Wednesday, July 14, 2010

Profit At All Costs?

In many company's, there are employees who you know are not pulling their weight. It may be an unproductive assembly line worker, a salesperson who's not making quota, or simply an employee who can't handle the tasks they were given. My posting today uses these types of employees as a basis for asking the question...What is the goal of business?

Throughout my whole career, starting right from college, I was taught that a business does not exist for the benefit of the employee. The business exists to make a profit and provide a return to the shareholders. Many of my classes revolved around teaching operational efficiency in order to maximize profits. Much of these teaching touched on process improvement, line-balancing, and some lean concepts. What was underlying, but never really discussed was that in order to do many of these tasks, it involved automating or losing employees.

Let's go back to the 3 employees listed above. In most cases each of these employees has some good assets on their side. They may show up to work everyday, they may have been with the company for a long time, or they may truly be trying hard, but not succeeding. Based on my teachings and my beliefs up until this point, none of this should matter. The fact that they are not succeeding and can be replaced by a more 'competent' employee makes it an easy decision. But the reality of the matter is this decision is not always made. Why not?

I think the answer lies in the fact that today's business owner's simply can't win no matter what decisions they make. No longer does the owner make a decision and the rest will follow. Today it's all about teamwork, getting buy-in, and employees having a say. If owner X fires somebody with a family, he/she is heartless and greedy. Owner Y makes a decision to change a process and the complains start to flow about 'why don't we just do it the way it was before?' This has forced the owner to ultimately change...for the better.

These decisions still need to be made from time-to-time, but I think it has provided a conscience to the process. Yes, we can get rid of the under-performing salesperson, but if we are making a profit, what's the value in losing the friendship and loyalty for a few more bucks?

I've started to go through a change in my perceptions and it's probably based on the fact that I've put some years into my career. When I started out I needed all the money I could find, so it shaped my perception of business. When I was in college, it was still pushed that the business exists to make a profit. I would often be angered by decisions at work because they just didn't make sense from a profit/loss standpoint. Now that I'm a little more established, I'm starting to truly appreciate the gentleman that I work for and question what I truly believe the 'Goal' is. I still want more money, I still want nice things, but how much is enough?

I look forward to hearing your thoughts....


  1. The point about terminating an employee or position in order to maximize shareholder return is accurate. As far as automation is concerned what has really occurred is that the employee has priced themselves out of the market (or more correctly that the market price has declined and the employee does not recognize it); investment in capital that automates their productivity becomes cheaper than their salary expense. That is the inevitable march of technological progress and a conscientious employee is compelled to maintain their value relative to this fact. Management may have some responsibilities in creating a climate that engenders this behavior but it can not be imposed on recalcitrant employees, ie Luddites.

  2. In some industries, you are correct, but re-read the post assuming it is a services company like the ones you come from. Automation plays less of a role and it comes down to people vs profit. At what point does friendship/loyalty outweigh profits.

    The post is a bit skewed in that the premise is the company is profitable. I think the rules change if the company is losing money or in survival mode.

  3. It's been said (not by me) that the difference between a services company and a product company is that the services company does not realize that it has a product. We may be making a distinction without a difference. Automation exists in service businesses and I can think of quite a few examples. The profit dilemma is a bit more difficult to resolve. Near term profits may at times be best served by ignoring friendship/loyalty but I am of the belief that long term profits are actually helped by social capital such as friendship/loyalty. The problem is that the short term must be profitable in order for there to even be a long term.