For centuries, the fundamental question still lies unanswered, what is the main purpose of running a business? While some people believed that the purpose of running a business is to make as much money as one possibly can, others believe that the purpose is to engage in the lives of the individual communities where these businesses operated. This essay covers the following aspects; the role of business in a society, businesses with the only intention of maximizing profits, sustainability strategies and concludes it with theories to combine it all in the best possible way.
The primary objectives of the business are to develop, produce and supply goods and services to customers in a way that helps them to generate profits (Naringsliv, 2004). As humans, a business is what we create, where we work, where and what we shop, what we invest in, it is our existence with a purpose and power (Gilbert, 2017). Business is the foundation of well-being in the society, as firms and corporations create resources that allow social development and welfare. For any business, generating profits are essential for sustenance and growth. Profits are essential for a business the way oxygen is essential for the human body. Profits are the necessary stimulus for growth; by facilitating critical functions such as innovation, market research, advertisement, and newer market penetration. No business can maintain their market position a certain level, there is always a wide room for improvement. This is one of the reasons why even non-profit organization immensely strive for profits. From the previous statements, it won’t be fair to conclude that generating profits is the basic focus of the business, they are an integral part of running a business. This is rightly pointed by Mr. Drucker who quotes that the actual test of a business is to make enough profits for the survival of the business in a way that all the risks of the financial activities are managed and losses are avoided (Cohen, 2011).
Every business executive on the planet has four things on their agenda: raising revenues, cutting costs, maximizing the effectiveness of human and capital resources, and being ethical. Boards and CEOs have the vital responsibility to enhance shareholder value. Private equity firms tend to focus more towards building enterprise value, and their respective line managers work their hearts out to hit their numbers and earn bonuses. The collective end goal being profit maximization. This raises the following question of comprehending the difference between generating profits and profit maximization at all cost. Minimizing services may seem like a profitable strategy in the short run, but it leads a business to sink. The situation gets further complicated as this strategy often leads to long-term problems of poor quality and brand image of the company. For instance, with the rise of consumerism in the past 3 decades, American companies have moved from average profit margins to the highest profit margins in the history but at the cost of customers, employees and society (Blodget, 2012).
The rise of capitalism raises a question in the moral and ethical grey area; how far are businesses willing to go to generate profits at the expense of the society? Businesses dealing in manufacturing and selling harmful products such as cigarettes and alcohol do have the ability to generate huge profit margins, but they have a huge negative impact on the society. Even though the purpose of such businesses is not in the best interests of the society, the businesses are not solely to blame as these products are demanded by their consumer irrespective of their effects. The businesses in such cases are merely providers of a commodity to the society, harmful as they might be.
Another concern revolving around businesses is whether the profit maximization should serve the stakeholders or the shareholders? Recent trends provide us with an affirmation that a large number of companies tend to have a direct focus on maximizing profits just for the shareholders in mission statements of. When and how did “maximizing shareholder value” evolve into such a widely accepted norm of corporate behavior? The answer to this question mostly lies in two broad structural changes namely globalization and deregulation. Many major American corporations have been robbed of the tremendous profits they had earned during the “golden” decades after World War II by these two structural changes. Though initially, these profits were generous enough to satisfy nearly all the corporate stakeholders, the situation changed drastically in the 1970s where company’s profits were squeezed out due to increased competition. Thus, it became quite easier for the executives to disappoint their shareholders than their workers or communities (Pearlstein, 2013).
Increasing expectations of society and customers make it important for companies to integrate practices and produce products that help to protect the natural environment. Although adopting sustainable business practices is one way of doing it, there are many additional ways to define sustainability. Sustainability can be viewed as a holistic system, inclusive of natural and man-made, that needs to be regenerative and balanced to survive the test of time. In the business-world, sustainability is viewed as a form of the triple-bottom-line reporting system, whereby a business enterprise communicates to their stakeholders its Economic (profit) performance, Environmental (planet) performance and Social (people) performance (Coggin College of Business, 2018).
Developing sustainable business practices follows the goal of creating strategies that can preserve the long-term Socio, Economic and Environmental viability. The main necessity of sustainability is visualizing the world as an integrated system connecting businesses to society and the environment through both space and time. Corporate strategies which are socially responsible have a current impact on not only communities but also tend to leave lasting impressions for generations to come (Coggin College of Business, 2018). In 2017, Siemens, the German industrial conglomerate, stood at the top spot for the world’s most sustainable companies due to its standing as the most energy-efficient firm in its sector, producing more revenue per kilowatt used than any other industrial corporation. Siemens scored highly on nearly every metric including low carbon footprint and low employee turnover, in the Corporate Knights’ ranking. Siemens is also passionate about creating environmentally friendly infrastructure, with products like green heating and air conditioning systems dedicates an increasing portion of its business to the same (Kauflin, 2017).
In my opinion, yes, the business of business is to make profits but not profit maximization. Businesses should not limit it selves to just operating within the context of commerce. They need to deeply intertwine with the social environment as well, which would facilitate them in being an integral part of society and not apart from it. The parameters for evaluating the success of a business will expand in the future to include its effectiveness in adopting an approach that would combine the favorable returns for stakeholders along with a prominent emphasis on social and environmental performance through sustainable practices.