Strategy, Profit, and Vague Ramblings: Part Two
In my last post, I was ranting on about my thoughts on profits. I was disagreeing with the title of an article I found on another blog...Profit is the Goal.
My primary point is that profit is an indicator (and not necessarily a very good one), not a goal. Saying that profits are the goal is like saying taking in enough calories to survive to the next day is a goal. You gotta do it but nobody says that's their life's most important goal.
Another problem with saying Profits are THE GOAL is....it doesn't really mean anything. It doesn't drive action. Rather it doesn't necessarily drive the right sort of action. That hospital I used to work at that I mentioned in my last post? Gone. And I mean gone...the buildings got bulldozed and the property made into a city park. I used to work for LTV Steel here in Cleveland...it's gone. The land where my office was is now a parking lot for a shopping center. I used to work for Island Creek Coal Company. I can't find what happened to it but it's not around any more (I think it was sold to another mining company). All those companies had senior execs who proudly said, "Making a profit is our goal." But they didn't do it. How come?
GM and Chrysler? Their goal was to make a profit. All those banks we're bailing out? Their goals were to make profits. Eastern Airlines, TWA, AMC, Rambler, Studebaker, RCA, Circuit City? Same goal. So how come they all failed?
Because they did a lot of dumb stuff, even as they convinced themselves that they were doing it in pursuit of profits.
On the other hand, I'm working with a company right now that does lots of things well. It had it's best profit year ever in 2008. It would have made money anyway but do you know why it had its best year? Because steel prices were high, they use steel, their process results in a certain amount of intrinsic scrap and they were able to sell the scrap steel for more than they bought the original raw material steel for. In other words, they got lucky.
So setting the making of profits as a primary goal doesn't begin to assure that the organization will, in fact, do anything worth a damn. And those that are doing things that are worth a damn may exceed (or fall short of) the profit goal for reasons outside their control.
My primary point is that profit is an indicator (and not necessarily a very good one), not a goal. Saying that profits are the goal is like saying taking in enough calories to survive to the next day is a goal. You gotta do it but nobody says that's their life's most important goal.
Another problem with saying Profits are THE GOAL is....it doesn't really mean anything. It doesn't drive action. Rather it doesn't necessarily drive the right sort of action. That hospital I used to work at that I mentioned in my last post? Gone. And I mean gone...the buildings got bulldozed and the property made into a city park. I used to work for LTV Steel here in Cleveland...it's gone. The land where my office was is now a parking lot for a shopping center. I used to work for Island Creek Coal Company. I can't find what happened to it but it's not around any more (I think it was sold to another mining company). All those companies had senior execs who proudly said, "Making a profit is our goal." But they didn't do it. How come?
GM and Chrysler? Their goal was to make a profit. All those banks we're bailing out? Their goals were to make profits. Eastern Airlines, TWA, AMC, Rambler, Studebaker, RCA, Circuit City? Same goal. So how come they all failed?
Because they did a lot of dumb stuff, even as they convinced themselves that they were doing it in pursuit of profits.
On the other hand, I'm working with a company right now that does lots of things well. It had it's best profit year ever in 2008. It would have made money anyway but do you know why it had its best year? Because steel prices were high, they use steel, their process results in a certain amount of intrinsic scrap and they were able to sell the scrap steel for more than they bought the original raw material steel for. In other words, they got lucky.
So setting the making of profits as a primary goal doesn't begin to assure that the organization will, in fact, do anything worth a damn. And those that are doing things that are worth a damn may exceed (or fall short of) the profit goal for reasons outside their control.
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