Why does your business exist?

There’s a lot of talk these days about businesses’ purpose and the pendulum has swung from ‘the business of business is business’ to a wider view of the reasons businesses exist. I’m not sure that either view is correct.

Milton Friedman’s edict that held sway for a couple of decades that businesses should concentrate on creating shareholder value and let governments worry about everything else now seems to have been replaced with a view that they should improve the lives of all their stakeholders, including customers, employees, suppliers and the community at large. Is this expecting too much?

Adam Smith, the father of modern economics, was of the view that businesses were the mechanism by which society’s needs were met. Businesses didn’t exist to make money as such, necessary though that was and still is. The market mechanism indicates what people want and how much they’re prepared to pay and companies that satisfy those needs well enough make a profit to reward their shareholders for risking their capital.

Isn’t it hard enough for companies to work out what their customers want and how much they’re prepared to pay and then satisfying those needs without also trying to work out what other stakeholders want and satisfying their needs too, except in general terms? I doubt that Adam Smith ever thought that acting unethically, damaging the environment or degrading neighbourhoods was acceptable any more than we do now.

In my view, businesses’ generic purpose is to satisfy specific needs of their customers while acting ethically, including not damaging the environment or anything else. In other words, do no harm while satisfying customers, profitably.

The trick is to define the business’s purpose more specifically beyond the generic and the simpler that is expressed in plain English the better so all concerned know what they are trying to achieve. Once that is clear at the top level, it should be cascaded down to all business units so people in them are clear about what they are trying to achieve too.

So, are you clear about why your company exists?

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