STRATEGY > PHILOSOPHY OF BUSINESS

 
 

PHILOSOPHY OF BUSINESS

Businesses do not exist for the managers. Business exists to supply goods and services to customers, rather than to supply job to managers, or even dividends to stockholders. If you have no customers, you have no business.

The purpose of management is to maximize long-term shareholder value. They do that by remembering that the purpose of business is to serve customers. So does that mean profit doesnít matter? No. Profit does matter. Business management must always, in every decision and action, put economic performance first. Profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity.

We are not talking about accounting profit. There are plenty of ways to make it look like you are profitable even when you are not. But we are talking about economic profit. He is talking about the benefit to the economy of having a business provide a product or service. If you do not turn an economic profit over the long-term, you are draining the economy rather than supporting it.

We serve customers to keep them coming back and to get an opportunity to serve them other things (to keep and grow a customer). If we do that well and are good stewards of the resources we will make a profit. But profit is not a purpose it is a result of living up to our purpose.

Profits might be your reason for wanting to start a business, if you are the owner, but they arenít the reason for your business as a whole. For example, you could just trade stocks and make a profit, why start a business? If you focus only on profits, you will do things to boost profits that may be unhealthy for other areas of business or unhealthy for the long-term.

If you will start a business, all your effort should be in the direction of minimizing cost and maximizing long-term economic profits.

 
 

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