Profit is not the problem

In Steve Denning’s Forbes commentary this week, he mentions a presentation made by author and Harvard business professor Clayton Christensen decrying U.S. business schools’ focus on numbers-above-all, saying the pursuit of profit is killing innovation and the US economy.

The pursuit of profit is not the problem, nor is profit itself.

What the always interesting and provocative Christensen veers away from (to discuss related issues) is that the problem occurs when the pursuit of profit is taken to the extreme.

I’ll say it again so the naysayers hear me as clearly as possible: The problem is not profit, nor is the problem our quest for profit.

Profit is good. Profit is one of the fuels that drive communities, families and businesses to do more and better things.

The problem occurs when profit is the only value a company’s management uses to decide right from wrong, good from bad, do it from don’t do it.

When that occurs, we end up with exactly what Christensen talks about – and that’s why he called U.S. business schools to task for it.

No numbers?

I do not mean that you should make all your decisions from some touchy-feely “Let’s all sing kumbaya” kind of place.

Remember that I teach all sorts of measurement mechanism for all sorts of things, from internet, to customer retention, to improving direct mail response, to finding your one number and so on. Remember that I talk about finding little things to improve profitability all the time.

Yet you should also remember that in that same context, I do not suggest that these improvements should be found at all costs. Nor do I suggest that you eke out these little bumps in profit at all costs.

There’s no doubt that financial ratios, profit and other financial measures are critical parts of business decision making.

These numbers do not/should not stand alone. It’s likely there will be times where you must focus solely on dollars, often due to short term needs. Over the long term, your situation won’t always be that way and your decision-making won’t always be so focused on the short term.

Christensen’s point is driven home particularly well by the quarterly reports make or break the stock prices of stock exchange listed companies. The nature of quarterly reports encourages short-term decision making. In some cases, shareholder lawsuits reinforce that these short term decisions should be driving the business.

But that is short-sighted.

However…

You simply cannot exclude character, ethics, economic sustainability, community sustainability or consideration of what is best for the customer and your staff from the decision making process and expect things to end well.

When the only thing on your mind is the numbers, the decisions of national retail chains who start their After-Thanksgiving sales at midnight the Friday after Thanksgiving seem downright obvious.

It’s just math, so the discussion leading to a decision sounds like this: “The earlier we can open, the better the chance we can get the sale and the more it’s about us”. Sounds a bit like “How early and then supposedly influential can our Presidential primary become?”, doesn’t it?

Re-read that: “You simply cannot exclude character, ethics, economic sustainability, community sustainability or consideration of what is best for the customer or your staff from the decision making process and expect things to end well.”

I saw a sign in a local store this week (this is not a chain or franchise) saying they would be open at 4:00 am on the Friday after Thanksgiving. Perhaps they are hoping that they’ll catch some traffic heading to (or worse, back from) the box retailers who have midnight to 4:00am openings.

Really? 4 am in a small mountain town?

The Race

Don’t get me wrong. Black Friday shopping hours are just a symptom.

This is about the core fundamental business values being instilled in students today and the importance of having someone in your organization with the gumption to say “That looks great for the numbers, but is this all we’re about?”

Whether it’s said or not said, others will watch this process, learn something from it and model the behavior when they make a decision.

Sometime in the wee hours of Black Friday, I hope some introspection happens.

How to cut costs and eliminate waste in your business

Floating rag picker
Creative Commons License photo credit: Koshyk

Today’s guest post comes from the US Chamber of Commerce, where John Tschohl of the Service Quality Institute offers a smart way to find and eliminate waste from any small business: Ask your staff.

Simple, but effective. Check it out here.

Why your staff wants more profitable work to do

Consider the profitability of the work being done by each member of your staff. Are they making your business more profitable? Or are they doing non-critical work that a computer or service could do?

Why not automate those often lame-but-necessary tasks?

Why? Because you arenâ??t getting it all done otherwise.

Want proof? Call a vendor who performs a service or sells an item that requires installation. More often than not, youâ??ll not find someone who can deliver today, or even this week.

Despite the state of the economy. Or perhaps, because of it.

Odd example: I was told late last week that Amtrak passenger trains are packed to the gills because they don’t have any more passenger cars to put in service. Now donâ??t get me wrong, thatâ??s good thing because it means theyâ??re busy. Busy is good. Means they are doing some things right (and of course that fuel prices are high).

But backlogged and having to force businesses and consumers to go to your competition isnâ??t good, and itâ??s a fine line between busy and too busy.

What’s bad for Amtrak in this case is also bad for you. And that’s where the profitability of the work your staff does will come into play.

On one side of the fine line: things that require your expertise.

On the other: stuff that a high school kid could do in their sleep (and they need more sleep anyhow, right?).

Those are the kinds of things to target for automation.

It isnâ??t about getting rid of people. Itâ??s about giving the people you have the kind of work that generates profit, rather than simply keeping them busy in low-value jobs that take them nowhere.

Why do they want that?

Because the kind of work that generates profit is the kind that makes a job – and thus an employee – more valuable.

Irony is spelled E-X-X-O-N

With Google and Yahoo sleeping together, it’s a rather busy day in the business newsroom.

Despite that, this one just sticks out like your grandmother’s bunion toe.

Exxon is leaving the retail gas business due to “challenging conditions” in the service station business.

Hard to be a service station without SERVICE, isn’t it?