The goal of a for-profit company should be to make a profit now and in the future. That said, there are three other necessary conditions that lead to long-term profit and drive sustainable value. Profit gains can be achieved at the expense of these other three conditions, but rest assured they will be short-lived.
This is the second blog in a series I’m writing called Uncommon Sense: Practical Advice to Creating Value, targeted to those with a stake in creating value in companies. Most of the concepts apply to all industries and types of companies. I hope you enjoy reading it and find some insight in doing so. Please reply, share on social media, or email me at email@example.com to keep the conversation going.
In the first blog of this series, I suggested that making money now and in the future should be the goal of a for-profit company. Again, this was taken from the book titled The Goal, by Eli Goldratt. I went on to write that there were other “necessary conditions” that should be considered. In addition to the goal, I contend there are three necessary conditions that companies need to address. In this blog, I will explain what they are and how they are interrelated.
Employees: the first necessary condition is fostering an environment in which employees have the opportunity to lead satisfied lives. To put it negatively, if a company’s employees do not have the opportunity to find satisfaction in the work they do, then the employees may deliver poor service to customers. If employees deliver poor service to customers, then a company may receive negative feedback from its customers, miss the opportunity to convert customers to advocates, or lose customers altogether. Any of these results would reduce the potential profitability of a company now or in the future.
To put a positive spin on it, when companies foster environments in which employees can lead satisfied lives, they can unleash the potential of their employees and create a competitive advantage. I can attest to this based upon what I’ve experienced in the consulting firm for which I work. While we have several values, the first listed is “People First.” From my earliest days at our firm, I recall Dean Fischer – our chairman, former CEO, and one of the founders – saying something to the effect of “if we focus on taking care of our people, then they will take care of our clients.” Over the years, I’ve read similar quotes from successful business people such as Richard Branson. Another example is the company Barry-Wehmiller. Bob Chapman, the chairman and CEO of Barry-Wehmiller, articulates it rather profoundly in his TED Talk titled “Truly Human Leadership.”
Customers: the second necessary condition is satisfying customers now and in the future. If a company’s customers are not satisfied, then a company will not make a profit now or in the future. Without sustainable profits, a company cannot pay its employees nor will it be able to foster an environment in which employees can lead satisfied lives.
Note that a company needs to satisfy customers both now as well as in the future, which makes this necessary condition difficult to achieve. The decisions, investments, and actions of a company to satisfy customers here and now may differ drastically from the decisions, investments, and actions to potentially satisfy customers in the future. Companies are constrained by their financial capital and human capital. At the risk of oversimplifying, if a company is focused exclusively on the here and now, it may forego investment in developing products and services to compete effectively in the future, potentially sacrificing its sustainability. And if a company focuses too much on developing products and services in the future, then it may lose sight of serving customers today, sacrificing customer relationships in the short-term.
Communities: the third necessary condition is serving the communities in which a company operates. In my opinion, communities are an extension of the other two stakeholder groups, i.e., employees and customers. In a global sense, we are all members of one community. At the very least, companies should try to limit the negative effects they have on the communities in which they operate. Better yet, they should act as stewards of their communities and and aim to leave them better then they found them. Why? Because it’s the right thing to do. Doing well and doing good are not mutually exclusive. If doing good seems a little too warm and fuzzy, then recognize that there are economical consequences of doing well at the risk of doing good. Your employees and customers expect you to do both, and in most cases they have options.
This blog series seeks to provide practical guidance on creating value and contributing to the goal of profits today and in the future. However, recognize that the other three necessary conditions are just that. In fact, companies with staying power can and do focus on achieving the goal and satisfying the other three necessary conditions. Certainly, gains can be gotten at the expense of these other three conditions, but rest assured they will be short-lived.
Previous blogs in the series linked below: