For an economist who taught that profit could be sustained only as a result of competitive advantage, this diversification raised a simple question. And some businessmen on the board, accustomed to a world in which profit is earned only by meeting customer needs, encountered the same difficulty.
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These are all executives who have been trained for years to grow their own businesses and are compensated based on their profitability. Suddenly I was saying to them, essentially, âI want you to pay less attention to the business at which youâve been very successful, and start paying more attention to this other thing. And by the way, you have to work on this new thing along with these other very competitive people from other teams, whose interests donât necessarily line up with yours. And one more thing, it wonât make money for a while.
The implications of this kind of leap to a companyâs economic model can be devastating. In IBMâs case it meant the collapse of gross profit margins and the attendant changes we had to engineer to lower our cost structure without compromising our effectiveness.
Yet the hardest part of these decisions was neither the technological nor economic transformations required. It was changing the cultureâthe mindset and instincts of hundreds of thousands of people who had grown up in an undeniably successful company, but one that had for decades been immune to normal competitive and economic forces.
As former Federal Reserve chairman Alan Greenspan observed in the remark that began this chapter, modern economic growth in developed economies is largely about better and more complex rather than bigger and more.
16: Must Companies Maximise Profits?
âOrganisations have distinctive cultures and collective intelligences, and it is through these differentiating characteristics that they contribute to our economy and society.
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: âAll the evidence we have indicates that the growth of firms is connected with the attempts of a particular group of people to do something.â Perhaps that seems obvious. But her emphasis
on âthe groupâ recognises the centrally cooperative nature of business activity, and her identification of purpose â âto do somethingâ â establishes its problem-related focus.