16: Must Companies Maximise Profits?
“Organisations have distinctive cultures and collective intelligences, and it is through these differentiating characteristics that they contribute to our economy and society.
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Most great companies are formed to meet the goals and express the values of their founders, which is not always the same as maximizing shareholder wealth. For them, profit is simply a strategic necessity rather than the supreme end point.
This may be a jolting concept, we realize. But we’re certainly not the only management writers who have come to the same conclusion. Peter F. Drucker, in his classic text, Management: Task, Responsibilities, Practices, reached the same conclusion years ago:
Business cannot be defined or explained in terms of profit... The concept of profit maximization is, in fact, meaningless... The first test of any business is not the maximization of profit, but the achievement of sufficient profit to cover the risks of economic activity.
The unprecedented prosperity of the modern world is the result of the growth of our collective intelligence.
For Penrose, the firm was defined not by the assets it owned or the contracts it made but by its capabilities and its ability to deploy those capabilities in productive services: ‘All the evidence we have indicates that the growth of firms is connected with the attempts of a particular group of people to do something.’ Perhaps that seems obvious. But her emphasis
on ‘the group’ recognises the centrally cooperative nature of business activity, and her identification of purpose – ‘to do something’ – establishes its problem-related focus.
Today the hallmark of successful business is access to collective intelligence that is not common property.
When executives deliver that routine cliché of modern management – ‘Our people are our greatest asset’ – the commercial value of the collective intelligence developed within the corporation is probably what they have in mind. The asset is the capability of individuals and teams within the business to solve problems, to devise and deliver new products and to win
the commitment of suppliers and the trust of customers. Collective intelligence is the basis of the competitive advantage of most successful corporations, and it is enshrined in its people.