
Why create something that does not benefit those that are working in it or getting something from it? We shouldn’t.
We must create businesses that benefit people. Does money or profits benefit people? Yes, sure to some extent. But are there far more benefits and impacts of businesses than just generating income. Most of us know the most important resources in life are things money cannot buy (time, health, life, safety, happiness, connection). We must consider first and foremost the impact of our businesses on those they are meant to benefit.
You can try to motivate employees with slogans and bonuses. But companies can’t achieve true excellence if their employees don’t know why they are coming to work every day.
Check out the Evolving to Exceptional Podcast Episode that talks about this topic more in depth here.
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